tag:theconversation.com,2011:/fr/topics/european-debt-crisis-3778/articlesEuropean debt crisis – The Conversation2018-08-20T10:43:57Ztag:theconversation.com,2011:article/1017092018-08-20T10:43:57Z2018-08-20T10:43:57ZGreece exits its third bailout – but eurozone still has much to learn from the crisis<figure><img src="https://images.theconversation.com/files/232653/original/file-20180820-30605-w1thdc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Greece nearly crashed out of the eurozone in 2015.</span> <span class="attribution"><span class="source">Bill Anastasiou / Shutterstock.com</span></span></figcaption></figure><p>After nine years of unprecedented peacetime economic hardship, Greece <a href="https://www.bbc.co.uk/news/world-europe-45207092">exits its IMF bailout programme</a> on August 20. So ends a series of three bailouts organised by the so-called troika of the IMF, European Central Bank and European Commission. A total of €336 billion was lent to Greece in the wake of the financial crisis, to stop it defaulting on its national debt, with approximately €300 billion used so far. </p>
<p>What’s more, over 90% of the funds were not directed toward investment projects, but went on <a href="https://www.palgrave.com/de/book/9783319522913">servicing Greece’s national debt</a>. And the financial aid was provided on the basis of severe cuts to spending – a harsh regime of austerity. </p>
<p>It had tragic results. A quarter of Greece’s 2009 economic output has been wiped out, 20% of its workforce is out of work, and youth unemployment is at about 40%. At the <a href="https://theconversation.com/syriza-surges-ahead-of-january-election-as-greek-voters-reject-austerity-35829">height of the crisis</a>, in 2014-15, unemployment reached a staggering 27%, with youth unemployment exceeding 50%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232456/original/file-20180817-165967-c6a2mt.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">IMF analysis shows how Greece’s depression has been as bad as the Great Depression and has lasted longer.</span>
<span class="attribution"><a class="source" href="http://www.imf.org/en/Publications/CR/Issues/2018/07/31/Greece-2018-Article-IV-Consultation-and-Proposal-for-Post-Program-Monitoring-Press-Release-46138">IMF</a></span>
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<p>The strict nature, implementation and dramatic social costs of the EU bailouts prompt questions about their effectiveness – and whether they should be used in the future. Greece suffered the most. But bailouts, with strict conditions and severe consequences were meted out to Ireland, Portugal, Spain and Cyprus. The exact nature of the bailouts differed in each country, but they all shared the same draconian nature and rationale.</p>
<p>The IMF, which helped with Greece’s bailout loans, has <a href="http://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf">since admitted</a> that it underestimated the negative effects that austerity would have and the scale of the recession that would ensue. But this is <a href="https://www.palgrave.com/de/book/9783319522913">not enough</a>.</p>
<h2>Blame game</h2>
<p>The repercussions of the bailouts raise a core question. Whether the eurozone debt crisis was caused by the fiscal profligacy of the countries that were crisis-stricken and needed bailing out? Or whether it was down to deeper issues with the eurozone system as a whole?</p>
<p>There is no concrete answer to this fundamental question. Many observers focus on the aspects of the crisis that fit their particular narrative. For example, there is no doubt Greece and Portugal had overspent for decades before 2010. But politicians in the eurozone’s north <a href="https://www.reuters.com/article/us-eurozone-greece-schaeuble/dont-blame-others-for-your-problems-germanys-schaeuble-tells-greece-idUSKBN1CT2YX">focused</a> entirely on fiscal profligacy when assessing the causes of overspending. </p>
<p>Other factors – such as consistently higher military expenditure than the EU average in Greece; the country’s unique geography, which includes 2,000 islands of which 200 are inhabited; the lack of an industrial base, and a political system based on a clientele relationship between the state and its citizens – were completely ignored. For politicians in the fiscally prudent north of the eurozone, tax avoidance and overspending was more than enough to justify the bailouts. </p>
<p>But fiscal laxity was far from the norm in Spain and Ireland. Both countries had very low debt-to-GDP ratios up to 2008 (considerably lower than the EU Maastricht Treaty’s 60% limit) and yet they were subjected to the same draconian bailout provisions. </p>
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<a href="https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=445&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=445&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232647/original/file-20180820-30587-1grqa2r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=445&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.google.co.uk/publicdata/explore?ds=ds22a34krhq5p_&met_y=gd_pc_gdp&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=gd_pc_gdp&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:eu&idim=country:el:es:ie&ifdim=country_group&hl=en_US&dl=en&ind=false">Google public data</a></span>
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<p>Some <a href="https://www.tau.ac.il/%7Eyashiv/Wyplosz%20The%20Eurozone%20Crisis.pdf">critics</a> of the bailout perceive the crisis to be primarily institutional and so oppose the punishing measures that came with them across the board. They claim that had the European Central Bank acted decisively in 2010 by introducing <a href="https://theconversation.com/eurozone-qe-creates-breathing-space-heres-what-governments-must-do-now-70355">quantitative easing</a>, the extent of the required cuts would have been significantly reduced, thanks to the extra liquidity.</p>
<p>And despite Greece’s obvious need for extra liquidity from 2010-15, it was the only eurozone country to be excluded from the European Central Bank’s quantitative easing policy from 2015-18. The ECB’s intervention in 2010 could have mitigated the effects of the cuts and ultimately made the recession less severe, as was the case in Ireland and Portugal.</p>
<h2>The way forward</h2>
<p>Somehow, the eurozone has survived the experience of the bailouts and remains intact. But the lack of consensus over the causes of the crisis makes it difficult for the eurozone to move forward in the best way possible.</p>
<p>Alongside a central fiscal authority to oversee the budgets of all eurozone countries (in effect, a eurozone finance ministry that would take considerable time and effort to establish as it would have to aggregate national preferences over taxation and spending), the eurozone urgently needs a complete banking union to prevent future crises. This would involve a pan-eurozone deposit guarantee scheme. Had such a scheme existed in 2008, depositors would not have had the incentive to move their assets from one eurozone country to another when the crisis hit, thereby exacerbating it. </p>
<p>Attempts to create such a union over the last five years <a href="https://www.ft.com/content/003af25a-396e-11e8-8b98-2f31af407cc8">have stalled</a>. Eurozone countries like Germany, the Netherlands, Austria and Finland want depositors to participate in bank bailouts, as in the case of Cyprus in 2013, as a means of preventing the need to nationalise banks and their liabilities. The authorities in these countries fear that it would be their taxpayers that would be called upon to bail out banks in southern eurozone countries, in particular Italy <a href="https://theconversation.com/italy-and-the-euro-sergio-mattarella-has-opened-a-window-of-opportunity-to-save-the-single-currency-97428">where economic crisis looms</a>. </p>
<p>This is a perfectly rationale argument. But so is the southern eurozone authorities’ point, that it is very difficult to maintain sufficient liquidity in their banking sectors in the absence of such a banking union, as the mere suspicion of financial difficulty or political instability could precipitate abrupt and massive flows of capital out of their countries. Hence the current deadlock. </p>
<p>Yet a banking union is the best way to boost confidence in the eurozone and make it less prone to economic shocks that it may find difficult to withstand, let alone to absorb. Greece has taught us this much.</p><img src="https://counter.theconversation.com/content/101709/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimitrios Syrrakos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The strict nature, implementation and dramatic social costs of the EU bailouts prompt questions about their effectiveness.Dimitrios Syrrakos, Deputy Head - Department of Economics, Policy and International Business, Manchester Metropolitan University, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1014662018-08-13T13:29:43Z2018-08-13T13:29:43ZTurkey’s lira crisis: ‘economic war’ sees Erdoğan look east for new allies<p>Global markets are on edge once again, this time thanks to the Turkish lira. It crashed more than 15% against the US dollar, euro and pound sterling on August 10 and continued to fall when markets reopened after the weekend on August 13. </p>
<p>The latest trigger was Donald Trump’s <a href="https://twitter.com/realDonaldTrump/status/1027899286586109955">announcement</a> that he would double import tariffs on Turkish steel and aluminium. But the lira has been falling consistently over the past year as markets fear for the president’s increasing control over the economy.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1027899286586109955"}"></div></p>
<p>With their mammoth depth and reach, global currency markets reflect big shifts to new economic and political realities. Sterling dropped by more than 10% when it became clear that <a href="https://theconversation.com/brexit-shock-has-caused-a-sterling-crash-of-historic-proportions-heres-just-how-bad-it-is-for-the-pound-62191">the UK had voted to leave the EU</a> in June 2016. Currency markets can also hasten these shifts, for example in 1992 when <a href="https://www.theguardian.com/business/2012/sep/13/black-wednesday-20-years-pound-erm">the UK crashed out of Europe’s fixed currency regime</a>, the Exchange Rate Mechanism, after sustained runs on sterling in currency markets. </p>
<p>The lira crisis therefore – at the very least – reflects the political and economic turmoil taking place in Turkey. It could also play a key role in shifting the country from relying on the West to aid its economic development and turning east to Russia and China for growth and investment.</p>
<h2>Crisis and contagion</h2>
<p>The underlying economic cause for the crisis is simply a lack of confidence in Turkey’s economy. Inflation is spiralling (currently <a href="https://tradingeconomics.com/turkey/inflation-cpi">more than 15%</a>), Turkish companies are saddled with foreign debt and the country has one of the world’s largest current account deficits in proportion to its economic output, heightening fears of a debt crisis. </p>
<p>As an open economy since the late 1980s, Turkey has attracted significant international capital flows. These flows, some of which are highly mobile and short term, also expose Turkey to sudden stops and reversals when international investors fear the worst. The recent history of globalisation in developing countries is full of such crises, including the 2000-01 Turkish <a href="https://economics.rabobank.com/publications/2013/september/the-turkish-2000-01-banking-crisis/">banking and currency crisis</a>. It was the aftermath of that crisis that brought Recep Tayyip Erdoğan and his AK party to power. </p>
<p>As of August 2018, Turkey has an <a href="http://databank.worldbank.org/data/download/site-content/IDS-2018.pdf">external debt</a> of US$406 billion, US$99 billion of which is short term. What worries foreign banks and markets is the exposure of some European banks, as direct investors in the Turkish banking sector. According to estimates, this amounts to more than <a href="https://www.cnbc.com/2018/08/10/european-officials-reportedly-concerned-about-exposure-to-turkey.html">US$138 billion</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/231675/original/file-20180813-2897-197sbdg.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Turkish lira to the US dollar.</span>
<span class="attribution"><a class="source" href="https://www.xe.com/currencycharts/?from=TRY&to=USD&view=1M">xe.com</a></span>
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<p>Should private Turkish debtors, who owe around 75% of Turkey’s external debt, fail to service their share as a result of the nosediving lira and creditors’ unwillingness to lend any more hard currency, the European financial system might have to absorb significant losses. This is similar to what happened during <a href="https://www.reuters.com/article/us-europe-banks/europes-banks-bleed-from-greek-debt-crisis-idUSTRE81M0LT20120223">the Greek debt crisis</a>.</p>
<h2>Political decisions</h2>
<p>None of these debt figures have emerged overnight. What transforms them into a currency and debt crisis is ultimately political. The presidential election in June gave Erdoğan unprecedented control over all branches of the state and he has made his intention to interfere with the economy <a href="http://eprints.lancs.ac.uk/82573/1/SSRN_id2856691.pdf">clear</a>.</p>
<p>Since the new presidential system came into effect, international investors have been trying to understand where Erdoğan would steer the Turkish economy. The signals so far, including Erdoğan’s appointment of his son-in-law as the minister in charge of the economy, suggest a new period of “Erdoğanomics”. This includes a mix of high government spending, politically repressed interest rates <a href="https://theconversation.com/turkeys-currency-turmoil-and-upcoming-election-what-you-need-to-know-97477">and runaway inflation</a>. Such a heady mix has caused a <a href="https://www.marketwatch.com/story/cost-to-insure-turkish-debt-spikes-as-turkey-teeters-on-brink-of-currency-crisis-2018-08-10">surge in Turkey’s risk premium</a>.</p>
<p>The worsening political relationship between Turkey and the US does not help. Over his 16-year rule, Erdoğan has rallied his supporters on a number of occasions against <a href="https://theconversation.com/why-did-turks-react-so-strongly-against-anti-erdogan-coup-62643">real</a> and purported threats to his rule. He is once again defiant against Western economic and political actors, whom he accuses of striving to destabilise Turkey under his rule, this time via the runs on the Turkish lira. </p>
<p>This defiance seems to have consolidated Erdoğan’s domestic power, but given the country’s considerable economic reliance on Western banks and markets, the country is now more vulnerable than ever to a currency and debt crisis of its own making. Freeing Turkey from this difficult corner will be a feat. If and when Erdoğan achieves it, Turkey will probably have shifted a considerable part of its economic and political allegiances, <a href="https://www.reuters.com/article/us-turkey-currency-erdogan/turkey-is-a-target-of-economic-war-erdogan-says-idUSKBN1KW08U">from the West to the East</a>, with both Russia and China potential future allies in what Erdoğan <a href="https://www.bloomberg.com/news/articles/2018-08-12/lira-extends-retreat-as-turkey-heads-toward-a-financial-crisis">has called</a> an “economic war”.</p><img src="https://counter.theconversation.com/content/101466/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emre Tarim does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>President Erdoğan is accusing the West of striving to destabilise Turkey.Emre Tarim, Lecturer in Behavioural Sciences, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/730912017-02-16T14:06:48Z2017-02-16T14:06:48ZLiving through the Greek crisis: an anthropologist reports from Thessaly<figure><img src="https://images.theconversation.com/files/157122/original/image-20170216-12960-1x7m1so.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/raffaxxi/10706888945/in/photolist-hj8B4x-2VUZLe-2VV1sD-4Pgqy1-4f2eZY-CavZ8-4WBfX6-4WFwr7-4WFxq3-9PJfs8-9PM7wq-4WBfDD-4WBg4M-4WFwuC-4WFwP1-4WFxvG-9PM7Ys-icXYKh-icY2CE-icXSTs-icYpoJ-icYwp7-icXyFf-icXTBv-icYDK1-icYkvo-icXGz1-icXPmf-icXRk6-icZaED-icYfok-icXjiX-icYbzB-icYN8v-icYWKR-icXRk5-icYAYh-icXYLD-icYH6r-icXVzY-icXW3U-icYxMu-icYMEC-icYGHf-icYUFk-icYrjY-4PbWZt-91vsRR-8ZBDJd-4Pgieh">Raffaele</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The prospect of another Greek crisis <a href="http://nationalinterest.org/feature/can-the-eu-stop-yet-another-greek-debt-crisis-19426">could be back on the cards</a> if things do not go to plan at an upcoming meeting of European finance ministers on February 20. With a €10.3 billion loan repayment due in July, the meeting is seen as critical for once again preventing the possibility of a Greek default and potential exit from the eurozone. </p>
<p>But while the international media returns its lens to Greece, it’s worth considering that for people in Greece the crisis has never subsided. In fact, the consequences of austerity are getting more painful by the day. My work in the central mainland captures local experiences of this national and international crisis.</p>
<p>Since 2003, I have conducted field research in Trikala, a town of 80,000 inhabitants located on the agricultural plains of Thessaly in mainland Greece. Famous for the great landed estates of the Ottoman era, the region was incorporated into the modern Greek state in 1881 and is still known <a href="http://eu.wiley.com/WileyCDA/WileyTitle/productCd-140518681X.html">as the country’s “bread basket”</a>. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/157117/original/image-20170216-12960-u3xguz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trikala Old Town.</span>
<span class="attribution"><span class="source">Daniel M Knight</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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</figure>
<p>Before the financial crisis struck, you could breathe the overwhelming air of prosperity on the bustling streets of Trikala. The expanding construction industry, a buoyant public sector, and secure agricultural markets supported by EU initiatives and eurozone membership represented 30 years of almost uninterrupted socioeconomic prosperity. Nobody could have imagined the horrendous consequences of the full-blown economic meltdown that would explode onto the scene in 2009.</p>
<p>It was in October 2009, in the context of global economic recession, that the government “discovered” unsustainable levels of debt and an insurmountable budget deficit. Since then, Greece has received €326 billion of bailout money from the European Central Bank, European Commission and the International Monetary Fund <a href="https://theconversation.com/a-tragedy-in-three-parts-how-the-greek-debt-crisis-unfolded-44680">in return for stringent austerity measures</a>. </p>
<h2>An everyday crisis</h2>
<p>Athens-centric media coverage has portrayed the consequences of austerity primarily through images of <a href="https://theconversation.com/life-under-austerity-shows-why-syriza-is-fighting-it-so-hard-42953">mass protests</a>, the rise of the far-right <a href="https://theconversation.com/how-greece-crisis-sparked-a-new-era-of-extremist-politics-44193">Golden Dawn party</a>, and the struggle to accommodate refugees <a href="https://theconversation.com/how-a-double-migrant-crisis-is-halting-greeces-recovery-57137">fleeing conflicts in the Middle East</a>. Athens is the centre of political and economic power and home to approximately half of Greece’s population so this focus on the metropolis is understandable. </p>
<p>But it means that the <a href="https://www.routledge.com/Ethnographies-of-Austerity-Temporality-crisis-and-affect-in-southern/Knight-Stewart/p/book/9781138204577">subtleties of living with crisis everyday</a> have been overlooked in favour of dramatic headlines. In Trikala, people grapple with the everyday tasks of heating their homes, putting food on the table, supporting their families, and maintaining social status. They poignantly discuss their fears of history repeating itself, of neo-colonialism, occupation, and poisoned futures.</p>
<p>Witnessing an array of new taxes, pension cuts and soaring unemployment, the dozens of people I’ve interviewed often delve straight into the vaults of history to make sense of <a href="http://www.palgrave.com/gb/book/9781137501486">life in austerity Greece</a>. The fear of returning to times of hunger, as experienced in the Great Famine during World War II, for example, is common. And an EU scheme aimed at decreasing national debt by placing solar panels on agricultural land is locally perceived as a return to an era of German or Ottoman occupation. </p>
<p>I am regularly told that “history is repeating itself”, “time is standing still”, and “we are being thrown back to previous times of suffering and poverty”. This all adds to the sense of temporal vertigo experienced in Trikala today – confusion as to where and when people belong on the timeline of social progress that was once promised <a href="http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/pdf/DiscussionPapers/KamarasDiscussionPaper4.pdf">as a birthright in neoliberal Europe</a>. People describe feeling “dizzy” and “nauseous” with the crisis.</p>
<h2>Feelings of occupation</h2>
<p>The way that energy policy has been managed since the economic crisis is a key area that people feel particularly vexed about. Since 2011, solar energy has been heralded by the Greek government and the European Union as a <a href="http://aq.gwu.edu/v90-1-articles.html">means to repay national debt</a>. From home installations to developments on agricultural land and large solar parks, a solar program has been rolled out across the region.</p>
