Exit will bring pariah status but it will allow Athens to pursue policiesfor regenerating growth, says economist
Geneva: Greece will have to prepare for life outside the euro zone, if it has to recover from peacetime recession caused by the economic policies of the troika of creditors—the European Central Bank, the European Commission (EC), and the International Monetary Fund (IMF).
As Greece holds a referendum on Sunday to decide whether or not to accept the latest deal offered by the troika, “my view is that leaving the euro zone is not going to be the end of the world," said Ha-Joon Chang, a reader with the faculty of economics, University of Cambridge.
“Without writing off 70% to 80% of the outstanding debt (of €312.7 billion, or 174.7% of the country’s gross domestic product in March), there is no way Greece can recover from the current crisis," Chang said in an interview.
The troika is refusing to agree to debt write-off at this juncture, despite acknowledging recession caused by the policies it had prescribed since the first bailout in 2010. Greece was asked to adopt severe austerity policies, which led to a devastating blow to the economy—a 25% fall in the gross domestic product (GDP) and 50% youth unemployment.
It is also an open secret that the bulk of the €240 billion total bailout money received by Greece during 2010 and 2012 went to banks and bondholders who lent the money before the crash.
“The Syriza government led by Alexis Tsipras has no other option but to call for a referendum to decide the issue," Chang maintained.
After all, the Syriza agreed for “substantial" concessions by reforming value-added taxes and raising retirement age to 67 for cutting the pension bill, which is tantamount to going well beyond the mandate on which it came to power.
“When he (Tsipras) agreed to these concessions, EU refused to the demand from the Greek prime minister for debt write-off. Therefore, what could he do?" Chang asked.
“The trouble is that if he has agreed to a bad deal, then he would get some temporary relief but it is kicking the can down the road. Six months after the deal, things would’ve become much worse. Under the circumstances, he (Tsipras) has done the right thing to call for the referendum," Chang said, defending the referendum move, which has been severely criticized by Germany, France and Italy.
Known for his books Kicking Away the Ladder, Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity, and 23 Things They Don’t Tell You About Capitalism, Chang is an expert on innovation and economic development.
In the first book, Chang described how the industrialized countries are attempting to kick away the ladder with which they had climbed to the top, thereby preventing developing countries from adopting policies and institutions that they themselves had used.
People of Greece, said Chang, will have a choice between “staying in the euro zone, at any cost, or leaving it and seeking a different life". If it is a “no" vote against the creditors’ conditions, Greece would be better off leaving the euro zone, which it should not have joined in the first place, Chang said.
Greece understandably seized the EU as a political symbol and a major economic initiative in 1981, after the end of a military dictatorship. Joining the EU, and subsequently the euro in 2002, said Chang, was supposed to be of a symbolic value for post-junta Greece government.
“But joining the euro zone was clearly a misguided policy, a decision that was influenced by the Greek elite who knew that if anything goes wrong, they can ship their money abroad regardless of the consequences," Chang said.
Otherwise, Greece had the option to remain outside euro zone, like Sweden, Denmark and Poland. These countries did not have the problems faced by Greece because of the monetary union. In effect, Greece cannot devalue its currency like any other developing country, which can take standard IMF policy measures when faced with an economic crisis, Chang argued.
Clearly, the immediate implications for Greece if it opts out of the euro zone would include a period of “pariah" status in the international capital markets.
Athens will be forced to continue with capital controls and transition problems of switching to the drachma.
Iceland had already experienced some of these problems when it faced a huge financial crisis after 2008. Several developing countries like Argentina had also faced problems when they defaulted on their debts.
But, during this period of isolation for a couple of years, Greece and its government can pursue policies that would help regenerate growth. “As long as you are not paying the debt, you will have policy space to pursue growth-oriented policies and that is what happened to Argentina, and that is what happened to Iceland," Chang maintained.
Like Icelanders did, the people of Greece can mobilize all their energies with “social solidarity and collective commitment to the future" and recreate their country all over again, he said.
It is not going to be easy because the Greek economy, which constitutes 2% of the euro zone, is small in size, with the tourism sector as its backbone. The industry in Greece is “destroyed" by the monetary union. Therefore, it faces a bigger challenge to embark on a new economic strategy.
Nevertheless, the Greek people will have to “access something in relation to the next realistic alternative and in this case the next alternative: what you are going to have is not going to be worse than what you have".
If the Greek electorate opts to stay in the euro zone, then they will have to live with the German government’s moral push for another wave of austerity policies. Ironically, it is the same Germany that was punished with austerity policies by Britain and France immediately after World War I, which ultimately led to hyper inflation and the rise of Adolf Hitler.
The German people, and also the government, reckon Greeks are “lazy" and should not be financed. But the fact is “Greeks are the hardest working people in Europe, and they have the longest working hours—40% longer than the Germans and 50% longer than the Dutch", Chang said.
So, whatever problems are faced by Greece and its people are not because of their work ethic but lack of sufficient “productivity".
So, instead of discussing how “Greece is going to raise productivity and talk about infrastructure, education, R&D, and skills development and innovation", the German chancellor and her government will continue to impose austerity policies on the country, according to Chang.