Greece; to Default or Not to Default?

The World

Greece; Not Defaulting on Gas

Greek parliament passed by a small margin the second batch of austerity measures amidst protests which turned violent due to the human-rights-violation response of the police.  It is important that the public, parliamentarians and the EU/ IMF do not loose focus from the endgame; Greece turning a leaf.  However, for the near future a default is still possible.  It can be avoided if Greece goes through the implementation of the process without hick-ups; not an easy task.

For a start there has been quite some argumentation in favour of defaulting.  Ironically, both the Financial Times and the Greek Communist Party (CP) appear to be on the same page on this subject.  They point to the harsh taxation hitting the lower strata which naturally raises concerns over social justice and the prospect of financial stability.  This side of the debate correctly argues that emphasis should also be placed on development, restructuring the economy and so on.  Though part of the handling of the crisis has resulted into counter-productive policies there is little doubt that the country has no money in its coffers.  This is where the austerity measures come in; the country is selling off part of its assets in order to i) pay off its debt; ii) provide a better environment for further development. 

It is true that it would have been better if the privatization of Greek assets took place under calmer conditions, where bids could possibly reach a higher price (this is questionable bearing in mind the state of most public companies), and with a smoother transition of public sector employees to the private sector.  Nevertheless, it is also true that the country would not be able to pay for its hospitals, schools, etc without the bail-out. 

Though proponents of defaulting and restructuring the economy have a point; i) this is an option that does not provide money quickly enough; ii) defaults have negative effects on long term growth; iii) these measures actually are a restructuring of the economy. Like all its versions, in the short term they are never pleasant for specific interests and the public.  Moreover, this argument ignores the repercussions a Greek default may have on Europe (and the rest of the world).  The EU will fight tooth and nail to avoid such an outcome.  Therefore the vote for the austerity measures (at least for now) is more of a one-way choice bearing in mind the circumstances.  Nonetheless, Greeks should not thank their representatives, they did not have a choice; Mr. Mandravelis is wrong

What now? The process that is about to follow, trusting that the Greek government does in fact implement this time the actions it has promised/ voted for/ needs to do, is going to be extensive.  Many countries that underwent similar radical transformations of their economies saw a rise in corruption or the shift of public property to the hands of “insiders” (Central-Eastern Europe has a few of these examples).  This is to be partly controlled through the set up of a committee which includes/ is managed by international members.  But Greece has a rather corrupt background; there is always space for error and shady business. 

The public on its own but also through its representatives (politicians and interest groups) needs to make sure that the process is transparent; gaining as much as it can from the assets being sold-off.  The “early retirement” of public sector workers at ages below those of the private sector will not only be unfair socially but will further damage the economy.  Likely private monopolies that might emerge need to be immediately broken up either by the Greek government or the EU Commission.  Rises in taxation need to be fought off, beyond a point taxing will not help; quite the opposite. 

The country has a chance to move in further policy changes; i)implementation of environmental law; ii) shifts in urban planning (e.g. energy-saving materials); iii) support for spin-offs coming from university pilots; iv) cleaning up the police force, are some common demands/ ideas.  Citizens are demanding more democracy and this is good.  But democracy is not a one-off but a continuous process.  Providing policy recommendations (locally, regionally, nationally) and following up on it is a good way to start.  More protests will follow, some will be justified some not. Greece has decided take a second chance regardless of how painful it is going to be, an immediate default would have been considerably much worst. The country should maintain its focus and make the best of it.

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