<p>But, despite its significant uptake, the energy produced rarely services the local community. Instead it is used in Greek urban centres, with long-term plans to export to Germany. This means it is little more than a new extractive economy.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/157113/original/image-20170216-12960-36m8tn.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Solar panels are a sign of the economic dysfunction.</span>
<span class="attribution"><span class="source">Daniel M Knight</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>Because people could no longer afford high petrol prices to fuel their central heating systems and there is no mains gas in the town, the winters of 2012–2016 witnessed a return en-masse to wood-burning open fires and stoves last popular during the 1970s. Thick smog now engulfs Greek towns in this region, as people burn whatever they can, including old varnished furniture, shoes and clothes, and unsuitable firewood. Open fires have turned into a national health and environmental hazard, resulting in repeated government appeals for people to revert to petrol heating. </p>
<p>Thus, two starkly different energy sources – high-tech solar panels and open wood-burning fires – have become highly visible symbols of the economic crisis. One is associated with clean, green energy, futuristic sustainability, ultra-modernity, and international political energy consensus. The other conjures images of pre-modern unsustainability, pollution, poverty, and a return to peasantry status. Both are symptomatic of how people negotiate the fiscal austerity measures, arousing notions <a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-9655.12287/abstract">of neo-colonialism and occupation</a>.</p>
<h2>What future?</h2>
<p>One question I am often asked by locals is: “When will it end?” It is difficult for people to see beyond ever-increasing taxes, pay cuts and government failures. Exhaustion after seven years of crisis, apparently without respite anytime soon, has defeated their ability to imagine a better future. Feelings of resignation and helplessness are expressed by both younger and older generations. But while the older ones know they will not be around to live the post-crisis future, exhausted young people are full of distrust, contempt and apathy. </p>
<p>Successive governments have promised growth and emergence from crisis – promises that have turned out to be hollow. My friend Stella, a shopkeeper and mother of two teenage boys in Trikala, sums up the mood: “Bureaucrats and politicians in Berlin and Brussels will decide whether I have a future or not. They will decide if I live or die.” That’s what is on the cards at the meeting of European finance ministers, not simply a matter of negotiating debt repayments – their decisions will bring us one step closer to knowing where the future lies.</p><img src="https://counter.theconversation.com/content/73091/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel M. Knight receives funding from the Leverhulme Trust. He is affiliated with the Hellenic Observatory at the London School of Economics and is co-editor of History and Anthropology journal.</span></em></p>Before the financial crisis struck, you could breathe the overwhelming air of prosperity on the bustling streets of Trikala.Daniel M. Knight, Lecturer in Social Anthropology, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/715892017-01-23T11:26:58Z2017-01-23T11:26:58ZGreeks are overworked and exhausted from the debt crisis<p>The OECD think tank recently announced its Average Annual Hours Actually Worked per Worker <a href="https://stats.oecd.org/Index.aspx?DataSetCode=ANHRS">survey</a>. Contrary to popular belief, Greek workers are once again at the top of the list. With 2,046 hours a year, the average Greek worker spent nearly 50% more time at work than the average German worker (1,371 hours). Meanwhile, the earnings of private employees in Greece <a href="http://cdn.tradingeconomics.com/embed/?s=greecewag&v=201701032126s&d1=20070101&d2=20171231&h=300&w=600">have declined by 25%</a>, with the country’s <a href="http://www.economywatch.com/economic-statistics/economic-indicators/GDP_Per_Capita_PPP_US_Dollars/">GDP per capita</a> now nearly half that of Germany’s. </p>
<p>Yet things are only getting worse and Greeks are – understandably – losing hope. The country is in desperate need of a government that will take responsibility for its bloated public sector. Instead, it continues mismanaging the economy and placing the blame for Greece’s problems elsewhere. After eight torturous years in crisis, employed Greeks work long and hard with very little to show for it in their take-home pay.</p>
<p>To have a sense of how bad things are at the moment, many Greeks find themselves celebrating simply getting paid at the end of the month; it is frequently the case that employers owe their staff several months’ of wages in <a href="http://greece.greekreporter.com/2016/03/21/greek-private-sector-employers-owe-an-average-of-5-monthly-salaries-to-1-mln-employees/">arrears</a>. Those that do get paid are burdened with steep taxes which have been introduced to prop up the country’s failing public finances. And payments go into a <a href="http://www.kas.de/wf/doc/kas_44877-544-2-30.pdf?160415140444">failing pensions system</a> which they feel is unlikely to serve them in the future. Consequently, a number of Greeks are financially exhausted and unable to pay their taxes, leaving the government with a <a href="http://www.ekathimerini.com/214992/article/ekathimerini/business/tax-debts-to-greek-state-rise-to-more-than-94-bln-euros">€94 billion</a> hole in its tax revenues.</p>
<p>If there were some light at the end of the tunnel, perhaps more Greeks would be able to cope, but depression and suicides are on the <a href="https://www.thenationalherald.com/146589/economic-crisis-greeks-mental-health-takes-beating/">rise</a>. Greece started 2017 with a barrage of new taxes and a high probability that new financial pressures will be placed on them, to secure the country’s next loan payment from its international creditors. Meanwhile, capital controls are still in place at Greek banks, limiting the amount of money people can withdraw – an indication of how little the government trusts its people and how little people trust their government.</p>
<p>Many will have friends with similar skills who have moved abroad, getting paid significantly more and, more importantly, being treated by their host countries with more respect. In fact, it is estimated that around 500,000 professionals <a href="http://greece.greekreporter.com/2017/01/05/elstat-more-than-500000-greeks-left-greece-over-past-5-years/">have already left</a> with many more actively searching to follow in their footsteps. </p>
<p>While Greece prides itself on having a culture that supports education, its current brain drain is stripping it of the valuable human resources it needs to rebuild its economy. Even the high-tech start-ups that have sprung up cannot find as many qualified programmers as they used to, since many have left the country. It is not uncommon for those who have remained to work remotely on projects for foreign clients, invoicing through foreign-based companies. In this manner, they bypass the Greek public monster that has devoured companies on its rampage.</p>
<h2>In need of an overhaul</h2>
<p>The only solution is an overhaul of the bloated public system that <a href="https://www.theguardian.com/commentisfree/2012/feb/20/greece-crisis-ignorance-protest-corruption">employs one in four Greeks</a>. The alternative is to continue with an inefficient system that does not foster entrepreneurship and kills productivity. The hopeless Greeks that remain will be easily convinced that everything is the fault of foreign lenders that push for more austerity measures. </p>
<p>The result is that an increasing number of people support the idea that entering the <a href="http://www.express.co.uk/news/world/751028/Greece-regrets-joining-Eurozone-fears-European-Union-collapse-Grexit">euro was a bad choice</a>. It makes a favourable environment for the politicians that have failed to restructure the public sector and may want to cultivate the country’s exit from the currency. </p>
<p>But this would be jumping out of the frying pan and into the fire. While going back to the drachma would potentially render the economy more competitive, away from the known structural flaws of the euro, competitiveness would be achieved by further depreciating people’s salaries. </p>
<p>Any change in the currency would extend the current problem of maintaining an expensive and inefficient public sector as it would enable irresponsible politicians to finance any deficit as they did in the past: by <a href="https://books.google.co.uk/books?id=ofZZCwAAQBAJ&pg=PA100&lpg=PA100&dq=deficit+financing+greece+drachma&source=bl&ots=NsnMGGlqCr&sig=FzhDCGG2003WtAk3NeWTfdfkimI&hl=en&sa=X&ved=0ahUKEwjZ2NDZ9NLRAhUG7xQKHTl6CDM4FBDoAQgZMAA#v=onepage&q=deficit%20financing%20greece%20drachma&f=false">printing inflationary currency</a>. Further, the increased currency risk would add another burden to the much-needed exporting firms, while the country’s debt would still remain in euros.</p>
<p>As the current government celebrates two years in power, Greece is in desperate need of politicians that are willing to create a modern and efficient state, no matter what the currency. The current and previous governments have preferred to take care of their own <a href="http://www.nytimes.com/2012/10/11/opinion/the-cost-of-protecting-greeces-public-sector.html">cronies</a> and have been unwilling to modernise. And the country’s overworked and exhausted workers (not to mention the 23% of the population <a href="http://www.tradingeconomics.com/greece/unemployment-rate">that is unemployed</a>) could be surprised by how things can get even worse if they keep electing irresponsible politicians.</p><img src="https://counter.theconversation.com/content/71589/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vasilios Theoharakis is a member of the Investment Committee of the PJ Tech Catalyst Fund, a venture capital fund that invests in seed stage start-up companies in Greece.</span></em></p>After eight torturous years of crisis, Greeks are working long and hard with very little to show for it.Vasilios Theoharakis, Reader in Marketing & Entrepreneurship, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/549122016-03-08T15:18:52Z2016-03-08T15:18:52ZCyprus shows how to do an EU bailout programme well<p>Cyprus will successfully exit its bailout programme <a href="http://www.consilium.europa.eu/en/press/press-releases/2016/03/07-eurogroup-statement-cyprus/">this month</a> after three years. The country has come a long way since 2013 when its banking sector was on the verge of collapse. </p>
<p>The Cypriot economy went through heavy reforms and recovered using just €7.25 billion of its <a href="https://theconversation.com/living-with-a-10-billion-euro-bailout-the-story-from-the-streets-of-cyprus-34625">€10 billion rescue package</a>. The banking sector was stabilised, a budget surplus was achieved (down from a 5.5% deficit in 2013) and the <a href="http://www.independent.co.uk/news/business/news/cyprus-celebrates-its-early-exit-from-eu-bailout-programme-a6918356.html">current account nearly brought into balance</a>. But this is just the beginning.</p>
<p>As Harris Georgiades, the country’s finance minister, has pointed out, the upturn in the economy is <a href="http://www.nomisma.com.cy/el-gr/themata/44/71023?pgn=0#.VsTTu8vcuP9">“a result of the attempts and sacrifices of Cypriots”</a>. They adhered strictly to the austerity measures put in place, got on with life and though there were some protests, they did not strike or react in ways that would delay the reform project. It was implemented as agreed with Cyprus’ international creditors, the IMF, European Commission and European Central Bank.</p>
<p><a href="http://www.maxhnews.com/content/43589">Georgiades has stressed</a>, however, that “it is very important for the country to continue reforms with the same intensity, despite the positive signs in the economy”. So exiting the bailout and the return to markets does not signal the end of the reforms. The challenge of long-term sustainable growth remains and further structural changes are needed to make the economy more competitive, to create jobs and growth. </p>
<h2>Beyond banking</h2>
<p>It is important to understand that banks were not the only ones to blame for the crisis in Cyprus. This is vital to ensure past mistakes are not repeated. The way that public funds were managed before the crisis hit Cyprus was key to the economy’s derailment. Though the country has achieved a surplus, fiscal issues remain. </p>
<p>Although the IMF declared that <a href="http://www.publicfinanceinternational.org/news/2015/06/cyprus-making-good-progress-under-bailout-programme-says-imf">“the public finances have made good progress”</a>, the fact that there is no detailed programme outlining the costs of health, education and the pensions sector for the next few years, generates worries of possible future recession in these sectors. </p>
<p>Also, the political and social context in which the banks operated has not changed significantly. The investigation into loan fraud at the Cooperative Bank <a href="http://in-cyprus.com/co-op-loan-fraud-probe-intensifies/">last year</a> indicates that there is no transparency of the way banks do business. The same goes for the way <a href="http://cyprus-mail.com/2014/10/24/mobsters-financing-political-parties-in-cyprus/">political parties are financed</a>. To prevent and unmask other fraudulent activities, more efficient monitoring is needed for banks and their employees. </p>
<p>Plus trust in the government is low. A <a href="http://www.sigmalive.com/news/local/202858/dimoskopisi-dysarestimenoi-oi-polites-apo-tin-vouli">survey</a> last year found that 80% of citizens are disappointed in their members of parliament. There is a belief that political parties do not behave responsibly in terms of passing legislation. Politics in Cyprus is driven by <a href="http://www.politis-news.com/cgibin/hweb?-A=296485&-V=articles">personal interests or the demands of party politics</a>. This has come at the expense of policy.</p>
<h2>Boosting competition</h2>
<p>Cyprus remains an <a href="http://reports.weforum.org/global-competitiveness-report-2014-2015/rankings/">uncompetitive economy</a>. Despite tourism being one of the focus areas for boosting economic growth, Cyprus is deemed <a href="http://www.kpmg.com/CY/en/Documents/AUGUST-Cyprus-Tourism-Market-Report.pdf">an expensive destination</a> for tourists due to high electricity, telecommunications, transportation and banking costs. </p>
<p>Competitiveness is very low in the production of knowledge and innovation too. Cyprus is at the bottom of the <a href="http://cyprus-mail.com/2015/05/14/bottom-of-the-oecd-education-league-again/">OECD’s secondary education rankings</a>. Poor educational performance does not help in the production of high paid jobs through the development of intelligent skills. This leads to an increase of unemployment of young generation. This is major problem for Cyprus – the <a href="http://ec.europa.eu/eurostat/en/web/products-datasets/-/UNE_RT_M">unemployment rate is 15.6%</a>.</p>
<p>In spite of the reforms that have taken place, government structures <a href="http://www3.weforum.org/docs/gcr/2015-2016/CYP.pdf">remain highly bureaucratic</a> and inefficient. The European Commission has said that reforms to state-owned enterprises like the telecommunications operator, CYTA, and the reform of the health sector have made slow progress.</p>
<h2>Moving on</h2>
<p>During the banking crisis, there was a <a href="https://assets.documentcloud.org/documents/1363436/documents-on-eurozone-banking-crisis.pdf">silence among auditors</a> as they collected large fees and dished out clean bills of health without raising any red flags. To prevent future crises, greater transparency and accountability is needed.</p>
<p>In many ways, this goes without saying. It is the continued reform across the Cypriot economy that is needed. If Cypriots continue to only blame the banks, the problems faced by citizens and potential foreign and local investors will go unsolved. And, should the international financial environment once again worsen, Cyprus will be vulnerable.</p>
<p>The case of Cyprus reflects that the causes of a financial collapse cannot be viewed from only an economic perspective. The social, cultural and political context of the country should be taken into consideration as they influence both crisis and recovery.</p><img src="https://counter.theconversation.com/content/54912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christina Ionela Neokleous does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cyprus is successfully exiting its bailout at the end of March after three years.Christina Ionela Neokleous, PhD Candidate in Accounting, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/483642015-10-01T13:54:22Z2015-10-01T13:54:22ZIs Portugal a poster child for austerity?<p>Austerity works. That’s the message of Pedro Passos Coelho, the Portuguese prime minister, to voters. After three years of recession, Portugal registered a return to growth of 0.9% in 2014, exited its three-year bailout and the economy is projected to expand a further <a href="https://data.oecd.org/gdp/real-gdp-forecast.htm">1.6% in 2015 and 1.8% in 2016</a>.</p>
<p>Portugal’s growth figures have led to the country being labelled a “<a href="http://www.wsj.com/articles/SB10001424052702303978304579471281084210744">star pupil</a>” of the eurozone crisis. Advocates say the country demonstrates how the formula of “<a href="https://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf">expansionary austerity</a>” can work if prescriptions are followed closely. And the current coalition argues that their successful implementation of austerity policies and structural reforms have moved the Portuguese economy from an import-led to an export-led model. Economic growth registered recently is considered a direct product of this.</p>
<p>But it is by no means clear that the formula of austerity and structural reform is responsible for Portugal’s return to growth. As the main opposition party points out, it was the return of domestic demand that brought the turnaround. And a longer view of Portugal’s economy shows that a shift in the structure of the economy has a longer history than the government recognises with important implications for future prospects. </p>
<h2>The export argument …</h2>
<p>In the government’s favour it is certainly true that the economy has witnessed a <a href="https://data.oecd.org/trade/trade-in-goods-and-services.htm">shift towards a greater share of exports</a> during its time in office. In 2011, when it came to power the share of exports as a percentage of GDP stood at 34.3%. This has risen to 39.9% in 2014 – growth which compares favourably to the OECD average which stood at 28.6% in 2013 and 28.3% in 2011.</p>
<p>As the <a href="https://www.bportugal.pt/en-US/EstudosEconomicos/Projecoeseconomicas/Publications/projecoes_e.pdf">Banco de Portugal makes clear</a>, this should continue “strengthening the recent trend of reallocation of productive resources to the economic sectors that are more exposed to international competition”, which are therefore more likely to export goods and services. This in turn will ensure that the “Portuguese economy’s net lending should remain stable and the reduction in external indebtedness should be sustained”. Considering it was a debt crisis that needed bailing out, this can only be a good thing and will play a larger role in GDP growth than had been the case in recent history.</p>
<h2>… vs demand</h2>
<p>Portugal’s opposition Socialist Party points out that the austerity policies that were implemented had a huge effect on domestic demand, as they removed people’s spending power. In 2010 <a href="https://data.oecd.org/gdp/domestic-demand-forecast.htm">domestic demand</a> had grown by 1.9%. When the bailout was introduced in 2011, however, demand dropped by 5.7%, dropping another 7.3% in 2012 and then 2.5% in 2013.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96845/original/image-20150930-5813-1m6zfg5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">OECD</span></span>
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<p>The socialists argue that demand only improved after Portugal’s Constitutional Court ruled that a number of the most significant austerity measures were unconstitutional and overturned them in <a href="http://www.ft.com/cms/s/0/3a4aaed2-9e36-11e2-9ccc-00144feabdc0.html#axzz3n8mJAjpy">April 2013</a> and <a href="http://www.wsj.com/articles/portugals-highest-court-strikes-down-wage-cut-1401484389">May 2014</a>. These included cuts to state pensions and public sector wages. It was only then that the return to growth began as domestic demand grew by 2.1%. </p>
<p>This argument is convincing, as it is unlikely that an economy based largely on an import-led growth model would find itself altering the dominant foundation upon which growth is pursued in the midst of recession, growing unemployment, and international uncertainty.</p>
<h2>The long view</h2>
<p>A longer view of Portugal’s economy also does damage to the government’s claim to have found the magic formula for a sustainable economic path forward. Specifically, the government’s argument ignores the fact that Portugal had been experiencing <a href="https://data.oecd.org/trade/trade-in-goods-and-services.htm">steady growth in exports as a percentage of GDP</a> from 26.7% in 2005 to 31% in 2007. </p>
