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Greece needs reforms, not socialist experiments

14 April 2015 / 18:04:21  GRReporter
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Greece's exit from the euro zone is not a solution because it will take Greek people to poverty. The future of Greece is in the euro zone but this requires economic reforms, writes the German economic weekly Wirtschaftswoche.

There is a scary scenario. After a few days, the Greek government will have no money to pay its bills and to service its debt. However, Greeks and Germans are impressively imperturbable, though for different reasons.

In an article entitled "Greece needs reforms, not socialist experiments", Wirtschaftswoche notes that the Greeks apparently believe that Europe will ultimately help them, whatever they do.

Simultaneously, many Germans believe that a Grexit is not a bad option for all interested parties. However, both sides are wrong. 18 of the 19 euro zone governments believe that a Grexit will not cause problems in the rest of the euro zone states. This view is grounded because the countries successfully deal with their economic problems.

It seems that an invisible wall separates Greece from Spain, Portugal and Ireland and this fact has considerable political implications, or in other words, Greece is isolated. If the country does not comply with the conditions for economic assistance, there will be no understanding from the partners. Greece will go bankrupt and will probably leave the euro zone. A new currency will appear that no Greek citizen wants. With a "soft drachma”, salaries will fall significantly, while deposits will lose much of their value. All this will lead to the impoverishment of the middle class.

Argentina in Europe

According to the German edition, the fallacy of the Germans is not as obvious as that of the Greeks, but it is equally important. Many German financiers and politicians believe that Greece will regain its competitiveness by exiting the euro zone and depreciating the new currency. However, this is an illusion. Under the adjustment programme, the cost of wages has decreased by almost 30% over the past five years, reaching the levels at the end of the previous decade. As for the adjustment of income and wages, Greece has already passed the hardest part of the road. The question today is to carry out institutional reforms, ensure political stability and support economic growth. A new devalued currency will put at risk what has been achieved so far. For many years, perhaps even decades, Greece will become Argentina in Europe.

The main obstacle, bureaucracy

The priority now is to find logical solutions for Greece, and within the euro zone at that. The economic essence of the decision is clear. The Greek economy consists mainly of small- and medium-sized enterprises. The level of education and professional training of the population is high. The major obstacle to economic growth is the isolation of small- and medium-sized Greek enterprises from markets because of a huge bureaucracy that is present everywhere, suffocating every initiative. The issue is therefore to cut red tape, improve the administration of justice and the work of the tax authorities.

It is clear that the Greek government should abandon plans for early retirement and for creating unnecessary jobs in the public sector. At the same time, it should stop looking for salvation in the fight against tax crimes, which makes no sense without economic growth. Instead, the government must accept its obligations, strive to achieve a primary surplus, but without its budget being subject to detailed supervision from abroad. The main aim, however, must be economic growth.

It is also clear that the dream of many SYRIZA members for a socialist type of economy has to be abandoned as well as the request for debt haircut.

Such a package of measures implies a bold political leadership in Athens and a realistic perception of this policy on the part of Brussels and Berlin.

Tags: GreeceReformsSYRIZAEuro zoneGrexitWirtschaftswoche
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