By Dean Argiris* – There is an old Greek proverb, “all good things to know are difficult to learn” and the debt crisis which developed in 2009 is definitely chief among the “good things to know.”
Greece has provided valuable insights to the rest of the world. It has shown us that harsh austerity measures, which balance tax increases with deep wage cuts, can worsen the financial burdens imposed upon individuals. Yet, the situation also has shown us that an overly complex central government and continuous political feuding can also cripple economic growth. However, the most valuable lesson that can be learned from Greece is that, eventually, all things pass.
Greece seems to have been pushed to the peripherals of global attention, especially as the Hellenic Republic makes its comeback. Just before Christmas, the Turkish Prime Minister blasted rating agencies for not upgrading Turkey’s credit rating while upgrading the rating of “a country that is selling off its islands.” It was an unwelcoming move considering that Greece has been supporting Turkey’s request for visa-free travel within the EU. Turkey has been leveraging its need to sign the EU-Turkey Readmission Agreement as collateral.
A six point boost in the credit rating by Standard & Poor’s, from CCC to B-, is just what was needed to inject confidence in Greek recovery.
Exports from Greece have reached 2008 levels and now outpace those of other Eurozone countries. The trade deficit, as a result, has been gradually decreasing and, with any luck, will move into a trade surplus. A trade surplus for Greece would be good because it means foreign money is being brought in and thus the country is getting ‘richer.’ That can only mean decreasing deficits for the cash strapped Republic.
While this is welcoming news, the Hellenic Republic must remember that its political system is still fragile and continue its path of deep reforms. I have continually emphasized the correlation between political instability and economic conditions. It’s a position also held by the IMF and we see it in Washington as markets negatively react to political stalemates over continuing resolutions and debt ceilings. Political instability creates an environment unsuitable for investment, primarily because business tends to focus on the long term rather than short term. They rely on the ability to project tax rates and regulations five to ten years down the road.
This is why the results of the June Parliamentary elections were a welcoming sign. The “coalition of the center,” as I call it, created some consistency in policy. It enabled Greece to continue implementation of the policies and reforms outlined in the IMF’s Memorandum of Understanding (MOU).
It goes without saying that not every aspect of the austerity measures is perfect. The aspects that have resulted in 26.8% unemployment have hindered the ability of the Government to pay down the debt via taxes. Plus there are some who argue that PPP’s (Public Private Partnership of services) can actually inflate budgets due to the profit driven nature of private businesses. In fact, our own experiences with privatization have come with increased government spending. So there’s no reason to think that privatizing Greek services would produce any differing results.
Yet, we must also accept that the Greek government needed to be modernized, streamlined, and tamed. This is what the MOU seeks to do and this is desirable to foreign investors. As identified on Page 7 of the February 8th, 2012 MOU, the Hellenic Republic lacks a coordinated and capable IT infrastructure and needs to identify redundancies within their governmental structure. Expressly, they must reduce the ‘red tape.’
This trimming of the fat, as it where, and creating a modern IT network can cut costs and reduce the deficit even further. It also increases the effectiveness of government. The crux of this modernization must be the judicial system, which is incredibly slow and antiquated. Because of its outdated practices, it is tempting for individuals to engage in tax evasion and copyright infringement. We’re now starting to see pressure put on Greece by international creditors to increase the rate of prosecutions. While Greece is complying with these requests, judicial reforms must not be set aside after this judicial storm as passed.
Greece is on the road to recovery and could be poised to see a second “economic miracle.”. However, this position is not yet secured and can only come with an overhaul of the way politics is conducted in Greece. The parties must put Greece before their own ideologies, reforms to the structure of government must continue, and judicial reforms should be included as part of the Business Friendly Greece Action Plan.
*Dean Argiris is the founder of Argiris Consulting Group, a political consulting firm. Dean has authored and published commentaries on the Greek financial crisis and advocating a third approach to resolving the debacle.
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