<p>This has been unparalleled since the late 1980s. It was only with the financial crisis of 2007-08 that export growth stalled, <a href="https://data.oecd.org/trade/trade-in-goods-and-services.htm">falling to 27.1% in 2009</a>. From this point the steady march back to recent highs continues unabated, a trajectory that would have likely continued had the financial crisis not taken place or been as severe.</p>
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<img alt="" src="https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=345&fit=crop&dpr=1 600w, https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=345&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=345&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=434&fit=crop&dpr=1 754w, https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=434&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/96846/original/image-20150930-5804-5ag2ij.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=434&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">OECD</span></span>
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<p>In an important sense, then, we can state that the Portuguese economy has witnessed a shift in its structure. However, this can be dated back a decade earlier than claims made by the government. </p>
<p>This occurred at a time when a significant fall in domestic demand saw GDP growth quickly <a href="http://www.brookings.edu/%7E/media/Projects/BPEA/Spring%202013/2013a_reis.pdf">follow the same trajectory</a>. In this stagnant domestic environment the need for Portuguese companies to refocus their activities towards external markets became imperative. However, factors such as China joining the World Trade Organisation in 2001 and the eastern enlargement of the European Union in 2004 have presented significant obstacles. </p>
<p>These changes to the global economy introduced much greater international competition for Portuguese companies, which produced products of a similar <a href="https://atlas.media.mit.edu/en/explore/tree_map/hs/export/prt/all/show/2012/">low value-added profile</a>. While a structural shift in the economy may have taken place in this early period, this in turn did not lead to a sustainable trajectory of export-led growth. This difficult transition is ultimately what led to the debt crisis.</p>
<h2>An uncertain future</h2>
<p>There is therefore still plenty to be concerned about when discussing the future of the Portuguese economy. The government is wrong to claim that the thesis of “expansionary austerity” has produced a shift from an import-led to an export-led model of growth under its watch. This structural shift has been underway for some time but still seems to have yielded little in the way of a shift in prospects for the economy to sustainably grow. </p>
<p>And the damage inflicted by austerity policies is clear to see in Portugal when you look beyond the headline growth figures. <a href="https://data.oecd.org/unemp/unemployment-rate.htm">Unemployment remains incredibly high</a> at 13.9% (albeit down from its 16.2% peak in 2013) and long-term unemployment levels were at 60% in 2014, 30% higher than the OECD average. Portugal’s health service has <a href="http://www.channel4.com/news/portugal-health-crisis-we-do-not-even-have-scrubs">faced severe cuts affecting frontline services</a>, emigration levels among young people especially are <a href="http://news.yahoo.com/portugal-grapples-brain-drain-despite-economic-hopes-070313537.html">soaring</a>, and government debt levels remain at a <a href="https://data.oecd.org/gga/general-government-debt.htm">worryingly high 130% of GDP</a>.</p>
<p>And yet, the likely return to power of the current coalition will only add political weight to the failed logic of austerity. The damage done will take root and growth will ultimately stagnate in an uncertain international environment. In its search for a sustainable growth model Portugal may well be considered a star pupil, but this label has only been achieved by learning bad lessons.</p>
<p><em>Read more: <a href="https://theconversation.com/austerity-portugal-is-on-a-different-path-to-greece-and-spain-heres-why-48121">why Portugal finds itself on a different path</a> to Greece and Spain when it comes to austerity.</em></p><img src="https://counter.theconversation.com/content/48364/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jamie Jordan receives funding from the Economic and Social Research Council. </span></em></p>Portugal’s return to growth has many calling it the star pupil of the eurozone crisis. A look beyond the headline figures puts this into question, however.Jamie Jordan, ESRC PhD Candidate in International Relations, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/451142015-07-30T14:04:46Z2015-07-30T14:04:46ZWhy Greece’s third bailout package is bound to fail<p>The Greek government was forced into accepting a third bailout under very difficult circumstances on July 13. The dramatic <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-tusk-final-remarks-euro-summit/">euro summit of July 12</a> lasted 17 hours before a new bailout package of €86 billion was agreed by eurozone prime ministers. Conditional on a new recessionary policy mix, negotiations are now underway to determine the specifics. </p>
<p>While the details of the new plan are undecided, so far we know that it will last three years. A higher than anticipated recession might further increase Greece’s financing needs rendering the above figure inadequate. </p>
<p>But regardless of the specifics, since the recessionary policy mix will remain the same, there is nothing to suggest that the third bailout will have a different fate to its predecessors. The first bailout program in 2010 failed and was replaced by a second one in 2012 and now a third, similar one. All demanded unreasonable high fiscal consolidation without any significant debt relief. After the new agreement recession is very likely to deepen again. </p>
<h2>Economic woes</h2>
<p>The Greek economy faces yet <a href="http://www.theguardian.com/business/live/2015/jul/23/business-live-greece-mps-reforms-tsipras-bailout-live">another recessionary year</a> with depressed consumption, anaemic investment and an extremely <a href="http://www.telegraph.co.uk/finance/economics/11554873/Why-theres-little-hope-for-Greeces-unemployed.html">high unemployment rate</a>. On top of that, the ongoing humanitarian crisis <a href="http://www.bbc.co.uk/news/world-europe-31992175">is deepening</a>. The third bailout will exacerbate this.</p>
<p>The tremendous <a href="http://www.economist.com/node/21555955">fiscal consolidation</a> implemented by Greece and a badly designed private debt haircut in the beginning of 2012 that undermined the banking sector under the terms of its previous two bailouts, has led so far to economic losses equal to a quarter of GDP and <a href="http://www.alpha.gr/files/infoanalyses/Greece_Economic_Financial_%CE%BFutlook62015.pdf">pushed unemployment to levels over 25%</a>. No other country has suffered similar losses in peacetime. </p>
<p>Another mark of the recessionary policies being a failure is Greece’s inability to meet the economic targets predicted by its creditors. IMF forecasts of nominal GDP overestimated the actual numbers <a href="https://www.oxfordeconomics.com/my-oxford/publications/273817">by 25% in 2013 and 2014</a>. The same will probably happen in 2015. Financing Greece’s debt in the same old way is expected to further boost sovereign debt <a href="http://www.imf.org/external/pubs/cat/longres.aspx?sk=43080.0">to the level of 200% of GDP</a>. This figure is, in its own right, a guarantee that it will take years before Greece regains access to markets (without a drastic intervention by the ECB).</p>
<h2>Bad design</h2>
<p>There are also elements in the new programme that are a clear outcome of a bad design. Greece has already received a <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/07/17-efsm-bridge-loan-greece/">€7 billion bridge loan</a> to meet its summer liquidity needs by the EU’s emergency fund, the European Financial Stabilisation Mechanism. If there are further delays to the new agreement, Greece will need another bridge loan of €14 billion to pay back a maturing bond to the ECB of €3.2 billion, due on August 20, and to recapitalise the country’s banking sector before the autumn stress-tests, which will reveal how robust (or not) the Greek banking system is.</p>
<p>After a prolonged holiday the banking sector requires an urgent recapitalisation. This is mainly due to cash withdrawals from the Greek banks and the high levels of the non-performing loans triggered by the persistent recession and the bank closure. According to <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-euro-summit-statement-greece/">rough EU estimations</a>, banks will immediately need an injection of €25 billion. In the new agreement the plan is that this will come from privatising state assets. </p>
<p>On the basis of past experience, this target is unthinkable. Privatisation receipts for 2011-2014 (under the terms of the last two bailouts) <a href="http://www.ft.com/cms/s/0/b3f7a5b0-ac61-11e4-af0e-00144feab7de.html?siteedition=uk#axzz3hJDexlaH">were only €5.4 billion</a> . But even if the target is reached it will take years to collect the recapitalisation funds, which are urgently needed now. In the meantime, limits on cash withdrawals remain, with Greeks limited to withdrawing €420 a week and unable to send money abroad.</p>
<h2>Democratic deficit</h2>
<p>It is clear that the new bailout plan is inadequate even before the official agreement. The plan will also meet increasing resistance from Greeks – the majority of whom will not benefit <a href="http://www.aljazeera.com/indepth/opinion/2014/06/our-big-fat-greek-privatisation--20146921125385770.html">from the fire-selling of public property</a>. The fact that the state assets will be mandatorily transferred to a newly created fund will raise further concerns. Aspects of the new agreement are not only poorly designed but they are also lacking democratic legitimisation.</p>
<p>Given the size of the recession and the increasing unpopularity of the reforms, a new political impasse is very likely to arise before the end of the economic crisis. The economic conditions and targets of the new programme will likely be missed, flagging up a new failure long before the lapse of the three years. </p>
<p>Meanwhile, Greece has been trapped to a self defeating plan. With the option of Grexit now put on the negotiating table for the first time by officials from core countries, any state attempting to break from the recessionary-led reforms will be scared into submission. This may be enough for the moment to tackle the anti-austerity forces in Europe; but it is also a slippery ground for the longevity of the eurozone.</p><img src="https://counter.theconversation.com/content/45114/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimitris P. Sotiropoulos is a member of Syriza.</span></em></p>It’s groundhog day for Greece as the third bailout package is negotiated. And there’s no reason to think this one will be any more successful than the last two.Dimitris Sotiropoulos, Senior Lecturer in Finance, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/447442015-07-20T10:27:40Z2015-07-20T10:27:40ZReading between the lines of Greece’s bailout: debt relief is inevitable – just not yet<figure><img src="https://images.theconversation.com/files/88944/original/image-20150720-2328-1qz1x3k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">How to explain Greece's bailout puzzle? </span> <span class="attribution"><span class="source">Greece puzzle via www.shutterstock.com</span></span></figcaption></figure><p>At first glance, the latest developments in the Greek bailout saga seem a little puzzling, particularly those concerning debt relief. </p>
<p>The current <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-euro-summit-statement-greece/">proposal</a> from Greece’s eurozone creditors does not offer debt relief. To the contrary, it <a href="http://www.bbc.com/news/business-33505555">emphasizes</a> that debt relief is not involved: “nominal haircuts on the debt cannot be undertaken.” </p>
<p>Yet the day after Greece agreed to the proposal, the International Monetary Fund <a href="http://www.imf.org/external/pubs/ft/scr/2015/cr15186.pdf">released</a> a report showing that Greece cannot possibly pay back its current debt. This position is hardly surprising in itself -– the IMF has been saying as much for months. But the timing was mystifying because the IMF had initially endorsed the proposal. In fact the eurozone countries would <a href="http://blogs.wsj.com/moneybeat/2015/07/13/heres-what-the-greek-deal-entails/">not have agreed</a> to the proposal otherwise. </p>
<p>Truth be told, no one seems to think the latest bailout (alone) will work, the official word notwithstanding. Whether it’s the <a href="http://www.wsj.com/articles/germanys-schauble-dismisses-greek-haircut-option-1437032027">German finance minister</a>, the <a href="http://www.telegraph.co.uk/finance/economics/11743163/Greece-news-live-Brussels-prepares-to-release-emergency-loan-to-get-Greece-through-July.html">Greek prime minister</a> who agreed to the deal, the <a href="http://www.bloomberg.com/news/articles/2015-07-17/greek-bailout-needs-debt-reduction-imf-s-lagarde-says">head of the IMF</a> or the pundits, there’s a “Greek” chorus in the background wailing that this bailout will just bring another crisis.</p>
<p>In other words, it’s a puzzle any way you look at it. If debt relief will ultimately be essential, why not just provide it now? Why insist on fiscal and structural reforms that will increase Greece’s economic pain? </p>
<p>Could it be that eurozone leaders are simply setting the stage, however quietly, for significant debt forgiveness in the not-too-distant future? </p>
<p>Here’s why that idea may not be so far-fetched – and why there probably isn’t any better time than now, with Greece’s banks in crisis, to pursue reforms as a step toward debt relief. We just need to read between the lines.</p>
<h2>Why debt relief must wait</h2>
<p>First of all, proposing debt relief today would be politically dangerous for leaders in the eurozone creditor countries. Their voters <a href="http://www.washingtonpost.com/blogs/monkey-cage/wp/2015/07/12/other-europeans-say-they-cant-trust-greece-the-problem-goes-both-ways/">do not trust</a> Greece, given the country’s many unfulfilled promises of reform, and many view debt forgiveness as unfair. </p>
<p>It’s difficult for pensioners in Latvia, who <a href="http://ec.europa.eu/economy_finance/publications/publication14992_en.pdf">retire</a> on average at 63, to see why it’s fair for them to sacrifice to help pensioners in Greece, who retire on average at 60 – and <a href="http://greece.greekreporter.com/2014/12/04/75-of-greek-pensioners-enjoy-early-retirement/">sometimes</a> at 50. It’s difficult for voters in Finland, who <a href="http://www.kpmg.com/global/en/issuesandinsights/articlespublications/vat-gst-essentials/pages/finland.aspx">pay</a> a value-added tax (VAT) of 24%, to see why it’s fair for them to be taxed to support voters on Greek islands, many of whom <a href="http://www.ekathimerini.com/199529/article/ekathimerini/business/four-tier-vat-status-for-islands">pay</a> a VAT of only 13%. </p>
<p>So Europe’s leaders face a catch-22. Greece cannot recover without debt relief, but Europe’s voters will not approve such forgiveness. To complicate matters further, the Greeks think they merit relief since they have already implemented some reforms and their economy is suffering.</p>
<p>Economic activity <a href="http://money.cnn.com/2015/01/22/news/economy/greece-elections-austerity-syriza/">is down</a> by almost 30% since 2008. Prices are falling 2% per year. The banks are still closed, limiting Greeks to withdrawals of just €60 a day. Overall unemployment is 26%, and unemployment among the young is 50%. Homeless shelters are overwhelmed. Proper medical care is out of reach for many people.</p>
<p>Naturally the Greeks think they’ve suffered enough.</p>
<h2>Why insist on reform amidst the ruins</h2>
<p>Given the terrible economic pain in Greece, why do its eurozone creditors insist on fiscal and structural reforms that will make things even worse? Reform is critical financially, economically and politically.</p>
<p>Greece already owes more than it can pay, yet Greece’s government keeps borrowing more because it still runs a substantial <a href="http://www.tradingeconomics.com/greece/government-budget">budget deficit</a> every year.</p>
<p>The <a href="http://www.theguardian.com/business/2015/jul/13/greece-bailout-agreement-key-points-grexit">bailout plan</a> requires fiscal reforms that will dramatically reduce the need for borrowing: Greece must bring its pension system to financial sustainability via “comprehensive reform,” streamline VAT and broaden the tax base and introduce “quasi-automatic spending cuts” that kick in if the government can’t hit its targets. </p>
<p>Sustainable economic growth also requires structural reform. Existing Greek laws and regulations severely impede business activity and strangle job creation, all of which reduce tax revenues and make it hard for Greece to balance its budget. The deal aims to enhance competition, introduce greater labor-market flexibility and privatize certain industries. </p>
<p>History shows that these reforms will make a big difference to Greece’s economy. Similar reforms brought Germany to economic dominance within Europe and enabled China to explode onto the world economic scene. And the reforms are likely to pass: most Greeks strongly <a href="http://greece.greekreporter.com/2015/06/16/poll-7-in-10-greeks-want-the-euro-at-any-cost/">support</a> their country’s membership in the eurozone and are willing to pay a steep price to keep it. </p>
<p>But the political benefits of reform are just as critical as their financial and economic benefits. By implementing the reforms, Greece could alleviate voter distrust among its creditor countries and reduce the perceived unfairness in debt relief. Thus the deal could ultimately make it politically feasible for leaders in these countries to propose significant forgiveness. </p>
<p>The adjustments associated with reform will be very painful, and the Greek economy is already in bad shape. Indeed, it was to avoid such pain, or at least spread it out, that Greek voters so often opted to slow or stop reform in the past. Unfortunately, slowing reform over the past year led the country into greater debt, precipitating the current crisis, so the rest of Europe will no longer support that option. </p>
<p>And the one option still available to Greece -– spurning its creditors altogether –- would be even worse than reform because it would intensify the banking crisis. </p>
<h2>Banking crisis boosts Europe’s leverage</h2>
<p>It is the banking crisis – which began after Prime Minister Alexis Tsipras surprised everyone in late June with his call for a referendum, prompting the European Central Bank to cap how much Greek lenders could borrow – that gives creditors the most leverage over Greece. </p>
<p>To review: the <a href="http://www.abc.net.au/news/2015-07-18/greek-banks-to-reopen-monday-but-capital-controls-remain/6631014">bank closures</a> in Greece have sent the economy reeling, firms are closing at an accelerated rate, and Greek banks are at risk of insolvency. The banks have just reopened, but they’re still desperate for cash.</p>
<p>If the banks are not recapitalized soon, they’ll sharply curtail lending, and economic activity will fall precipitously. Greece would be forced out of the eurozone and would have to adopt a new, devalued currency. Greeks would find euro-denominated debts to foreigners more difficult to repay, and many would default. The defaults would delay the return to growth because foreign lenders would be even more reluctant to extend credit in the future. </p>
<p>Key to the new political calculus is Greece’s inability to recapitalize its own banks. Because it is so deeply in debt, the Greek government has no financial resources to spare. It is already behind in paying regular expenses. And the Greek central bank gave up the power to recapitalize the banks by printing new money when Greece joined the euro. </p>
<p>To recapitalize its banks and avoid economic implosion, Greece needs an immediate infusion of foreign funds. This gives Europe unprecedented leverage to help Greece help itself. By making current aid depend on immediate reform, Europe changes the calculus for Greek lawmakers when voting on reform proposals: it increases the payoff to voting Yes, because it helps Greek voters avoid a deeper banking crisis, and it reduces the costs to voting Yes, because the eurozone itself will take some of the political heat. </p>
<p>What’s in it for the eurozone? Its leaders would prefer to avoid the uncertainties and precedents of a Grexit. And in the long run a stronger Greek economy will import more of their products, supporting economic growth throughout the region. And, of course, a stronger Greek economy will need less debt relief; who can complain about that?</p>
<h2>What’s with the IMF?</h2>
<p>Another puzzle: why would the IMF acquiesce to the current agreement if it believes debt relief is critical? Keep in mind that the IMF wants to maximize its chances of being paid back. Those chances rise whenever Greece implements reforms, because they strengthen the economy. </p>
<p>The IMF could also benefit indirectly from reforms because they might alleviate the political opposition to debt relief. Forgiveness from other institutions frees up resources in Greece that can be used to pay back the IMF. </p>
