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Maria S. Topalova

The recession Greece is currently undergoing will soon return the country to the same level of GDP per capita as before its entry into the eurozone and therefore, its stay there can only be assessed as a complete failure. More and more economists, bankers and politicians seem to support this view, which seemed taboo just a year ago. This was shown by the conference Debating on Europe and its Currency, organized by The Economist magazine.
    Europe Editor of The Economist magazine John Peet summarized that there are errors still in the creation of the euro. It is not possible to design a building with no emergency exit. He admitted that, on the other hand, this would lead to a quick exit of ​​Greece from the eurozone. He explained that the lack of a lender of last resort for governments is also a big mistake and it has become very clear in recent weeks. Markets worry that Britain, for example, has a lender of last resort, but the eurozone countries do not have one and therefore, there is a capital flow from rich to poor countries. He said this looks like a debt crisis, but it is not. Actually, this is a crisis of competitiveness, which generates high debts. And overcoming it will take more time.
    "A lot has been done to keep the Greek government on the crest of the wave. Perhaps the PSI was a mistake, but Germany has had domestic reasons to insist on it. We want to keep Greece within and that is the reason to pay it for so long. But from now on, everything is in the hands of Greece. I am afraid that next year, it will not be able to achieve a small deficit due to the very high recession. Greece’s stay in the eurozone will be very painful for Greek citizens," the Economist magazine journalist admitted.
    Similar was the opinion of Thomas Mayer, Chief Economist at Deutsche Bank. "The monetary union theory was correct and it worked for 10 years. The credit bubble that is now collapsing was formed then. The monetary union is currently unbalanced, but why does not it break? It is because easy credits from markets were replaced by easy credits from the European Central Bank - low interest rates, unlimited period for their return. This is how the deficit of troubled countries is funded. This is the system of the euro at the moment. There are countries with budget surpluses, which fund countries with budget deficits. But this is not a sustainable system," said the prominent German banker.
    He is clear that in practice, there are only two options left in the eurozone - to make all states more flexible, so that their economies converge, which is very, very difficult and some may not cope, and the other option is for the eurozone to remain with fewer members. "Greece is an isolated case; there will be no PSI- involving private creditors in debt haircut - for other countries. If Greece leaves the eurozone, this will be an incentive for the others to make more efforts to stay within it. But the real problem is Italy. If it is in the situation of Greece at the end of 2013, then the eurozone will be facing a real danger of collapse," said Thomas Mayer.
    PSI or Private Sector Involvement seems to be the key word these days. "In terms of PSI, we should know that the devil is in the details. It is very important how it will be implemented. Many holders of Greek bonds have insurance and they would prefer the announcement of a credit event in order to get their money from insurance. Will the haircut be made under the British law? These are issues, which could ruin the PSI. There is a real danger of a new wave of emigration of the most prepared and even uprisings. What is the alternative - it is default. This will make the Greek debt serviceable," suggested Stergios Skaperdas, a Professor of Economics at University of California, Irvine.
    He recalled that the debt to GDP ratio after the PSI will be over 140 per cent, in 2020 – it will be 120 per cent, and this is an optimistic scenario according to the Troika’s estimates. This situation is very similar to the one the world experienced in the 1920s and 1930s, when the states applied continuous austerity measures, coupled with high unemployment rate and deepening recession. This is exactly the situation in Greece now. "Exiting the eurozone is going to happen anyway, so it is better for Greece to take things into its own hands. As Dr. Meyer has admitted, this is a very difficult situation and in my opinion, it will not last long. So, you should prepare to declare bankruptcy and to exit the eurozone. The Ministry of Finance and the Bank of Greece should be prepared because it is better to be ready when that happens," recommended the University of California Professor.
    The Director of the French Economic Observatory Henri Sterdyniak presented a completely opposite point of view and literally said that if the eurozone falls apart, the blame for this would be put on the selfishness of Germany, which is not willing to give its money to help disobedient countries. In the same vein is the opinion of the Professor of the University of Athens Panagiotis Ioakimidis who said with pathos, "The exit from the eurozone will mean exit from the European Union because it will be necessary to introduce restrictions on the free market of goods, capital and I fear, people too. Therefore, Greece will be incompatible with the basic principles of the European Union. I.e. we are currently talking about exiting the European Union and Greece will return to very old times. This would deprive us of € 3.5 billion per year, which the country continues to receive. Income would drop by about 50 per cent; the banking system would collapse. Political defeat will be irreversible for Greece and the greatest achievement of recent history will be destroyed."
