How can Europe help the Greeks?

Andreas Freytag

Friedrich-Schiller-University Jena

Dr. Andreas Freytag is Professor of Economics at the Friedrich-Schiller-University Jena, Honorary Professor at the University of Stellenbosch, and Visiting Professor at the Institute of International Trade, University of Adelaide. He is also Director of G20 Trade and Investment Research Network. He is a DAAD/AGI Research Fellow in October and November 2023.

Dr. Freytag obtained his diploma from the University of Kiel and his doctorate as well as his Habilitation from the University of Cologne. He has published a number of books and articles in first-class peer-reviewed journals on economic policy, international trade policy, development economics, and international policy coordination. He contributes to blogs and for over ten years had a weekly column on wiwo-online, a German magazine.

During his time at the AGI, Andreas Freytag will focus on the substance and path of tightened transatlantic relations against the background of the systemic competition between the West and autocratic states. The latter comprise some emerging economies, including Russia and China. This escalation has geo-political and geo-economic consequences and makes it necessary to strengthen the ties between transatlantic partners as well as to reach out jointly to attract third countries to the Western values.

To maintain Western leadership in standard-setting as well as helping developing countries to enforce universal human rights and environmental standards, there needs to be a coordinated and broad-based strategy to (1) react to Chinese et al. attempts to define and set standards, which become binding for third countries’ companies. Similarly, (2) due diligence legislation may also be more effective if coordinated across the Atlantic. Although not in the center of analysis, another (3) aspect deals with the transatlantic trade relations as such, which are also in need of a revitalization.

This project focuses on the geo-economic aspects of systems competition although it is difficult to disentangle economic and political relations. It analyzes ways to intensify the transatlantic relations with the objective to maintain economic welfare as well as to position the Western partners better to counter autocracies’ attempts to gain influence in the world economy.

Over 200 Billion Euros have been handed to Greece. Additional rescue funds will probably follow. Except: The government operates in a nepotistic way and the money doesn’t go to the Greek people.

Once again an endgame is imminent. Once again a state bankruptcy of Greece is impending. And once again all parties involved in the Greek drama use big words. Mr. Tsipras threatens with the chaos that would follow a Grexit. Mr. Schäuble demands necessary reforms, and even Mr. Juncker shows himself disappointed by his friend Tsipras.

We can be reasonably certain that these theatrical rumblings are only here to calm a less and less well-disposed audience and prepare the next bailout. Had the G7 Summit in Italy taken place, Mr. Juncker would not have appeared before the press in such a dramatic way. He knows what he owes the Germans.

It has long become apparent that the new Greek government behaves in a similar nepotistic way to the previous government and that it has little interest in a real restructuring of public finances and in improving the living conditions of the people in Greece.

Participation in the government in Greece is apparently perceived by the incumbents as a short-term right to exploit the country – no matter how socialist one declares to be – and as long as possible until the next one comes.

It is interesting that the Greeks don’t simply remove once and for all their politicians, who evidently hail from a homogeneous background, from office, and on the contrary accept their permanent mistakes. An oversized interest in a functioning community doesn’t seem to exist. At the same time the Greeks are, according to experiences made in the past, incredibly generous hosts and warm friends. The Greeks do a great deal for their families and friends. In contrast, they apparently don’t pay their taxes willingly. Love for your neighbor and contempt for those far away.

Anthropologists and sociologists may try to explain the causes of this apparent contradiction. However, it clearly shows that further funding to Greece through the member countries of the Eurozone or their protection agencies has little chance of success.

Six years after the crisis broke and repeated – especially external – efforts to reform Greece’s politics and administration, nothing has happened yet, and we arguably can’t expect that more money will change this behavior.

The situation is all the more tragic given that the disadvantaged population in Greece, that is to say, the poor in the cities and the young people who are unemployed despite being well educated, are not going to be better off, neither with the continued existence of a “failed state” and its nepotism and corruption, nor with the authorization of a new bailout deal from the Eurozone.

Grexit as a sustainable solution to the crisis

So what to do?

First of all, it is necessary that the European decision-makers realize that the rescue politics in the case of Greece has been a complete failure. Every additional billion is only extending the agony in Greece.

The consequence is that another rescue package is pointless and that Greece’s state bankruptcy is unavoidable. To prevent a panic, controls over the movement of capital should be established. Then Greece’s exit from the monetary union should follow as well as the introduction of a new (old) currency in conjunction with an additional debt cut or a debt restructuring, that is to say, a transformation of the Greek government bonds into titles without interests.

This way, the European Central Bank (ECB) would be protected from bankruptcy, and Greece could come back to the capital markets after a short time, as long as the conditions are fulfilled from the point of view of investors.

The reform of the monetary union would probably entail depreciation in real terms in the mid-double-digit percentage range.

The English version is translated by Ms. Alix Auzepy. The original German version of this article appeared in Wirtschafts Woche on June 12, 2015. Click here to read the original article.