<p>In short, another incentive for not insisting on immediate debt relief could be that waiting is required to make reform happen, and reform is politically necessary for actual debt relief to occur down the road.</p>
<h2>Clues that debt relief lies ahead</h2>
<p>If the Eurozone creditor governments do have in mind a long-run plan that includes significant debt relief, they clearly cannot openly discuss it today. </p>
<p>Nonetheless, their close cousins in the European Commission called this week for just that: an eventual “<a href="http://www.reuters.com/article/2015/07/15/eurozone-greece-eu-assessment-idUSB5N0ZA05420150715">reprofiling</a>” of Greece’s debt conditional on “a far-reaching and credible reform program.” Reprofiling amounts to implicit debt forgiveness through the lengthening of maturities, deferring of interest and similar adjustments. </p>
<p>The <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-euro-summit-statement-greece/">eurozone plan</a> itself hints at this possibility. The first sentence highlights the importance of rebuilding trust. Specific reform proposals target the perception of unfairness, stressing that Greece should match policy standards elsewhere in Europe. For example, “labor market policies should be aligned with international and European best practices.” </p>
<p>And tucked in at the end is a brief but explicit hint of possible future forgiveness: </p>
<blockquote>
<p>Against this background, in the context of a possible future [European Stability Mechanisms] programme … the eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level. </p>
</blockquote>
<p>Of course, this vague gesture toward forgiveness is immediately linked to the necessity of reform: “These measures will be conditional upon full implementation of the measures to be agreed in a possible new programme.” </p>
<p>So Greeks and others who think the Germans are being a little harsh with their demands for austerity without debt relief should take heart. Good things may ultimately come to those who wait – and endure.</p><img src="https://counter.theconversation.com/content/44744/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carol Osler does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>No one seems to really believe the latest bailout plan will work without debt relief. But the only way to get Greece to adopt essential reforms is to pretend it isn’t in the cards.Carol Osler, Professor of Business, Brandeis UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/444002015-07-09T08:45:54Z2015-07-09T08:45:54ZGreece is a reminder of the fragility of money and the need to deal with debt<p>As the world waits to see the outcome of negotiations between the Greek government and its creditors, our attention has been drawn to the fragility of money by the ATM queues in Greece. The euro project, which has long been under strain, may soon start to irrevocably crack.</p>
<p>This fragility is born of an irredeemable tension at the heart of the modern monetary system, between the apparent mobility of money – most types of money nowadays usually flows fairly easily across boundaries and borders of all sorts – and its potential immobility. In Greece, it is the ATM queues for the now ever more tightly rationed amounts of cash that symbolise this. When the mundane technology that so many of us rely on to smooth our passage through life suddenly becomes unreliable or inaccessible, we confront the very real consequences of what can happen when money stops moving.</p>
<h2>Crossing borders</h2>
<p>If contemporary economies depend on the unceasing movement of money, then the particular problem for Greek citizens is that the money that they depend on doesn’t match their own mobility. This was symbolised by a set of incidents that took place in the aftermath of the imposition of limits of cash withdrawals by the Greek government. Certain enterprising Greeks, taking full advantage of the EU’s freedom of movement laws, <a href="http://www.balkaneu.com/greeks-head-bulgaria-draw-cash-atms/">crossed into Bulgaria</a>, the nearest EU neighbour, to try to see whether its ATMs would be more generous in giving out cash than their own.</p>
<p>They weren’t. Restrictions on cash advances to Greeks are determined not by the location of the dispensing machine but by the location of their account. But you can see why they were tempted to try. At the heart of the euro is an ideal of unfettered physical movement (although of course only for privileged EU citizens, as the rising deathtoll of migrants trying to reach Europe <a href="https://theconversation.com/europes-war-on-migrants-while-we-argue-thousands-perish-in-the-mediterranean-40330">continues to grimly remind us</a>) aided and accelerated by equally unfettered monetary movement. The Greek visitors to Bulgaria reasonably enough put this to the test, only to be confronted by the reality that – for them – the euro is simply not mobile enough.</p>
<p>The problems many Greeks are experiencing are made worse by some of their fellow citizens. In the past months, <a href="http://www.telegraph.co.uk/finance/economics/11637688/Greek-capital-flight-hits-record-as-ultimatum-talk-grows.html">huge sums</a> have left the country as its richer residents have tried to safeguard their wealth. This has in turn contributed significantly to weakening Greece’s banking sector. In at least partial response, the government is said to be <a href="http://www.reuters.com/article/2015/07/05/us-europe-greece-swiss-idUSKCN0PF0IN20150705">considering a tax amnesty</a> for the billions worth of euros that have been tucked away in Switzerland. In such instances, it is the ability for money to not just move somewhere else but to then sit there that comes to matter. </p>
<h2>An obligation to forgive</h2>
<p>Of course, when it comes to the current Greek debt crisis, the real problem the Greeks and their government are facing is not the challenge of how money moves or doesn’t across space but across time. The challenge for the Syriza negotiators is to convince their creditors that the past promises made by Greek governments cannot and should not cause ongoing harm to the lives of the Greek population. This means that at least some of their debts should be written off.</p>
<p>It is a property of debt that it can draw people and governments into making promises that, in the end, prove utterly incapable of being kept. </p>
<p>I study the <a href="http://www.livedeconomies.net/">consumer credit industry</a> and this fact is wholly uncontroversial within it. While creditors may not like debtors breaking their promises, they recognise that they do, build this into their risk models, and, most importantly, they then tolerate debts being written down when they have to be.</p>
<p>In the case of most contemporary forms of consumer debt, it is also simply not true to say that the only obligation is on the debtor to repay. Societies have gradually developed a range of mechanisms that, even if unsatisfactory, place an obligation on creditors to, in certain circumstances, allow debtors’ promises to be broken. With mechanisms like bankruptcy, linked to the possibility of an eventual clean slate for debtors, we have come to recognise that a debtor’s past cannot in every case be allowed to dominate their future.</p>
<p>Amid the Troika of Greece’s creditors, <a href="http://www.theguardian.com/business/2015/jul/02/imf-greece-needs-extra-50bn-euros">only the IMF</a> has, extremely belatedly, shown even a vague sense of recognising this, in suggesting that a debt write down will be necessary for Greece to recover. The open secret they grudgingly admit is that, because of their deep dependence on flows of debt, modern money requires such mechanisms of forgiveness. Yet it is quite transparent that the majority of Greece’s creditors live in abject fear of this open secret being uttered too loudly within earshot of the more indebted eurozone members. The money they protect depends on it.</p>
<p>The problem for the EU is that, unlike in the case of consumer credit, no real mechanisms have been put in place to allow debt forgiveness to occur. In their stead is the false choice offered to the Greek people of yet deeper austerity or the national immiseration of being forced to leave the euro. Unless creditors quickly work out how to allow debt promises to be broken then, with or without Greece, the euro will remain fatally fragile.</p><img src="https://counter.theconversation.com/content/44400/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joe Deville has received funding from the Economic and Social Research Council for his research into consumer credit default, grant number PTA-031-2006-00457. </span></em></p>The euro remains fatally fragile so long as the eurozone lacks a mechanism for forgiving debt.Joe Deville, Lecturer in Mobile Work, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/442312015-07-05T20:13:14Z2015-07-05T20:13:14ZGreece votes No: experts respond<p><em>The Greek people have voted, <a href="http://www.bbc.co.uk/news/world-europe-33403665">saying a resounding No</a> to the terms of the bailout deal offered by their international creditors. What will this mean for Greece, the euro and the future of the EU? Our experts explain what happens next.</em></p>
<p><strong>Costas Milas, Professor of Finance, University of Liverpool</strong></p>
<p>Greek voters have confirmed their support for their prime minister, Alexis Tsipras, who now has the extremely challenging task of renegotiating a “better” deal for his country.</p>
<p>Nevertheless, time is very short. Greece’s economic situation is critical. On July 2, Greek banks <a href="http://www.telegraph.co.uk/finance/economics/11714655/Greek-banks-down-to-500m-in-cash-reserves-as-economy-crashes.html">reportedly had only €500m in cash reserves</a>. This buffer is not even 0.5% of the €120 billion deposits that Greek citizens have to their names. It is only capital controls preventing Greek banks from collapsing under the strain of withdrawal.</p>
<p>Basic mathematical calculations reveal how desperate the situation is. There are roughly <a href="http://www.kathimerini.gr/821443/article/epikairothta/politikh/ston-topo-diamonhs-yhfizoyn-oi-eterodhmotes---prwth-fora-gia-108371-neoys">9.9m registered Greek voters</a>. Assume that – irrespective of whether they voted Yes or No – some 2.8m voters (that is, a very modest 28.2% of the total number of registered voters) decide to withdraw their daily limit of €60 from cash machines on Monday morning. Following this pattern, banks will run out of cash in three days and therefore collapse (note: 3 x 2.8m x 60 ≈ 500m). </p>
<p>There is therefore very little time for the Greek government to strike the deal with their creditors that will instantaneously give the ECB the “green light” to inject additional Emergency Liquidity Assistance (ELA) to Greek banks to support their cash buffer and save them from collapse. In other words, Greece does not have the luxury of playing “hard ball” with its creditors. An agreement has to be imminent. </p>
<p>Financial markets, expected to start very nervously on Monday morning, will probably stay relatively calm as the reality of the economic situation spelled out above is more likely than not to lead to some sort of agreement (provided, of course, that Greece’s creditors will listen to Tsipras). Whether this agreement is good for the Greeks, this is an entirely different story.</p>
<p><strong>Sofia Vasilopoulou, Lecturer, Department of Politics at University of York</strong></p>
<p>As his country went to the polls, Tsipras said: “Today we celebrate democracy,” and proclaimed that the will of the people should not be ignored.</p>
<p>But the referendum has had the opposite effect. It has further weakened Greek democracy and undermined Greece’s negotiation position with its creditors. What’s more, its has solidified divisions in Greek society. In a country with a history of civil war and dictatorship, this polarisation may lead to a further rise of the extremes.</p>
<p>The day after the referendum is a very important moment. The people have spoken and the government will need to finally clarify its vision for the future. It will need to explain if it is resolved to addressing Greece’s crisis within the eurozone by cooperating with its partners or if it wants to create a utopian socialist state in Europe. This result marks a new period of uncertainty, not only for Greece but for Europe – and potentially for the world economy as a whole.</p>
<p><strong>Richard Holden, Professor of Economics, UNSW Australia</strong></p>
<p>By calling this referendum and shutting off negotiations for nearly a week, the Syriza party has brought the Greek banking system very close to insolvency. Greece can’t print euros so Greek banks will soon need to issue IOUs, or the demand for money will not be met, leading to utter chaos. Who will accept these? How will they be valued? These are big, scary questions to which nobody knows the answer.</p>
<p>By voting No, Greece has tied the hands of European Central Bank president Mario Draghi. As a matter of politics there’s not much he can do in the short-term and with Greek banks insolvent he may not be able to do anything simply as a matter of law.</p>
<p>At least one if not all the major Greek banks are likely to fail early this week. When this happens, the Greek economy will essentially come to a halt. Nobody knows what will happen, but it surely won’t be good.</p>
<p>The other depressing consequence of the No vote is that Greek finance minister Yanis Varoufakis’s promise to resign if his fellow citizens voted Yes will not come about. It has been abundantly clear that Syriza representatives have been miles out of their depth from the time they took office.</p>
<p>Everyone with real knowledge and experience of financial markets and liquidity crises told them to stop playing chicken with the IMF and ECB. They should start listening immediately. </p>
<p><strong>George Kyris, Lecturer in International and European Politics, University of Birmingham</strong></p>
<p>A historic referendum for Greece and Europe tells a very interesting story. While results indicate that a sizeable 61% rejected existing policies towards the Greek crisis, polls have consistently shown that the majority of Greeks want to remain in the eurozone. This exposes the success of Syriza based on its populism, which has allowed Greeks to think that they can stay a credible member of the EU, while at the same time taking unilateral decisions and refusing to recognise the obligations of their eurozone membership. </p>
<p>This not only creates unrealistic expectations but it is also a very sad result for the relationship between the EU and its citizens, which, once again, falls victim to national governments’ short-term strategies. In this climate of unrealistic expectations, the Greek government embarks on a mission impossible to secure a better deal for the country, where economic, political and social peace has been seriously undermined in the past few months and week especially. </p>
<p>The first reactions of Greece’s EU partners to the No vote are <a href="http://www.independent.co.uk/news/business/news/greece-referendum-live-germany-troika-yanis-varoufakis-alexis-tsipras-vote-10367225.html">far from positive</a>. </p>
<p>In his address after the referendum, Alexis Tsipras indicated the formation of an ad hoc national council with the participation of major political parties to prepare the negotiation strategy. The next few days will show if a more united Greek front is possible and capable of improving things for the crisis-hit country.</p>
<p><strong>Ross Buckley, Professor, Faculty of Law at UNSW Australia</strong></p>
<p>The Greek people have decisively voted No to more austerity imposed from Frankfurt. This is unsurprising. Voters rarely vote for higher taxes and lower pensions. However other polls reveal clearly that the Greek people overwhelmingly also want to retain the Euro. So this is one giant gamble. The Greeks are betting that the potential damage to other countries, especially Spain and Italy, and thus to the very fabric of the Euro, is simply too great for the Eurozone to eject Greece.</p>
<p>When voting on Sunday most Greeks probably felt they were reclaiming control of their own economy. However, paradoxically, the No vote has done the opposite. Greece’s short to medium term economic future is now in the hands of others, particularly Germany and France.</p>
<p>Greek banks today are all but out of Euros. Normally in this situation a nation’s central bank simply prints more currency. Greece can’t do that, as no one country controls production of the Euro. So the options over the next month or so seem to be that either Germany, France and the European Central Bank blink, and extend more credit to Greece, or Greece’s financial system will cease functioning and ultimately it will be forced to print drachma.</p>
<p><strong>Marianna Fotaki, Network Fellow, Edmond J Safra Center for Ethics, Harvard University, and Professor of Business Ethics at the University of Warwick</strong></p>
<p>Beyond the economic issues at stake in this vote, the democratic movement happening in Greece offers new hope not only to the Greek people, but for other countries too. The result is a powerful message to the political establishment that has mismanaged Greece for the last four decades, bringing the country to the brink of catastrophe.</p>
<p>The tremors will be felt beyond Greece’s borders. The promise of a better tomorrow that <a href="https://www.foreignaffairs.com/articles/greece/2015-01-29/austerity-vs-democracy-greece">never seems to arrive</a> on the condition of more impoverishment today is a familiar concept to many. If Greece is successful, it will offer an alternative to the misanthropy driving eurozone austerity policies. It will enable citizens to have a bigger say in the future of the European project.</p>
<p>This is potentially the most important contribution being made by the democratic processes taking place in Greece. The No vote should give pause to politicians and media all over the world.</p>
<p><strong>Remy Davison, Jean Monnet Chair in Politics and Economics at Monash University</strong></p>
<p>With eyes wide shut, Prime Minister Alexis Tsipras has sent his country to the wall.</p>
<p>The “OXI” voters in Athens last night were in full party mode. But in the cold, harsh light of day, the depressingly-painful hangover begins.</p>
<p>61% of voters will wish they didn’t drink so much of the OXI Kool-Aid. Especially when the realisation hits voters that they can only get €60 out of the ATM. Or €50, as €20 notes are now scarce.</p>
<p>The next hurdle for Athens is ominous. The government has a $3.5 billion repayment due to the ECB in mid-July. Defaulting on the 30 June IMF payment was not as serious as the media made out; the IMF default process is slow and ponderous. Conversely, the ECB controls Greece’s capital lifelines. Its emergency lending assistance (ELA) facility has kept Greek banks liquid up to this point. However, the ECB’s Governing Council and the Eurogroup ministers are unlikely to be sympathetic if Tsipras and Varoufakis attempt to renege on the ECB debt repayments.</p>
<p>A deal will ultimately be struck or Greek banks will not reopen without assistance from the ECB. Europe’s central bank will not refinance Greek banks endlessly, as the absence of capital controls before they were imposed on 29 June saw billions of euro offshored within days.</p>
<p>Tax evasion remains a systemic problem for Greece. A Swiss media source has <a href="http://www.theguardian.com/business/live/2015/jul/05/greeces-eurozone-future-in-the-balance-as-referendum-gets-under-way--eu-euro-bailout-live#block-55994493e4b00bdd27707d91">reported</a> that Athens is quietly offering amnesty from prosecution to Greek tax evaders, who have squirrelled away their euro in Swiss bank accounts, if they pay 21% tax.</p>
<p>A Grexit is still extremely unlikely. If there is one thing that government and opposition parties agree upon, it is that there will be no attempt to depart the eurozone. It is not in Greece’s interest, and there is no legal mechanism with which to do so.</p>
<p>An extra-legal attempt (i.e., outside the EU treaties) by a qualified or absolute majority of EU member governments to vote for Greece’s ejection from the eurozone would result in a Greek application to the European Court of Justice for an injunction. A hearing by the ECJ on an attempt to remove Greece from the eurozone could potentially take two years or more, given the complete absence of precedent and the considerable time and resources required to compile briefs for a case of such complexity. Financial commentators who believe in a high probability of a Grexit are either deluded, or have little comprehension of how the institutional mechanisms and procedures of the EU actually work.</p>
<p>The tragedy is that Tsipras and Varoufakis did not need initiate this crisis, as Greece and the IMF were only $400 million apart in their negotiations before the Greek government walked out. Tspiras and Varoufakis have spun the recent IMF report, which calls for debt restructuring, as somehow supporting their side of the story.</p>
<p>In reality, the IMF has been heavily critical of the Tsipras-Varoufakis government and its unwillingness to undertake the requisite, difficult structural reforms that Greece needs, including further privatisation, industry deregulation and competition policy reform, rigorous taxation restructuring in the Greek merchant shipping industry, and tackling offshore tax evasion. Why a far-left government in Greece wants to help rich Greeks to avoid tax defies logic.</p>
<p>In June, a reasonable compromise may have been reached between Athens and the Eurogroup. But it’s unlikely Euro Area ministers will have much sympathy to spare in the next round of negotiations.</p>