       According to Louka Katseli, former Minister of Employment in the government of George Papandreou, the problem of Greece does not lie in its competitiveness, which has not changed since 1980. "The reason for today's economic crisis is easy and cheap credits, granted in the period 2002-2009. Markets have seen it and decided to strike a blow. And this is the real cause of the crisis," she believes. According to her, achieving budget surpluses has no alternative and Eurobonds are the only correct answer to the markets.
      "I cannot even imagine Greece outside the eurozone. This will be a complete disaster. The solution to our economic problems will not come automatically with the change of our currency. We will not get away with structural reforms whatever the currency. There must be a solution for tax evasion, it will not end with the introduction of the drachma," said Dora Bakogiannis, chairwoman of Democratic Alliance. She believes that Euro sceptics now have greater public support, but markets not only doubt that the South will be able to maintain financial stability, but also that the north will continue to provide financial solidarity.
    The same is the position of the New Democracy representative Notis Mitarachi, who does not support the exit from the eurozone either. "Europe is currently working with the logic of accounting. A more decisive intervention by the European Central Bank would send a signal to markets that Europe does not depend on them and that it is able to manage alone. Until now, Greece has been applying a partial strategy without privatization and we have only increased taxes. In fact, we can achieve fewer taxes with higher incomes. Two things are necessary to run any programme - a working market and social tolerance, which are lacking today in Greece," he concluded.
     According to Drassi’s President Stefanos Manos, one of the results of the summit of the European Union last week is the emphasis that PSI or voluntary involvement of private creditors in the Greek debt haircut will not happen to any other country. "But are the markets willing to believe that Germany will not impose its will again? I doubt it. Markets will no longer believe the conduct of Germany. Eurozone leaders have continually shown that they want to save the euro and have not hesitated to isolate Britain. Likewise, I'm sure that they will not hesitate to throw us out of the eurozone to save the euro and this is something that we have to gradually realize," he recommended. The politician known for his strong market logic warned that the outcome of the crisis cannot be achieved by new taxes but by a sharp cut of public spending. This is achieved either by reducing the salaries of all, or by reducing the number of people receiving salaries. "The staff of the Greek public television ERT has been on strike for a week now. I do not see the Greek people suffering from the fact that they are not watching the news on ERT. I.e. I see nothing wrong with closing ERT. But I do not think the three parties that make up the government want it, so I think, this government will not proceed to cut costs dramatically. One is the political solution to the crisis - the Greek people with its voice has to erase politically the two major parties - PASOK and New Democracy - from the earth," Stefanos Manos recommended.

     "Listening to the reasoning of some Greek politicians and economists, I have a feeling that they have not understood that the eurozone and the European Union dare not living in 2005 or 2006 but in 2011," said University of London Professor Costas Lapavitsas frankly. He said the cause of the crisis was not fiscal, but was caused by low competitiveness and therefore, the current situation could not last long. Low competitiveness creates lower budget deficit, which in turn creates debt. "For two years, European politicians have been trying to do the same thing - to achieve stabilization by providing financial savings and flow of capital at low interest rates, combined with reduced cost of labour and privatization. All this has led to an unprecedented recession in Greece and recession throughout the eurozone," he said.
    According to the data presented by the Professor, Germany has had the lowest labour costs in the eurozone since 1995 and therefore, German citizens are right when they do not want to transfer money to the periphery of the European Union. He also said that the European Central Bank cannot play the role of national central bank and buy the government debt of member states, because behind the national central bank there are governments that guarantee the debt. There are 17 governments behind the European Central Bank and therefore, it can be a lender of last resort, which market behaviour also shows.
    The solution offered by Costas Lapavitsas is default, which is a capitalist concept. It ensures the interests of creditors and it will make Greek banks dependent on foreign capital. In the case of Greece, however, this should be sovereign default to be followed by exit from the eurozone. "My opinion is that the devaluation of the Greek drachma will be useful for Greece’s competitiveness and exports, but in a very short term, there will be difficulties with food, fuel and medicines supply. Therefore, there must be technical preparation for the exit from the eurozone, which the government must begin immediately. All this must be accompanied by economic reforms, a clear change in the tax system and a mandatory change in the political system that is totally unable to cope with the problems of the country," Professor Costas Lapavitsas recommended.