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The lack of a new ideology will turn the economic crisis into a catastrophe

19 January 2012 / 17:01:26  GRReporter
2674 reads

Victoria Mindova

The crisis requires a new ideology that would help people go through the difficult times ahead. "There are no easy solutions. It is important that the solutions are not fatal," said the intellectual elite of Greece with one voice as it realizes that the financial woes of the country so far have been only the tip of the iceberg.

People in Greece and even in Europe, which is also starting to feel the tremors of public discontent, need a new type of platform to give them a perspective for the future and a reason to take the deprivations of the present. It cannot fit into the outdated political frameworks and must be found quickly because dissatisfaction with the disparities between different social strata can become a powerful destructive force. The end of artificially maintained economic growth that relies on cheap credit and hyper consumption came over the past two years, said the journalist Stavros Lygeros during the presentation of his book "From plunder to bankruptcy." He and his followers gave their insight on the development and pathogens of Greek society and economy that have led to today's crisis.

The former Minister of Finance Alekos Papadopoulos of PASOK spoke about the dramatic mistakes of the past and pointed out that the interest rates on external borrowing rose to 21.5% to 1998 and from Greece's accession to the eurozone until 10 January 2010, they were 2.5 % on average. "Greece will have no such interest rates in the next 50 years at least. This means that lower interest rates on public borrowing had to be supplemented by targeted government efforts to reform the economy so that we can endure the high competitiveness of other member states. Instead, the country rushed to hyper consumption and anyone opposed to this trend was declared a far conservative rightist."

The core of the problem is the unspoken social contract that applied for decades in Greece between those responsible for policy-making and those who obsequiously accepted it, although it was in a wrong direction, said Stavros Lygeros. The motive, under which the Greek economy has evolved from the 1980s to today is determined by the political system: "Do not examine our way of wealth, and we, in response, will turn a blind eye to tax unfairness, public sector corruption, cronyism and illegal construction." According to Stavros Lygeros, this is the basis on which the crooked building of the Greek economy was constructed and why sooner or later it will lead to a collapse in the system.

"Big lies are always based on half-truths," the author commented on the statement by the present deputy Prime Minister from PASOK Theodoros Pangalos that Greeks should not protest since they "ate the money with politicians." Lygeros did not deny that some strata of society and professional groups have benefited from the system, but he also stressed that the felony of the political elite and the business closely related to it cannot be placed on the same footing as the violations made by ordinary people. Society may not be completely innocent and mainly because it has bowed down to political impunity, but the fish begins to stink at the head, said the author of "From plunder to bankruptcy."

The Memorandum of financial aid and the measures in it had to be a national recovery programme long before May 2010. The problem is that the most important measures in it were not met - reduction of public spending by cutting unprofitable public enterprises, facilitating administrative processes, improving the judicial system. Politicians have chosen the easiest solution – to apply the easiest measures that have the least impact in order to throw dust in supervisors’ eyes. "The Troika and the government of Greece have imposed a protocol for action that is inconsistent with the specifics and needs of the country." The political system was hiding behind the Troika concerning the decisions that were not comfortable, but the Troika, in turn, did not fulfil its obligations and did not correct in time the obviously wrong recipe that was applied in the past two years. This has led to the result today, which is almost 7% recession, increasing rather than decreasing budget deficit and ever-diminishing prospects for recovery.

The same wrong recipe would undermine the process of reducing the Greek foreign debt, stated the economist Yannis Varoufakis, who also spoke during the presentation of the book by Stavros Lygeros. According to him, PSI will result in a Pyrrhic victory, because even if an agreement is reached it will not include all creditors who hold Greek government bonds. Varoufakis explained that besides the two main parties in the negotiations, which are the Greek government and the bankers represented by Charles Dallara, there is a third "shadow" player, namely hedge funds. Following the decision for the Greek debt haircut, most of them have purchased Greek government bonds on the secondary market for about 35% of their nominal value. At the same time, they purchased a large number of CDS insurances on Greek government bonds, which will be paid in the event of an uncontrolled default of the country. Varoufakis noted that even in this deal for reduction of the Greek foreign debt, bonds will bring profits to hedge funds because Greece wants to reduce their face value by 50% but they bought them at 35%. However, these funds or "shadow lenders," as the economist calls them, prefer not to participate in the PSI, because they will gain more from an uncontrolled bankruptcy and activation of the CDS market. No one can forecast  what would be the actual outcome of the crisis yet, but according to experts, the fate of Greece will be clear in early spring.

Tags: EconomyMarketsCrisisGreeceTroika
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