<p>Greeks may have voted with an overwhelming “OXI”, but it’s unlikely they realised they might also be voting for capital controls, insolvent banks and a financial system on the verge of meltdown.</p>
<p><strong>Nikos Papastergiadis, School of Culture and Communication, University of Melbourne</strong></p>
<p>A profound recognition has been given now, not just by economists, but by the people of Greece, that the economic policies pushed by the troika are counter-productive.</p>
<p>The government can now walk into negotiations in a strengthened position. They can honour their promises. They have no intention to leave the eurozone, let alone the EU, but can focus on a debt restructure, tackling tax evasion and modernising the state.</p>
<p>I expect some sort of financial resolution in the next 24-48 hours, because a move back to the drachma would be catastrophic.</p>
<p>When politicians in Europe say things like “It’s not a problem for us there is no risk of economic contagion,” that is a profoundly immoral comment given there’s a real risk Europeans will die this winter as a result of their policies. Their sense of solidarity with the union is profoundly blinkered. The risk is not just economic contagion, it’s political contagion. They don’t want Syriza to be the example for other European governments. They wanted Greece to be humbled and crippled by these austerity measures. This divide and conquer attitude means there will be long-term political consequences.</p>
<p>I am so proud of the courage demonstrated by Greeks who have stood up in the face of their own oligarchs, who launched a smear campaign against the government, and said “enough is enough”.</p>
<p><strong>James Arvanitakis, Professor in Cultural and Social Analysis at University of Western Sydney</strong></p>
<p>The Greek people have shown overwhelming support for the Greek government and their stance against the so-called troika.</p>
<p>While most commentators may claim they suspected the outcome, I think those who are honest would say the decision was too close to call. The 61% vote in favour of the government does not indicate this, but the reality is the vast majority of Greeks did not know themselves what their vote would be. </p>
<p>In the end, the existential crisis of potentially leaving the Euro and even the European Union was usurped by the fact that they have had enough: enough of austerity that has driven the economy into the ground, enough of 25% unemployment and a lost generation of productivity with 50% youth unemployment, and enough of the troika and the bankers holding them to ransom. As one academic said to me when I was recently there: </p>
<blockquote>
<p>“Who created the crisis and who pays for it? Like the GFC, it was those that lent the money, those that fudged the figures and those who have moved their money into offshore accounts. We lose our houses, they sip Retsina and watch sunsets on the islands.”</p>
</blockquote>
<p>So what is next for the Greek people?</p>
<p>The obvious answer is uncertainty. But the uncertainty and potential for financial meltdown seems to have usurped the absolute hopelessness that is associated with “more of the same”.</p>
<p>Over the last five years we have seen the Greek government meet most of the austerity requests put forward by the troika. Economic theory tells us that in the “long run”, the austerity would work. For the Greek population however, the long run is too far away, unrealistic and a party trick they are no longer willing to fall for.</p>
<p>Greeks have said enough. They have decided it is better to reboot the economy and suffer the potential consequences than continue to see deeply flawed measures bring nothing but financial misery.</p>
<p>Over the next few days we will see continued celebrations. These will quickly disappear depending on the outcome of the negotiations. As I have written elsewhere, Greek society is fraying, how the negotiations go including a potential “Grexit” would determine just how far this unravelling goes.</p>
<p>The heartbreaking image of an elderly man, 77-year-old retiree Giorgos Chatzifotiadis, collapsed on the ground openly crying in despair outside a Greek bank, captured the attention of the world. It is a manifestation of what happens when economic policy and ideology is separated from the impacts on real people. </p>
<p>The “No” vote will restore the pride that has evaporated. But whether this pride turns into something productive or something that is a chauvinistic nationalism, no-one knows.</p><img src="https://counter.theconversation.com/content/44231/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Arvanitakis receives funding from the Australian Research Council and the Office of Learning and Teaching. He is a board member of the Australian Public Education Foundation, a member of the Australian Research Council: Excellence in Research for Australia 2015 Evaluation Committee, Office of Learning and Teaching (OLT): Committee Member: Awards Committee, a member of the panel of experts for the Tertiary Education Quality and Standards Agency (TEQSA and a research fellow at The Centre for Policy Development. </span></em></p><p class="fine-print"><em><span>Remy Davison's Chair is funded by the EU Commission.</span></em></p><p class="fine-print"><em><span>Richard Holden is an ARC Future Fellow.</span></em></p><p class="fine-print"><em><span>Costas Milas, George Kyris, Marianna Fotaki, Nikos Papastergiadis, Ross Buckley, and Sofia Vasilopoulou do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Academic experts respond to the No vote in Greece’s referendum on whether or not to accept a bailout offer from their international creditors.Costas Milas, Professor of Finance, University of LiverpoolGeorge Kyris, Lecturer in International and European Politics, University of BirminghamJames Arvanitakis, Professor in Cultural and Social Analysis, Western Sydney UniversityMarianna Fotaki, Network Fellow, Edmond J Safra Center for Ethics, Harvard University and Professor of Business Ethics, Warwick Business School, University of WarwickNikos Papastergiadis, Professor, School of Culture and Communication, The University of MelbourneRemy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityRichard Holden, Professor of Economics, UNSW SydneyRoss Buckley, Professor, Faculty of Law, UNSW SydneySofia Vasilopoulou, Lecturer, Department of Politics, University of YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441182015-07-03T14:14:17Z2015-07-03T14:14:17ZSyriza risks an EU exit in a referendum wracked with problems<p>Greeks go to the polls on July 5 to answer a <a href="https://theconversation.com/the-real-question-being-asked-of-greek-voters-in-the-referendum-44203">highly complicated question</a> regarding what bailout measures they should accept from their country’s international creditors. A bailout is needed to release the funds to keep Greece’s economy afloat and avoid bankruptcy and potential eurozone exit (Grexit).</p>
<p>Tsipras has asked Greeks to vote No without any particular reference to the likely repercussions of the choice, but focusing instead on the need to “restore hope” and “conquer fear”. This decision reveals the dead end that the Syriza government has reached. It devalues the democratic value of the referendum and risks an EU exit – something the majority of Greeks do not want.</p>
<p>The main problem of the <a href="https://theconversation.com/uk/topics/greece">decision to call a referendum</a> can be traced in the way it has been organised. In an unprecedented move for any established democracy, Tsipras announced the referendum only a week in advance, allowing almost no time for proper deliberation. No leaders’ debate has been planned and no official studies have been produced in order to assess the possible choices. </p>
<p>Plus, the question suggested for the referendum has been framed with reference to two long technical documents. The government argues that a No will give them more power against the creditors, but even if 99% of Greeks do so, this cannot have any influence over the other eurozone governments who are responsible to their own electorates. By contrast, EU officials have argued that a No vote <a href="http://www.theguardian.com/business/2015/jun/29/greek-crisis-referendum-eurozone-vote-germany-france-italy">means no to Europe</a>, implying that this may mean an EU exit. </p>
<p>Moreover, the build-up to the referendum has seen most citizens spending hours in queues to withdraw money from ATMs, while banks remain closed. In other words, the referendum process seems more of a <a href="http://www.bloombergview.com/articles/2015-06-28/greek-referendum-is-more-con-than-democracy-ibg6vcmz">mockery</a> than an exercise of democracy.</p>
<h2>Anti-EU rhetoric</h2>
<p>Once the referendum has taken place, it is difficult to guess how the Greek government intends to reach a much-needed deal with the country’s creditors. Both Syriza and their far-right coalition partners, the Independent Greeks party (ANEL), have adopted a <a href="http://blogs.lse.ac.uk/eurocrisispress/2015/02/05/greek-elections-2015-the-beginning-of-the-end-or-the-end-of-the-beginning/">nationalistic anti-EU discourse</a> professing the EU’s desire to <a href="http://greece.greekreporter.com/2015/06/16/greek-pm-tsipras-creditors-want-to-humiliate-greece/">humiliate the Greeks</a>. </p>
<p>Tsipras himself accused the EU of being authoritarian and desiring to <a href="http://www.greekcrisis.net/2015/06/defiant-alexis-tsipras-accuses.html">pillage Greece</a> and the IMF to have <a href="http://www.theguardian.com/business/live/2015/jun/16/greek-crisis-negotiations-deadlocked-as-time-runs-short-live-updates#block-558020ebe4b099c3e01ea902">criminal responsibility</a> for the Greek situation. If you follow the logic of this rhetoric, it clearly questions why Greece should stay within such an undemocratic and hostile EU/eurozone, irrespective of the conditions attached to membership.</p>
<p>Additionally, the Greek government has portrayed itself as a champion of democracy against authoritarian EU rule. This argument, however, is problematic. Nobody forced Greece to join the euro in the first place. And, having joined it, they have an equal place at Eurogroup meetings where decisions are made by the eurozone finance ministers who are also elected and represent national governments. </p>
<p>Tellingly, Ireland and Portugal, which have now exited similar bailout programmes, did not express such concerns. In an unprecedented move for Greece’s history, even Cyprus has kept its <a href="http://www.reuters.com/article/2015/03/11/eurozone-greece-cyprus-idUSL5N0WC44Q20150311">distance</a> from the Greek drama. What’s more, if the Greek government is so passionate about democracy, it is puzzling why it has developed a <a href="http://blogs.lse.ac.uk/eurocrisispress/2015/02/05/greek-elections-2015-the-beginning-of-the-end-or-the-end-of-the-beginning/">close relationship</a> with Putin’s Russia, which is not famous for its democratic credentials.</p>
<p>The coalition government seems trapped in confrontation with the EU as a result of internal politics. A popular accusation within the Greek parliament has been to accuse political opponents of being <a href="http://blogs.lse.ac.uk/europpblog/2015/07/02/the-greek-crisis-illustrates-both-the-poverty-of-syrizas-ideology-and-the-flaws-in-the-eus-balance-sheet-approach-to-decision-making/">collaborators or agents of the creditors</a>. The implication is that making a deal with them is synonymous to treason for members of Syriza or ANEL. </p>
<p>By narrowing the debate in this way, there is little room for criticism of their policy of fighting the EU – doing so marks you as a traitor or enemy of the Greek people. The continuation of this logic is that no government can or should implement the treacherous act of making a deal with the creditors.</p>
<h2>Upheaval and uncertainty</h2>
<p>Another contradiction that the Syriza-ANEL government will face whatever the outcome of the bailout negotiations is its argument that by rejecting EU-led austerity it protects Greeks against hardship and recession. Nobody, however, can predict with <a href="http://www.theguardian.com/business/2015/jun/29/joseph-stiglitz-how-i-would-vote-in-the-greek-referendum?CMP=fb_gu">certainty</a> whether exiting the eurozone is a good alternative in the long term while the immediate financial catastrophe is <a href="http://www.forbes.com/sites/francescoppola/2015/02/17/why-greek-exit-from-the-euro-would-be-a-very-bad-idea/">certain</a>). </p>
<p>Tellingly, over the past five months the Greek government has not implemented austerity but economic growth has <a href="http://www.cnbc.com/id/102648240">deteriorated</a>. And regaining domestic sovereignty over economic policy would not solve the country’s <a href="https://theconversation.com/greece-when-is-it-time-to-forgive-debt-44022">severe economic problems</a>.</p>
<p>Even though Tsipras and key members of his government and party have alluded to Grexit as a <a href="http://greece.greekreporter.com/2012/06/14/syriza-leader-tsipras-agrees-that-the-currency-is-not-a-fetish/">viable alternative</a>, it will mean economic, political and social devastation for most parts of Greek society. The only social group to benefit in the short to medium term from such a development would be Greece’s elites and oligarchs who were able to move their euros <a href="http://www.dailymail.co.uk/news/article-2050895/Greek-fat-cats-secretly-shifted-200bn-euros-Swiss-bank-accounts.html">abroad</a> and will have their wealth multiplied after Grexit as the Greek drachma is <a href="http://www.huffingtonpost.com/dimitriosgiokas/12-consequences-if-greece-returns-to-the-drachma_b_7682982.html">expected</a> to have much less value than the euro. </p>
<p>Grexit is also supported by the more radical left wing of the Syriza party, which would like to establish socialism in Greece – something unfeasible within the EU. It should be remembered that any pursuit of Grexit goes against the <a href="http://www.bloomberg.com/news/articles/2015-07-03/greeks-split-down-middle-before-bailout-referendum-poll-shows">overwhelming majority</a> of Greeks who want their country to remain in the eurozone.</p>
<p>As in other times in Greek history, Greeks face a big dilemma on July 5. I hope that the efforts of a generation for a democratic, stable and prosperous Greece within the EU will not be abruptly terminated.</p><img src="https://counter.theconversation.com/content/44118/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sotirios Zartaloudis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Greeks face a big dilemma in the July 5 referendum. It’s been badly organised, democratically questionable and there’s a great deal at stake.Sotirios Zartaloudis, Lecturer in Politics, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/440222015-07-02T09:14:38Z2015-07-02T09:14:38ZGreece: when is it time to forgive debt?<figure><img src="https://images.theconversation.com/files/86899/original/image-20150630-5867-x4snxq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The cry from the streets.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/66944824@N05/17140969184/in/photolist-s7FWXs-br1nAB-fuPj3G-bT45sM-aE1rgE-djgLKr-snZkAX-snSaTf-rr2ozS-djgJQQ-8LkBoN-8LhxHt-8LkBk7-br1nhx-gFhuQT-cdh7AA-aE1rfj-brpp6t-brppgk-brppqT-br1mE6-brpoHt-gMWxbc-7YRzxN-bwxgQX-aDioax-rcDn5h-rcDfaW-qVhjRz-rcz8GH-qfHWCU-qfWfDZ-qV9jQN-aDinbt-edM9X-bwxhWe-bwxiL6-bwxjG4-a6QfnB-qV9qKJ-rczMk8-rcD8e1-aQ8KsR-bory9F-c1GbBh-aC5Xs5-aC5XqQ-aC5Xpj-aWbKSM-c1GiW9">Denis Bocquet</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Greek citizens preparing to vote in a referendum have been implored by their coalition government to reject a deal with the country’s creditors which, in actual fact, might have worked to keep the country afloat and on the road to some form of recovery. <a href="http://europa.eu/rapid/press-release_IP-15-5270_en.htm">The offer that was on the table</a> did miss out on something crucial, however. And it’s something which has become an established part of the narrative around the management of indebted nations: debt relief. </p>
<p>Indeed, the Greek prime minister, Alexis Tsipras, <a href="http://www.ft.com/fastft/352711">proposed a bailout deal on Tuesday that explicitly asked for it</a>. With his country’s previous bailout now expired, a new one remains to be negotiated.</p>
<p>So, when should forgiveness start to play its part – and should it even have an automatic part to play? The state of Greece’s economy is such that many think it is time to tear up its membership of the eurozone. The Greek people have had a terrible time since the start of the financial crisis. Following two protracted bailouts in 2010 and 2012, the country has suffered a series of recessions and performed terribly in key economic indicators – from GDP to employment and real wages. And even though the quantity of public debt has been broadly stable since 2012 it has become more difficult to fund from the base of a shrinking economy. </p>
<h2>Deal or no deal</h2>
<p>Let us be clear though. The alternative of regaining domestic sovereignty over economic policy would not necessarily deliver salvation. Flying solo away from the eurozone would require a credible programme that would be carried out by those who understand economic forces and have the courage to implement unpopular reforms. This, nearly everyone agrees, will still be necessary, in or out of the euro, because the basic problem in Greece <a href="https://www.imf.org/external/pubs/ft/scr/2013/cr13154.pdf">is one of a lack of productive capacity</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=290&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=290&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=290&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=364&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=364&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=364&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Syriza flags fly at a rally in London.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/90552021@N02/15931669973/in/photolist-s9iZcn-qgBK4s-rdtTN4-qW3FG3-rdwVDo-qgPYr4-rbkkEu-qgQ1m6-rdCGFR-rdCJ7M-qW4T39-rdCLjx-rdx2DE-qgBS8Y-qgQ6YZ-qWcT66-rbksJj-rdx7SW-6sS8bX">Ben Folley</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Yet Greece’s political and economic institutions seem to have exhausted their ability to deal with the country’s mess. We have ended up with a ragtag coalition led by the anti-establishment Syriza party, which was elected in January specifically to improve the terms of Greece’s deal with its creditors. Amazingly, with a workable deal on the table from its creditors, Tsipras decided that he did not have a mandate to act without a referendum. His party has called on the Greek people to vote “No” to the deal that was offered, but under pressure from the liquidity squeeze that resulted from rejecting the bailout is <a href="http://www.ft.com/cms/s/0/e82e0256-1fcb-11e5-ab0f-6bb9974f25d0.html">reportedly now backing down on its demands</a>.</p>
<p>If Syriza loses the referendum, it cannot credibly hold on to power. If it succeeds in getting popular backing for rejecting the bailout, however, its ability to rejuvenate Greece’s economy is highly questionable. The run on Greek banks that <a href="http://www.bbc.co.uk/news/business-33303540">led to capital controls being introduced</a> reflects the lack of confidence Greeks have in their own government’s economic policy. Clearly, they’d rather hold onto their money in euro notes rather than have deposits in Greek banks. The Greek banks are closed for a week in order to stem the tide of withdrawals.</p>
<p>The basis of the deal to which the referendum is pegged was two-fold: new plans for fiscal and structural reform and a five-month extension of the bailout. The creditors want further cuts to public wage and pension payments, the retirement age raised to 67 by 2022, increases in VAT, corporate taxes and targets for primary fiscal surpluses. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Market forces.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/spyrospapaspyropoulos/9805381556/in/photolist-fWt9jG-aBA6JJ-iscs6r-8wQ5Ns-qJ2cif-jLQY2j-hvXZ5f-94EcJg-pwKRjk-9NdNPm-8wQ4SC-jLR3UW-8kePFz-oSoUWW-nesCdY-61nXbN-nTkJFp-ac9eNB-61iLmi-s69VdY-4UyzTU-9WSnkL-5guPWQ-8Utdxm-qEuxPb-bKYgnR-iTUUgx-aJBart-8YHL9h-GturJ-gSan63-8TVUcK-61nZjU-igxgV-efUWyv-61o1yu-cKZ7N-asvVVk-2JKkfr-eWQGq-8HYbA-aca82S-KBG3j-93JfkH-4QwbNX-pi8diT-a6US65-4XXt94-86i79P-efULCz">Spyros Papaspyropoulos</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>These are reforms that would continue to bring Greece in line with the economic strategies pursued by other euro area members. In return, the Greeks simply get the right to continue to stay broadly on track with their current programme and the final set of disbursements would be released from creditors and ECB liquidity support would be maintained. </p>
<h2>Need for relief?</h2>
<p>It should be noted that it is quite possible to start a sustained path of fiscal adjustment from levels comparable to those currently found in Greece without debt relief. The UK has engineered such a feat three times in the past two centuries after the Napoleonic wars, and the world wars. But the tradition in many countries over many centuries (<a href="http://www.nber.org/papers/w13882">as outlined in Reinhart and Rogoff</a>) has typically involved debt relief following default. In the tabled Greek deal, there was no talk of debt relief.</p>
<p>But without it, even if Greece manages to achieve 5% growth in nominal GDP and interest rates on debt were low – say 2% – it would still take nearly 20 years to get Greece’s debt to GDP ratio under 100%. And, <a href="http://www.theguardian.com/business/2015/jun/30/greek-debt-troika-analysis-says-significant-concessions-still-needed">leaked documents</a> from its creditors estimate that Greece would still be have unsustainable debt levels of 118% of GDP in 2030, even if it signs up to all tax and spending reforms demanded.</p>
<p>The question facing Greece and the eurozone is whether further debt relief is made an explicit part of a deal right now, or becomes a carrot proffered by creditors to keep Greece in the eurozone; or demanded by Syriza. It’s almost impossible to imagine a scenario in which debt relief fails to play a role in the Greek catharsis.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Union dues. Paying up to stay in.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/micora/438924497/in/photolist-EMAXK-cy1MN3-98Vh2w-4DRfcu-bz6aQ3-4SVDTx-jZtHHK-5f74Fx-dSZe91-2MkB7G-9VzqVZ-9VzRWs-dSK3tm-cnchKE-nDCTHQ-d9RDu-9VDuLj-LAfJd-a5id8U-5tFwKC-jkhgb-8MpwbA-33fGbC-d8KpPy-dTUAhR-atCSZ7-9VzTJL-9ZA9J6-4bF9WJ-dz9jCy-2Mkzrw-9VCvQE-878ATe-9VCugY-k3pC62-9Vx3re-dRsLkh-dvcvj7-9VzUw7-fb7gRo-37oBSD-6NVsFb-2EzF-5A5cZo-3eGDt-5A5dkd-2MuK7Q-9VCh15-qBjgi-5TresR">Javier Micora</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>A single currency can work if economic shocks are synchronised across the single currency area or there is an adequate degree of risk sharing for idiosyncratic shocks. There will always be a problem if one country is persistently in recession, as no one wants the sharing of risk to turn into a permanent sequence of subsidies, which leads to the kind of debt problem that Greece and others in the eurozone face. </p>
<p>But equally in a currency area, the surplus countries might have the right to try and enforce fiscal and financial rules, but they also have a responsibility to help those stuck with deficits. This help might obviously involve more forceful attempts to stimulate aggregate demand in the currency area as a whole, but should also involve constructing a mechanism to forgive debt from time to time. Without such a mechanism we will be consigned to a seemingly endless stream of mostly fruitless negotiations. Debt forgiveness and economic reform is a marriage made in Elysium.</p><img src="https://counter.theconversation.com/content/44022/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jagjit Chadha does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Debt relief should not be a divisive bargaining tool. Better that it is a formal part of a structured approach to risks in a currency union.Jagjit Chadha, Professor of Economics, University of KentLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/440792015-07-01T20:12:39Z2015-07-01T20:12:39ZHow game theory explains Grexit and may also predict Greek poll outcome<p>The world will come to an eerie halt in the first week of July to watch the unfortunate endgame fast unfolding between Greece and its creditors. It has been a pretty ugly and detestable squabble over $70 billion that, according to some, has cost roughly about $1 trillion already. </p>
<p>Many trillions will be down the gurgler, yet there is absolutely no economic fulcrum on which the impasse has been pivoting. In order to understand the dynamics of failed negotiations and continuing conflicts between the troika and the Greek government let me borrow the much-celebrated <a href="http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2005/advanced-economicsciences2005.pdf">parable</a> from 2005 prize-winning game theorists, Thomas Schelling and Robert Aumann.</p>
<h2>The theory of conflict and cooperation</h2>
<p>Imagine that the Greek government is placed at the edge of a precipice, restrained by a chain that is tied to its ankle and then fastened to the ankle of the troika. </p>
<p>Both will be rescued and only one of them will win a large prize (read vain-glory) as soon as the other rolls over. Thomas Schelling posited that each party has only one method to persuade the other to give in - namely, threatening to push the other off the precipice. </p>
<p>The threat is not credible since a big push will ensure doom for both. A big push is thus nothing but collective lunacy. Yet each side has an incentive to dance recklessly close to the precipice to convince the other that one is stupid enough to embrace a higher risk to create an accidental annihilation of both. </p>
<p>Whoever can dance more recklessly will win the game, which is figuratively a race to the bottom. There is some evidence that the troika has outsmarted the Greek government in terms of its reckless behaviour. Consequently, the troika has imposed a new, punitive and more devastating austerity package on the Greek government in its latest round of negotiations. </p>
<p>In other words, the Greek government could not signal sufficient recklessness to the troika and is, hence, staring down the barrel of another bout of policy-driven deep recessions that the troika seeks to dump on Greeks.</p>
<h2>Politics, not economics</h2>
<p>Most impartial observers will find it difficult not to think that economics was just the façade under which dirty power-games, domination, arm-twisting and negative politics had vitiated the negotiation process. Any decent economist with a modest track-record would fail to decipher the economic rationale behind the troika’s policy prescriptions for Greece since 2010. </p>
<p>Most Goliaths in economics have unequivocally opposed the adjustment programs imposed by the troika on Greece, which sent the Greek economy into deep crisis and the resulting GDP decline of 25% since 2010. The welfare implications of this are stark and confronting: there are now 1 million households in Greece who survive only on pensions of grandparents while youth unemployment has shot past 60%. The string of pigheaded policy blunders of the troika created crises after crises in Greece. </p>
<p>It seems the troika has no accountability whatsoever as it now demands a further restraint on the government spending for Greece to achieve a budget surplus of 3.5% by 2018. </p>
<p>This will spell further economic doom for the ailing Greek economy, as most economists will argue, economic depression will never leave the Greek soil and most Greek households will suffer untold miseries from a further contraction of the economy. So, the referendum will be a test on the Greek penchant for masochism: how much more pain can the Greek people absorb by supporting the ludicrous austerity measures and violent reform packages of the troika? </p>
<h2>The devil you know - or the unfathomable unknown?</h2>
<p>Back to the application of game theory: the rejection of the package will have potentially unfathomable adverse consequences for Greece. So, the Greek voters now face an unusual dilemma: they either approve the known devil – the austerity- they have been living with during the last five dreadful years. Alternatively, they put the austerity package in the bin and walk out of the eurozone, regaining control over monetary policy from the European Central Bank (ECB) and putting up a real fight to drive off recessions out of Greece. </p>
<p>Yet the Greek voters, however insulted they are by the troika, cannot gauge the potential risk from breaking away from the ECB and then possibly from the EU. Though many pundits believe the Greeks will happily choose a punitive strategy in the referendum in order to punish the troika by dismembering the eurozone, the picture is not at all clear. The fear of unknown and unfathomable consequences from the separation from the ECB can persuade the voters to herd with others by meekly rubber-stamping the austerity package of the troika. </p>
<p>The potential presence of herd mentality in voting can create a socially inefficient, erroneous and possibly profligate outcome in Greece since – despite a plethora of private signals that reveal the right choice/action – voters can still herd on the incorrect and costly choice of new austerity measures with a positive probability. </p>
<p>One can thus never be sure what will be outcome of the referendum in Greece - it is rather unpredictable, which makes the Greek referendum all the more interesting.</p><img src="https://counter.theconversation.com/content/44079/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Partha Gangopadhyay does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A famed game theory parable involving mutually assured destruction explains the Greek debt crisis and could explain the outcome of the Greek referendum this Sunday.Partha Gangopadhyay, Associate Professor of Economics, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/440972015-06-30T12:55:19Z2015-06-30T12:55:19ZNine things to know about Greece’s IMF debt default<p>Greece is set to miss the deadline on its €1.6 billion loan repayment due to the IMF. The country’s <a href="https://theconversation.com/five-things-you-need-to-know-about-the-imfs-stance-on-greece-43936">stalemate with its international creditors</a> and the decision to <a href="https://theconversation.com/now-the-greek-people-will-decide-why-tsipras-referendum-is-the-right-move-43974">hold a referendum</a> on its bailout offer means Greece will become the first advanced economy to default to the fund in its 71-year history. </p>
<p>Here are nine essential things to know about the default:</p>
<p><strong>1. The long-term damage may yet be minimal.</strong> If Greece is only in arrears to the IMF for a short period of time, it may be shown leniency down the line. The IMF’s policy on <a href="http://www.imf.org/external/np/pp/eng/2012/082012.pdf">overdue payments</a> does distinguish between short-term and protracted arrears.</p>
<p><strong>2. This is not yet a full-blown sovereign debt default by Greece.</strong> This is still a first for an EU member state, but the IMF is keen to maintain a distinction between a country being “in arrears” and a “default”. This important semantic distinction is also made by <a href="http://www.bloomberg.com/news/articles/2015-06-25/why-it-won-t-be-a-default-if-greece-misses-imf-payment-next-week">major credit rating agencies</a>. It means the consequences for Greece may be temporary and small, if they are able to find a speedy resolution and make the payment.</p>
<p><strong>3. Being in arrears to the IMF is not a new phenomenon.</strong> Since 1997, arrears owed to the IMF that were at least six months overdue have ranged from <a href="https://www.imf.org/external/np/fin/tad/extdbt1.aspx">€1.5 billion to €3 billion in any given month</a>. This is not a position any country wants to be in, however. It places Greece in the company of countries whose governments are widely seen as dysfunctional, or even “failed states”. The only countries with IMF repayments at least six months overdue in the past decade have been Somalia, Sudan, Zimbabwe and Liberia.</p>
<p><strong>4. The IMF will not allow any country to access its resources while it remains in arrears.</strong> For the IMF to be involved in any future new support package, arrears payments will first need to be settled, without the possibility of rescheduling payments. This makes Greece even more dependent on EU funding to bring liquidity back to its banks – making the outcome of the July 5 referendum even more important.</p>
<p><strong>5. The IMF may now treat Greece even more harshly.</strong> It is hard to overstate how seriously the IMF takes the issue of prompt repayment of loans. In the past, countries that have deliberately missed payments have had to make significant moves towards adopting IMF policy preferences in order to regain access to its financial resources. This could include things like meeting stricter spending targets and enacting fundamental tax and pension reforms to gain future access to funds.</p>
<p><strong>6. Greece is the IMF’s biggest-ever debtor.</strong> This means the stakes for the IMF are higher here than in other countries. Greece’s €1.6 billion payment would be <a href="http://www.ft.com/cms/s/0/3344581e-1eda-11e5-aa5a-398b2169cf79.html#axzz3eWypSlMq">the largest payment ever missed to the IMF</a>.</p>
<p><strong>7. Future relations are going to be tricky.</strong> It is difficult to see how the IMF could work with the Syriza-led coalition government after this default. There is an intense political dimension to the stalemate with the country’s creditors. The IMF does not like countries playing hardball over loan conditions. It likes <a href="http://www.telegraph.co.uk/finance/economics/11679447/Alexis-Tsipras-launches-scathing-attack-on-IMF-as-Greek-authorities-vow-to-fight-desperate-state-cash-grab.html">populist appeals and inflammatory rhetoric even less</a>. And it is fundamentally opposed to giving favourable deals to governments that violate their obligations to the organisation.</p>
<p><strong>8. Greece’s default is a disaster for the IMF’s credibility.</strong> There is no positive spin that can be put on this. The IMF relies on countries making their payment obligations no matter what. This is why so few countries in recent years have gone into protracted arrears with the IMF. Greece’s credibility is already in dire straits, but the IMF has much to lose from its largest debtor “behaving badly”. </p>
<p>The IMF is already under fire from developing countries where Greece is seen as receiving <a href="http://www.ft.com/cms/s/0/41aebbb4-f9cb-11e2-b8ef-00144feabdc0.html#axzz3eWypSlMq">special treatment</a>. Unless the IMF brings the hammer down on Greece now, future borrowers outside of Europe will also delay IMF loan repayments when it is inconvenient. </p>
<p><strong>9. Expect a severe response.</strong> If no quick resolution is found after Greece’s referendum on its bailout, the IMF must react strongly to preserve its credibility with other debtors. In the short term, the IMF is likely to step back sharply from seeking a compromise position with Greece. The IMF will insist the government makes key policy changes and meets its scheduled repayments before bailout negotiations can resume. </p>
<p>In the longer term, if Greece remains in arrears, the IMF could take the extreme step of suspending the country’s membership. Even if Greece didn’t need access to IMF resources, being suspended from the organisation would be another first for an advanced economy, and would see Greece’s reputation in the international financial community plummet further. Countries that remain in protracted arrears, such as Zimbabwe, have to complete an informal “<a href="http://www.imf.org/external/np/sec/pr/2012/pr12405.htm#P19_986">staff-monitored programme</a>” of policy conditions without funding as part of the process of normalising relations with the IMF.</p>
<p>Taken together, these nine points highlight the dangerous waters that Greece, the IMF, and the EU have now entered. Regardless of the referendum result, it is difficult to see the IMF cooperating with the government in Greece in the near future. Either fresh elections or a monumental change in policy direction will have to occur for that to happen.</p><img src="https://counter.theconversation.com/content/44097/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>André Broome has previously received funding from the European Commission under the 7th Framework Programme..</span></em></p>Greece is set to become the first advanced economy to default on the IMF in its 71-year history.André Broome, Associate Professor of International Political Economy, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/439842015-06-28T15:11:16Z2015-06-28T15:11:16ZEuro nightmare unfolds: queues at banks in Greece as capital controls follow ECB funding cap<p>With the ECB freezing the level of emergency liquidity assistance (ELA) it is providing to Greek banks, the <a href="https://theconversation.com/how-greeces-liquidity-problem-could-cause-an-unplanned-grexit-41691">nightmare scenario</a> for Greece is already beginning to unfold. Capital controls are on the way, with all the <a href="http://www.bloomberg.com/news/articles/2015-06-19/europe-s-capital-controls-expert-warns-greece-expect-pain-ahead">disruptions to everyday economic activity that they entail</a> – and <a href="http://www.bbc.co.uk/news/world-europe-33305019">Greek banks will stay closed</a> for a week.</p>
<p>The ECB’s decision sends a clear signal that ELA support beyond June 30, when the current bailout programme comes to an end, cannot be taken for granted. Indeed the BBC <a href="http://www.bbc.co.uk/news/world-europe-33303105">reported</a> that ELA support by the ECB had already been cut off. </p>
<p>Pictures of Greek depositors queuing up at ATMs resemble the situation in Cyprus in March 2013, when again the euro area came very close to unravelling. Although there are key differences between Cyprus in March 2013 and Greece now, there are also enough similarities that can not only help explain the rationale behind ECB decisions but can also help Greece draw the correct lessons from Cyprus.</p>
<p>At the time the ECB made its decision to withdraw ELA support to Cypriot banks, there was an angry reaction within Cyprus, partly fuelled by the inability of politicians to understand the rules that govern ELA provision. Many, including the Cypriot government itself, blamed the ECB for an unprecedented blackmail that eventually forced the government to accept harsh bailout terms in order to remain in the euro area. </p>
<p>This type of action by the ECB is not without precedent. In 2010 the ECB behaved in similar fashion in the case of Ireland when ECB president at the time, Jean-Claude Trichet, wrote a <a href="http://www.irishtimes.com/business/trichet-letters">letter</a> to the Irish finance minister advising him that ELA support to Irish banks would cease if the Irish government didn’t apply for an EU/IMF adjustment programme. All that the ECB was doing in the cases of Cyprus and Ireland – and now in the case of Greece is – simply applying its ELA <a href="https://www.ecb.europa.eu/pub/pdf/other/201402_elaprocedures.en.pdf?e716d1d560392b10142724f50c6bf66a">procedures</a>, which adhere to strict rules that reflect its legal set-up. If anything, the ECB has shown remarkable patience and flexibility in applying these rules in order not to be seen to be interfering in the political process.</p>
<h2>Playing by the rules</h2>
<p>These rules can, in fact, justify withdrawal of ELA support to banks at such critical times. The first and perhaps the most important rule – that most central banks in the world adhere to – is that ELA can only be provided to solvent banks that are facing temporary liquidity difficulties. </p>
<p>Central banks are not there to bail out failing commercial banks. That is a decision that should be made by democratically elected governments that are accountable to taxpayers. In the case of the ECB, there is also <a href="http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-the-functioning-of-the-european-union-and-comments/part-3-union-policies-and-internal-actions/title-viii-economic-and-monetary-policy/chapter-1-economic-policy/391-article-123.html">Article 123 of the Lisbon Treaty</a>, which prohibits the monetary financing of government deficits, because such financing is considered inflationary. This is in fact the cornerstone of the design of the monetary union, which is based on the successful anti-inflation record of the German Bundesbank. </p>
<h2>Question of solvency</h2>
<p>So, the key question that needs to be answered is whether Greek banks are solvent. They clearly must have been considered solvent up to now, otherwise ELA support would not have been forthcoming. ELA support to Greek banks is reported to have reached <a href="http://www.forbes.com/sites/timworstall/2015/06/28/ecb-maintains-support-for-greek-banks-meaning-they-will-go-bust/">nearly €90 billion</a>, as a result of massive deposit withdrawals in the past few weeks and months, that in recent days have escalated to a bank run. During the past week or so, ELA ceilings have been increased on a daily basis. </p>
<p>The Greek government, however, runs the risk of becoming insolvent if it defaults on its June 30 IMF debt repayment. The country’s current bailout programme (which expires on June 30) is key to keeping Greece’s public finances sustainable. With no political agreement to extend it, Greek banks, which hold a lot of the Greek government debt, would almost certainly fail to meet regulatory minimum capital rules that apply to all banks in the EU. This means that unless the Greek government is able to recapitalise them – unlikely without an IMF/EU programme – they will almost certainly be deemed insolvent by the ECB on July 1.</p>
<h2>Patience and flexibility</h2>
<p>The cases of Cyprus and Ireland were somewhat different. Both countries needed to borrow large sums of money from international creditors in order to recapitalise their banks, that suffered losses from a collapsing property market and (in the case of Cyprus) the Greek debt restructuring that took place in 2011. There is, nonetheless, a key similarity: without an adjustment programme to make their public finances sustainable, all three countries’ banking systems could not be considered solvent by the ECB.</p>
<p>If anything, the ECB has shown remarkable patience and flexibility with Greece in the last few months. It knew there was always a risk that an agreement between Greece and its international creditors would not be reached. It therefore knew that Greek banks could not be deemed solvent beyond June 30 2015, without an agreement between Greece and its international creditors, yet it chose to continue supplying increasing amounts of liquidity to Greek banks, because it did not want to interfere in the political process. </p>
<p>In a similar vein, the ECB continued to supply ELA to Cypriot banks for several months until an agreement was reached that made the country’s public finances sustainable. In the case of Cyprus – and previously Ireland – the risks did not materialise because both governments proceeded with their bailout agreements. But Greece now looks very different indeed.</p><img src="https://counter.theconversation.com/content/43984/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Panicos O. Demetriades was Governor of the Central Bank of Cyprus and member of the Governing Council of the European Central Bank from May 3 2012 until April 10 2014.</span></em></p>With the ECB freezing the level of emergency liquidity assistance it is providing to Greek banks, the nightmare scenario for Greece is already beginning to unfold.Panicos O Demetriades, Professor of Financial Economics, University of LeicesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/439742015-06-27T10:26:57Z2015-06-27T10:26:57ZNow the Greek people will decide – why Tsipras referendum is the right move<p>Greece <a href="http://www.bbc.co.uk/news/world-europe-33296839">will hold a referendum</a> on July 5 on whether the country should accept the bailout offer of international creditors. The government’s decision to reject what was on offer and call the referendum is ultimately an attempt to take charge of its domestic policy and reaffirm its credibility with voters. </p>
<p>Although Greece is hard strapped for cash this is clearly a political decision with profound consequences for the future of the European Union. It is also the right one.</p>
<p>This is not merely useful as a negotiating tactic for obtaining a better deal with its creditors, as many commentators might suggest. The coalition of the left, Syriza, had no choice but to oppose further measures that would lock its economy into a <a href="http://www.telegraph.co.uk/finance/economics/11431452/Greece-leads-eurozones-slide-into-deflation.html">deflationary spiral</a>, the trappings of which are <a href="http://coppolacomment.blogspot.gr/2015/06/debt-and-morality-in-greek-crisis.html">destroying Greek society</a>. </p>
<h2>The Greek position</h2>
<p>Elected with the mandate <a href="https://theconversation.com/syriza-surges-ahead-of-january-election-as-greek-voters-reject-austerity-35829">to end the savage austerity policies</a> already imposed, Syriza could hardly accept the further cuts <a href="http://blogs.ft.com/brusselsblog/2015/06/25/leaked-greece-bailout-plan-sent-to-eurogroup/">demanded</a>. These include cuts in income support for pensioners below the poverty line and a VAT hike of up to 23% on food staples. Even more onerous was the demand that Greece should deliver a sustained primary budget surplus of 1% for 2016, gradually increasing to 3.5% in the following years when its economy has already been contracting for six years. </p>
<p>By most counts the austerity policies imposed by Greece’s creditors in 2010 in exchange for the bailout money (of €240 billion) have been an abject economic and moral failure. The International Monetary Fund itself has acknowledged “<a href="https://theconversation.com/five-things-you-need-to-know-about-the-imfs-stance-on-greece-43936">a notable failure</a>” in managing the terms of the first Greek bailout, in setting overly optimistic expectations for the country’s economy and <a href="http://www.spiegel.de/international/europe/the-imf-admits-serious-mistakes-on-greek-bailout-a-904093.html">underestimating the effects of the austerity measures it imposed</a>. </p>
<p>The former IMF negotiator, Reza Moghadam, has <a href="http://greece.greekreporter.com/2015/01/28/former-imf-official-greek-debt-must-be-cut-by-50/">acknowledged</a> the fund’s erroneous projections about Greek growth, inflation, fiscal effort and social cohesion. The debt is now almost 180% of Greece’s GDP, up from 120% when the bailout program began. And this is mainly due to the fact that GDP has contracted by 25%, rather <a href="http://www.wsj.com/articles/SB10001424127887324299104578527202781667088">than the significantly lower projections by the IMF</a>. The shrinking of the economy and rising unemployment levels have <a href="http://foreignpolicy.com/2013/01/09/the-greek-depression/">exceeded those that hit the US in the financial crisis of the 1930s</a>.</p>
<p>The human and social costs have been even more staggering in Greece. Incomes have fallen <a href="http://www.reuters.com/article/2013/10/22/us-greece-incomes-idUSBRE99L0I420131022">by an average of 40%</a>, and the unemployment rate <a href="http://greece.greekreporter.com/2015/03/05/greek-unemployment-rate-at-26-in-dec%E2%80%8Fember/">reached 26% in 2014</a> (and <a href="http://www.tradingeconomics.com/greece/youth-unemployment-rate">higher than 50% for youth</a>). With hundreds of thousands of people depending on soup kitchens, <a href="http://www.amazon.com/The-Body-Economic-Austerity-Kills/dp/0465063985">and thousands of suicides in the years 2010-2015</a>, the moral case for debt forgiveness seems just as strong as the technical one based on economics. </p>
<h2>The creditors’ offer</h2>
<p>Yet in <a href="http://www.theguardian.com/business/live/2015/jun/24/greek-crisis-eurogroup-meeting-tsipras-backlash-live#block-558ab7fbe4b0e0aeb011586d">the terms</a> presented to Greece by their creditors there is no commitment to reducing Greece’s crippling debt (which all commentators acknowledge is unrepayable). Nor is there any tangible proposal for rebuilding the Greek economy. </p>
<p>Germany, France, and the EU, aided by the IMF and ECB, continue to insist on implementing policies that have so manifestly failed Greece. They do so to avoid having to justify the massive bailouts <a href="http://mainlymacro.blogspot.co.uk/2015/06/the-eurozones-cover-up-over-greece.html">of their own financial systems</a> – shifting the burden from banks to taxpayers – if Greece fails to make the repayments. The leading EU partners must not be seen to act leniently towards Greece as this might encourage anti-austerity parties <a href="https://theconversation.com/meet-podemos-the-party-revolutionising-spanish-politics-33802">Spain</a> and elsewhere. </p>
<h2>Broken Europe</h2>
<p>But the social and political costs of these policies have put the legitimacy of the entire European integration project in question. By being locked into austerity policies, Europe is tearing itself apart. </p>
<p>This brings to the fore the faulty institutional framework that has exacerbated these issues. European integration was conceived by a set of elites, while many EU citizens have never fully embraced the idea: the EU tends to be regarded as an economic entity <a href="http://ec.europa.eu/research/social-sciences/pdf/policy_reviews/development-of-european-identity-identities_en.pdf">rather than a cultural or social one</a>. The “<a href="http://europa.eu/legislation_summaries/institutional_affairs/treaties/treaties_eec_en.htm">ever closer union</a>” remains an aspiration, while EU institutions patch up compromises between its most powerful members. </p>
<p>The ill-thought and haphazard implementation of the common currency is perhaps the most costly compromise of all. The Greek government is therefore right to ask for generous debt relief to allow the economy to have a fresh start in exchange for reforms that will <a href="https://theconversation.com/snap-election-and-market-collapse-show-greece-is-still-crippled-by-crisis-35347">address the perennial problems of corruption</a> and inequality that bedevil Greek society. </p>
<h2>The right decision</h2>
<p>Greece has many problems – including unfair taxation (64% of taxes are paid <a href="http://greece.greekreporter.com/2013/12/06/injustices-of-the-greek-tax-system/">by salaried employees and pensioners</a>), corrupt elites who have governed the country for at least four decades with fellow European governments repeatedly turning a blind eye <a href="http://www.wsj.com/articles/SB10001424052748704548604575097800234925746">to their flouting of rules</a>, and the oligarch-owned media which are <a href="http://greece.greekreporter.com/2015/02/19/greece-ranks-91st-in-world-press-freedom-index/">neither independent nor free</a>. But accepting the bailout would only feed into the system that got Greece into this crisis. </p>
<p>Meanwhile, the newcomer to Greek politics, Syriza, has been told it will only receive the funds agreed under the previous bailout terms if it is ready to implement further policies that will decimate the poor and impoverish the middle class even more. Cutting pensions, many of which are already <a href="http://blogs.wsj.com/brussels/2015/02/27/greeces-pension-system-isnt-that-generous-after-all/">below the eurozone average</a> when almost one in two of them are <a href="http://greece.greekreporter.com/?s=pensioners&submit=">facing poverty</a>, would be a mistake. </p>
<p>So would conceding to the firing of an additional 150,000 public sector workers when their overall headcount has already been reduced by 161,000 since 2010 – a 19% reduction, <a href="http://www.imf.org/external/pubs/ft/scr/2014/cr14151.pdf#page=9">according to the IMF</a>. </p>
<p>Contrary to popular belief, the number of public sector employees as a percentage of the workforce in Greece is <a href="http://www.oecd.org/gov/44125050.pdf">14% below the OCED average</a>, but austerity has had an even more disastrous impact on employment <a href="http://greece.greekreporter.com/2014/04/05/half-of-small-greek-businesses-on-brink-of-closure/">in the private sector</a>, with an estimated 400,000 businesses closing down in the past five years. </p>
<p>No country has ever succeeded in emerging from financial crisis by means of austerity. Further austerity would have made the impossibly bad situation that Greece is in worse still. In rejecting the creditors’ further demands, the Greek government stands for the working people of Greece – and Europe too.</p><img src="https://counter.theconversation.com/content/43974/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marianna Fotaki does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Austerity has crippled the Greek economy and Greek society. To accept more is a decision that should be given to the Greek people.Marianna Fotaki, Network Fellow, Edmond J Safra Center for Ethics, Harvard University and Professor of Business Ethics, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/439362015-06-26T13:10:14Z2015-06-26T13:10:14ZFive things you need to know about the IMF’s stance on Greece<p>As negotiations go down to the wire, the IMF is once again being cast in the role of <a href="http://www.telegraph.co.uk/finance/economics/11679447/Alexis-Tsipras-launches-scathing-attack-on-IMF-as-Greek-authorities-vow-to-fight-desperate-state-cash-grab.html">dictator</a>. It is the enforcer of controversial structural reforms to a country experiencing severe economic distress, the social consequences of which have been <a href="http://www.kentikelenis.net/uploads/3/1/8/9/31894609/kentikelenis2014-greeces_health_crisis_from_austerity_to_denialism.pdf">disastrous over the last seven years</a>. In many ways, however, the IMF is used as a scapegoat for promoting unpopular policy choices by the elected politicians and unelected bureaucrats of the eurozone who are well aware of the organisation’s fundamental commitment <a href="http://governancejournal.net/2014/10/31/special-issue-has-crisis-changed-the-imf/">to favouring fiscal consolidation</a>.</p>
<p>As the June 30 deadline approaches for Greece’s €1.5 billion debt repayment, here are the five key things to know about the IMF’s position.</p>
<h2>1. Keeping the eurozone in tact</h2>
<p>Keeping the eurozone together is a paramount concern for IMF negotiators. They will therefore almost certainly not recommend that Greece consider taking the nuclear option of abandoning the euro, which would be the likely result of defaulting on its debts.</p>
<p>This is because of the risk of systemic instability. And also because of the potential for eurozone rules to act as an external constraint on future economic policy choices in Greece – which the IMF has long seen as in need of <a href="http://www.imf.org/external/np/sec/pn/2002/pn0221.htm">further structural reforms and greater fiscal discipline</a>.</p>
<p>Plus the organisation has a long history of exhibiting a status quo bias whenever it has been faced with the possibility of regional monetary distintegration, such as in the case of the <a href="https://www.academia.edu/5123126/Money_for_nothing_everyday_actors_and_monetary_crises">ruble zone during 1991-93</a>. </p>
<h2>2. Reputational costs</h2>
<p>The IMF is acutely aware of the reputational costs it faces if it is blamed for a sovereign default by Greece – let alone if Greece is eventually forced out of the euro. Here, the stakes involved with the terms of the Greek bailout, and whether or not Greece remains in the euro, differ markedly for the IMF compared with its “Troika” partners, the European Central Bank and the European Commission. </p>
<p>After the IMF took the lead in coordinating a multilateral response to the Asian financial crisis in 1997-98 it shouldered most of the blame for policy mistakes that inflamed the crisis. This motivated many countries to shun the organisation over the next decade <a href="http://www.academia.edu/5123120/The_International_Monetary_Fund_crisis_management_and_the_credit_crunch">until the onset of the global financial crisis in 2008</a>. </p>
<p>There can be <a href="https://theconversation.com/greece-why-there-can-be-no-winners-in-the-grexit-game-43599">no real winners</a> from the high stakes poker match between Greece, the EU, and the IMF that has been running since the Syriza-led coalition came to power in January. But how the IMF’s reputation fares in the aftermath of the eurozone crisis will have a significant impact on its future crisis management role, both in Europe and beyond. </p>
<p>This is one of the reasons behind the IMF’s decision in 2013 to publicly <a href="http://www.theguardian.com/business/2013/jun/05/imf-underestimated-damage-austerity-would-do-to-greece">admit to making notable errors</a> in underestimating the damage that the initial round of austerity policies in 2010-11 would do to the Greek economy. This acknowledgement helped to place a small amount of distance between the IMF’s position and the apparent commitment of EU leaders to <a href="http://blogs.lse.ac.uk/europpblog/2015/02/23/the-eus-deal-on-greece-shows-that-europe-remains-wedded-to-the-politics-of-austerity/">austerity-at-any-cost</a>, while reducing the potential for the IMF to be used as the scapegoat for <a href="http://www.europarl.europa.eu/news/en/news-room/content/20140221IPR36608/html/EUECBIMF-Troika-needs-fixing-but-ministers-must-shoulder-responsibilities">mistakes also made by its Troika partners</a>. </p>
<p>A concern with protecting its reputation is also why the IMF has been at pains to emphasise in press briefings that it has pushed for “<a href="http://www.imf.org/external/np/tr/2015/tr061115.htm">social fairness and social balance</a>” in the design of reforms to the Greek pension system.</p>
<h2>3. Greece’s commitment to structural reform</h2>
<p>How flexible the IMF will be in reaching a compromise with the Greek government depends in large part on how they assess Greece’s commitment to implementing structural economic reforms. </p>
<p>Over the five months since it was elected, the Syriza government has demonstrated <a href="http://www.lisboncouncil.net/index.php?option=com_downloads&id=1174">little or no political will</a> for implementing major overhauls of the pensions system and the tax system, which are key concerns for the IMF. </p>
<p>A broader issue here is the IMF’s principle of “<a href="https://www.imf.org/external/pubs/ft/pam/pam46/pam4605.htm">uniformity of treatment</a>” for borrowers. There will inevitably be internal debates over how much the IMF should compromise with Greece over its bailout terms. But this principle constrains how flexible the organisation can be seen to be for any individual country, to avoid future borrowers also demanding softer loan conditions such as through looser policy targets or a slower pace of structural reforms.</p>
<h2>4. Views on tax reform</h2>
<p>The IMF’s long-standing views on tax reform also limit its flexibility towards Greece’s recent proposals for tax rises. Here, <a href="http://www.academia.edu/7553552/Back_to_Basics_The_Great_Recession_and_the_Narrowing_of_IMF_Policy_Advice">as in other countries</a>, the IMF is seeking a substantial broadening of the tax base through the expansion and simplification of consumption taxes. </p>
<p>It is concerned that tax increases alone cannot plug the fiscal gap in a country with a notoriously leaky tax system. Though much of Syriza’s proposed changes may increase tax revenue in the short-term, the IMF is more interested in structural reform of the tax system that can help in <a href="http://www.academia.edu/12661737/Shaping_Policy_Curves_Cognitive_Authority_in_Transnational_Capacity_Building">shaping long-term policy</a>. </p>
<p>In the meantime, cutting public spending in Greece, from the IMF’s perspective, is both easier for the government to achieve as a stopgap solution and is a better indicator for the country’s creditors of the government’s political commitment to implementing painful reforms.</p>
<h2>5. Leadership</h2>
<p>During the four years that former French finance minister Christine Lagarde has served as the IMF Managing Director, her public comments on Greece have gradually moved towards <a href="http://www.theguardian.com/world/2013/jun/02/greece-debt-crisis">recognition of the need for debt relief</a>. This is a significant shift from the organisation’s official position in 2010-11, and has expanded the negotiating space available to the IMF. Meanwhile it has placed pressure on its Troika partners to deliver some form of debt relief down the track. </p>
<p>Yet despite growing acknowledgement that debt relief will need to be part of any long-term agreement to achieve fiscal stability in Greece, this is only likely to be formally placed on the negotiating table after the government <a href="http://www.imf.org/external/np/tr/2015/tr062515.htm">first agrees to a comprehensive package of structural reforms</a>.</p>
<h2>The end game</h2>
<p>As the negotiations over Greece’s economic future enter the end game, the chasm between the debtor country and its creditors remains both wide and deep. The carrot of debt relief is only likely to materialise once substantial progress is made on implementing the structural reforms that have been deemed unacceptable by Greece’s Syriza government. </p>
<p>It is hard to imagine how a workable long-term solution can be fudged at this stage of the process. This would need either the creditors relaxing their demands for continued austerity or the government caving in and accepting the structural reforms it campaigned against in the election in January. The former is highly unlikely, given the signal this would send to other economies. The latter seems equally unlikely and if it happens might result in the collapse of the government and fresh elections, starting the messy process of muddling through negotiations all over again.</p><img src="https://counter.theconversation.com/content/43936/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>André Broome has previously received funding from the European Commission under the 7th Framework Programme.</span></em></p>What you need to know about the IMF and its approach to negotiations over a Greek bailout.André Broome, Associate Professor of International Political Economy, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/436502015-06-24T05:14:24Z2015-06-24T05:14:24ZExplainer: could Greece’s debt and bailout plan be illegal?<p>As Greece and its international creditors race to agree on a bailout deal, the issue of the legality of Greek debt has been raised. The Greek parliament’s <a href="http://cadtm.org/Executive-Summary-of-the-report">Truth Commission on Public Debt</a> has released a report that rejects the legitimacy of the large sovereign debt restructuring. It alleges that a substantial part of the country’s €320 billion debt is illegal and “odious”.</p>
<p>The Truth Commission was set up by the Greek parliament in April 2015 with a mandate to audit the legitimacy of the Greek debt in light of Greek, EU and international law. The report concludes that Greek foreign debt should not be legally enforceable. As yet, it has no legal standing, but may well fuel Greece’s objections to its bailout plan in the weeks to come.</p>
<p>When the Greek government was bailed out and its debt repayment restructured in 2010, the loans came with strict conditions, in line with the European Financial Stabilisation Mechanism (which has since been replaced by the <a href="http://www.esm.europa.eu/">European Stability Mechanism</a>). The conditions included several austerity measures and structural reforms to the Greek economy.</p>
<p>These reforms have resulted in millions of Greeks <a href="https://theconversation.com/snap-election-and-market-collapse-show-greece-is-still-crippled-by-crisis-35347">facing poverty, unemployment and social exclusion</a>. Meanwhile public services and infrastructure (including schools, hospitals and courts) were shut down or merged <a href="https://theconversation.com/life-under-austerity-shows-why-syriza-is-fighting-it-so-hard-42953">following cuts in public spending</a>.</p>
<h2>Legal controversy</h2>
<p>Not surprisingly, the negotiation of the Greek bailout led to controversy about its nature and legality. Indeed, Greece’s debt has been challenged through different legal avenues. In particular, the legality of <a href="http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/30_edps/communication_to_the_council/2010-08-19_el_communication_en.pdf">Law 3845/2010</a>, which was adopted by the Greek government in May 2010 and agreed to the conditions of the bailout, was unsuccessfully challenged before Greece’s Supreme Court. </p>
<p>The Truth Commission on Public Debt that was set up this year is a non-judicial group. Comprised of Greek and international experts, it was established by the Greek parliament to determine the facts, causes and legality of human rights violations. </p>
<p>The preliminary conclusions highlight legal flaws in the process of Greek sovereign debt restructuring. The report does not hold back with its claims that Greek debt is odious, unsustainable, illegal and illegitimate, undermining various human rights, particularly economic and social rights. As a result, the debt infringes the rights of citizens residing in Greece <a href="http://www.amnestyusa.org/research/reports/annual-report-greece-2013">enshrined in international human rights law</a>.</p>
<p>“Odious” originates in a highly regarded international law theory <a href="http://www.jubileeusa.org/fileadmin/user_upload/Resources/Policy_Archive/408briefnoteodiousilldebt.pdf">coined by Alexander Nahum Sack</a>. The idea proclaims that public debt contracted against democratic principles by a regime for purposes other than the best interests of the nation, should not be enforceable. This is the case of colonial debts or debts incurred during a dictatorship. It refers to the legitimacy of the debt, which is lacking among those who dealt out the loans in the first place.</p>
<p>If a foreign debt is considered as “odious” in these terms, it should not be paid – this is one of the main contentious issues of the report. According to the terms of reference for the Truth Commission, two elements define the odious character of the Greek debt. </p>
<ol>
<li>The lender “knew or ought to have known [that the debt conditions violated] democratic principles (including consent, participation, transparency and accountability)”. </li>
<li>The debt is “used against the best interests of the population of the borrower state, or is unconscionable and whose effect is to deny people their fundamental civil, political, economic, social and cultural rights”.<br></li>
</ol>
<p>The Truth Commission’s main finding is that Greek foreign debt is not only odious, but also illegal since it infringes Greek law, EU law and international law. They call it illegitimate because it <a href="http://bit.ly/1BPti8k">conflicts with human rights obligations</a> such as the respect for the right to work or the right to education. It is unsustainable due to the impossibility for Greece to pay it without seriously affecting its ability to fulfil <a href="http://cadtm.org/Terms-of-reference-for-the">its human rights obligations</a> as a government. For all these reasons the report says that Greece should repudiate and not pay the debt.</p>
<p>The report does not, however, have any legally binding obligations. It is not strictly speaking a ruling, as those issued by national courts, it is merely the preliminary findings of a committee. As such, the recommendation to repudiate Greek debt as odious is not feasible. </p>
<p>Regardless, the report puts pressure on the governments involved in debt negotiations to negotiate less harsh terms for the bailout to address the concerns of Greek citizens. It also raises the issue of their transparency since it tries to investigate the causes of the debt in a highly public manner.</p><img src="https://counter.theconversation.com/content/43650/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Belén Olmos Giupponi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Greek parliament’s Truth Commission on Public Debt has declared much of Greece’s €320 billion debt to be “odious” and illegal.Belén Olmos Giupponi, Lecturer in Law, University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/436542015-06-22T13:35:04Z2015-06-22T13:35:04ZTsipras’s choice: trigger a Grexit or break up Syriza<p>The Greek government has submitted <a href="http://www.bbc.co.uk/news/world-europe-33220220">11th-hour concessions</a> to its creditors ahead of an emergency summit of EU leaders to negotiate a deal that will save the country from defaulting on the €1.5 billion IMF loan. Following five months of deadlocked talks, it has become clear that the Syriza government cannot achieve its pre-electoral pledges. </p>
<p>If no agreement is reached, Greece will default on its loan and a Grexit will be <a href="https://theconversation.com/how-greeces-liquidity-problem-could-cause-an-unplanned-grexit-41691">incredibly likely</a>. But conceding to the demands for spending cuts and welfare reforms that will form part of any deal with its creditors is likely to cause a political rift at home for Syriza leader and Greek prime minister, Alexis Tsipras. It would seem then that the government’s dilemma is a break with Europe or a break-up of the party. </p>
<h2>Break in the ranks</h2>
<p>The gap between the Greek government and its creditors has drawn much closer since negotiations began in January. Indeed, if Greece’s <a href="http://www.theguardian.com/world/2015/jun/22/greek-debt-crisis-tsipras-offer-is-welcomed-as-good-basis-for-progress">latest proposal</a> is accepted, the resulting agreement will be a long way off the promises on which Syriza was elected five months ago. It guarantees the running of primary budget surpluses – albeit significantly smaller than before – and continues the policy of fiscal austerity.</p>
<p>This agreement will be unacceptable to Syriza’s <a href="http://www.bloomberg.com/news/articles/2015-06-19/compromise-is-a-dirty-word-for-tsipras-backers-in-aid-standoff">hardcore</a>, who consider themselves to be the party’s conscience. For them any agreement, which recognises the legality of debt and perpetuates austerity, is a clear betrayal of the party’s principles.</p>
<p>Moreover, for them it would be a strategic mistake to miss the present opportunity, while they have a considerable amount of popular support and anti-European sentiment is unusually high, in order to break with Europe and leave the euro. </p>
<h2>Consequences of a Syriza split</h2>
<p>An agreement that is acceptable to its creditors will has a strong chance of leading to the breakup of the Syriza Party. The government will lose its parliamentary majority as a result and will have two options. Either call elections or take on a new partner (most <a href="http://uk.reuters.com/article/2015/01/09/uk-greece-election-river-idUKKBN0KI1GP20150109">likely the To Potami party</a>). Collaboration with a new partner is unlikely to be smooth and both sides will act with one eye on a future election. </p>
<p>Elections are therefore inevitable and Syriza will have every interest to hold them before the collection of income and property taxes, which will begin in earnest over the summer.</p>
<p>In the run-up to these elections, the opposition will no doubt argue that the agreement signed by Syriza is no better than the previous one and that the long negotiation in order to reach it only managed to seriously weaken the economy, which <a href="https://theconversation.com/a-syriza-election-win-would-be-a-serious-setback-for-greece-35576">had begun to recover in 2014</a>. Nevertheless, it is very doubtful whether it will be able to stop Syriza from being the party with the highest number of votes. So Syriza could again be in government, albeit without its revolutionary wing. The road will then be open for its transformation into a European-style social democratic party, which will be judged mainly on its success in improving the economy’s competitiveness and growth rate.</p>
<h2>If no agreement is reached</h2>
<p>Let us now briefly consider the possibility that no agreement is reached. This will happen if the government’s dilemma is resolved in favour of preserving party unity. It will mean that the neo-bolshevik wing has gained the upper hand, with the support of the vast state-dependent section of society that oppose the structural reforms.</p>
<p>If no agreement is reached, Greece will default on its IMF loan and make Grexit <a href="https://theconversation.com/how-greeces-liquidity-problem-could-cause-an-unplanned-grexit-41691">incredibly likely</a> as a result of the country’s liquidity problem. There should be no doubt that the consequences of this will be catastrophic. </p>
<p>Although there is general agreement that this will be the case in the short-run, there are some commentators who believe that in the longer run regaining control over its monetary policy and exchange rate will enable Greece to escape austerity and restart economic growth. They are wrong. </p>
<p>Without structural reforms that improve the country’s competitiveness and overall productivity, there can be no economic growth. The government that decides on Grexit will do so precisely to avoid making such reforms. It will immediately expand the state and embark on the path of constructing a neo-communist regime that fails to take into account the private sector of the economy. It will run budget deficits that buttress its sources of support, stoke inflation in the absence of productivity growth, and impoverish Greece by continuously devaluing the new currency’s exchange rate.</p>
<p>It is evident that Greece is at a critical juncture and the momentous decision about the road to be taken is largely in the hands of Syriza’s leader who maintains substantial support domestically. His inclination would be to ask for more time, even though this will further depress the economy. Beyond that, Alexis Tsipras’ mind is not easy to read.</p><img src="https://counter.theconversation.com/content/43654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thanos Skouras does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Whether Greece reaches a new bailout agreement or not, the country is in for a rough ride.Thanos Skouras, Emeritus Professor of Economics, Athens University of Economics and BusinessLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/434242015-06-17T14:33:15Z2015-06-17T14:33:15ZGreece: the Syriza government is behaving like Diogenes the Cynic – here’s why<p>As the current standoff between Greece and its international creditors <a href="http://www.theguardian.com/business/live/2015/jun/17/greek-crisis-austria-default-ecb-banks-live">reaches a climax</a>, the prospects that the country will default on its debts and possibly leave from the eurozone draw closer. This has taken many by surprise, as default and Grexit has never been the desire of either side in negotiations.</p>
<p>In many ways the Greece’s Syriza government is behaving like a modern version of the ancient Greek philosopher Diogenes the Cynic – not least because the <a href="http://blogs.ft.com/photo-diary/2015/06/404329/">recent image</a> of Yanis Varoufakis (the unconventional finance minister) resting on the floor of the Greek parliament resembles that of Diogenes resting on the steps of the Agora of Athens in Raphael’s famous “School of Athens” fresco.</p>
<p>Diogenes, like Varoufakis and his party, was a “controversial” figure. He used to criticise the social values and institutions of what he believed to be either a corrupt or a confused (economic) society. When Alexander the Great visited Diogenes and asked him if there was any favour he might do for him, Diogenes famously and fearlessly replied: “Yes, stand out of my sunlight.”</p>
<p>This reflects a major problem with current Greek policymakers. They haven’t quite understood that denial of economic reality brings Greek default a step closer, in which case, there will be very little (if any) sunlight left for them to enjoy.</p>
<h2>The need for reform</h2>
<p>Although the Greek government is extremely outspoken, it keeps moving at a turtle’s pace in terms of the structural reforms that are a requirement of renewed bailout funds. If anything, Syriza has been very keen to reverse recent structural reforms. This can be seen in Greek universities where they have drafted new legislation that will (once again) give undergraduate students the right to take as many years as they want <a href="http://www.ft.com/cms/s/0/f00dfbc8-e4d6-11e4-8b61-00144feab7de.html#axzz3d9k4AtGr">to complete their first degree</a>. </p>
<p>Greece’s need for structural reform is captured by the World Bank’s <a href="http://info.worldbank.org/governance/wgi/index.aspx#reports">government effectiveness index</a>. The index, which captures perceptions of the quality of the civil service and the degree of its independence from political pressures, reveals the extent of the problem. Among 215 countries, the index currently ranks Greece at the disappointing 66.9th percentile. Both Portugal and Spain, the eurozone’s other peripheral countries who have gone through similar financial experiences to Greece, are ranked above the 83rd percentile.</p>
<p>Similarly, the World Bank’s control of corruption index, which captures perceptions of the extent to which public power is exercised for private gain, does not rank Greece highly. The index includes both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests. Greece is ranked at the even more disappointing 55.2th percentile. Both Portugal and Spain are ranked above the 75th. </p>
<p>A similar picture emerges when we look at the World Bank’s regulatory quality index which captures perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. The index currently ranks Greece at the 72.7th percentile. Both Portugal and Spain remain above the 75.6th percentile.</p>
<h2>Concrete commitments</h2>
<p>With Greece well below its peers in terms of its quality of governance, the Syriza government really needs to start making concrete commitments. For instance, they could accept the <a href="http://www.ft.com/cms/s/0/1fc4ffea-0919-11e5-881f-00144feabdc0.html#axzz3d9k4AtGr">latest rescue plan</a>, while getting the consent of the creditors on an ambitious type of restructuring of Greek debt (currently above 175% of the country’s GDP). </p>
<p>What I have in mind is rather straightforward. This restructuring could take the following format: if Greece records positive GDP growth but fails to improve based on the government effectiveness index, then the cost of servicing the Greek debt should be higher compared with the case where Greece records both positive growth and an improvement in the index. This mandate plan will provide a strong signal that Greece means business and therefore address some of the major concerns of its lenders.</p>
<h2>Risk of escalation</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/85385/original/image-20150617-23232-1rmpr22.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The aigina coin with tortoise symbol.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Silver_stater_obverse_Aigina_Met_L.1999.19.26.jpg">Marie-Lan Nguyen</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Clearly, there is a risk that the current standoff will escalate further. As Greece is currently running out of cash, a default is imminent if another tranche of bailout funds is not released. At present, it is not clear whether a default will lead to an automatic Grexit.</p>
<p>Should this unfortunate scenario emerge, Greece should consider adopting a new version of the old drachma currency. Indeed, given that they have been moving at a turtle’s pace in terms of adopting and implementing structural reforms, the new drachma could feature the famous turtle coins from the pre-numismatic age that were popular in ancient Aegina. Doing so will serve as a constant reminder of the consequences of being so slow at implementing the necessary structural reforms to bring their economy back to a sustainable path.</p><img src="https://counter.theconversation.com/content/43424/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Costas Milas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Like Diogenes the Cynic, Greece’s Syriza government have been intransigent in negotiations with powers stronger than them.Costas Milas, Professor of Finance, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/427862015-06-10T14:02:07Z2015-06-10T14:02:07ZGreece must accept reform proposals before time runs out<p>The Greek government and its international creditors remain at an impasse over the reforms Greece must accept to receive the bail-out it needs to sustain itself in the coming months. The decision <a href="http://www.bbc.co.uk/news/world-europe-33009034">to postpone its June 5 IMF debt repayment</a> and reject a set of reforms put forward by the EU Commission president, Jean-Claude Juncker has sparked debate about Greece’s ability to honour its commitments to international creditors.</p>
<p>The back-and-forth exchange of proposals <a href="http://www.ft.com/cms/s/0/2fa5265c-0ebd-11e5-8aca-00144feabdc0.html">continues</a>, with the Greek prime minister, Alexis Tsipras – now a regular fixture in Brussels – meeting his French and German counterparts today. The need to agree becomes increasingly important for both Greece and the eurozone as the days pass. The current bail-out deal runs out at the end of June and without the further €7.2 billion from the EU and IMF, the Greek government runs the risk of not being able to sustain itself. </p>
<p>Though time is running out, I believe they will eventually strike an agreement. What it will look like, however, is rather opaque. In light of Syriza’s tactics so far and the weakness of Greece’s position, the need to accept what its creditors are offering is increasingly the only solution.</p>
<h2>Punching above its weight</h2>
<p>When Syriza <a href="https://theconversation.com/syriza-sweeps-to-victory-in-greek-election-promising-an-end-to-humiliation-36680">came to power</a> last January, it promised to deviate from the path of austerity and renegotiate the bail-out programme. It was truly punching above its weight. But in the context of the Greek population having suffered prolonged periods of austerity with no real signs of recovery, it rode the spirit of populism and promised that it could deliver an alternative programme. </p>
<p>A proposition that scrapped austerity, however, has not come to fruition. In fact, the Greek government has not been able to implement large sections of its electoral agenda – mainly due to a lack of funds, but also because the new government needed breathing space as new and inexperienced political actors came to the forefront. </p>
<p>Ultimately, amateur handling of domestic policies and international negotiations by prominent government ministers, such as the finance minister, Yanis Varoufakis, and the foreign minister, Nikolaos Kotzias, internal disagreement over <a href="http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_09/06/2015_550825">where to focus their precious few resources</a> and an over-reliance on the perceived charisma of Alexis Tsipras have left the government with little to show for its efforts so far. </p>
<p>Negotiations with creditors have not managed to turn European partners in favour of the Greek government’s positions. Instead the episode has demonstrated a further demise of the country’s already tarnished image as an unreliable and stubborn partner. <a href="http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_07/06/2015_550772">Recent statements</a> by high-level EU officials demonstrate well the <a href="http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_07/06/2015_550771">frustration</a> over the inability of the Greek government to deliver concrete and realistic solutions.</p>
<h2>Political game playing</h2>
<p>So where does this state of play leave the Greek government? As time is running out and the country’s economic position <a href="http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_09/06/2015_550833">deteriorates</a>, it is expected that the range of available alternative measures will diminish. Some of the reforms Syriza is proposing on pensions and privatisation require significant time to implement and yield the necessary economic results. Greece does not have that luxury. </p>
<p>There is a strong game of political communication taking place in front of the general public. Not only is Syriza trying to hold together its political mandate and appease a Greek electorate which vested its hopes in the party, but it is also up against internal opposition within the Greek parliament. This has become progressively louder and more visible – arguing for example in favour of a referendum of the proposed agreement with the EU. </p>
<p>Nevertheless, the Greek government under Syriza has not received a mandate from its electorate to take the country out of the eurozone. Thus, Syriza is not expected to go head to head with the EU on a full rupture of relations, something it will become extremely difficult to justify domestically. </p>
<p>Meanwhile Europe is trying to hold firm and press Greece to meet its bail-out obligations – to maintain the cohesion of the eurozone and protect the rest of the EU. At the same time, leaders (including Angela Merkel and Francois Hollande) also need to justify their decisions to their own domestic electorates, who are <a href="http://www.ft.com/cms/s/0/f6ec6932-0d1e-11e5-a83a-00144feabdc0.html#axzz3cSZq5k7E">becoming increasingly uneasy</a>.</p>
<p>For all the anxiety, the solution is crystal clear. In order for Greece to move forward, the Greek government needs to take up the opportunity being offered it, accept the political cost domestically and help return the international dignity and standing of the country.</p><img src="https://counter.theconversation.com/content/42786/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Theofanis Exadaktylos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In order for Greece to move forward, Tsipras’ government needs to take the opportunity being offered it and accept the political cost.Theofanis Exadaktylos, Lecturer in European Politics, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/430182015-06-09T11:54:45Z2015-06-09T11:54:45ZThe Greek economy needs much more than just a debt deal<p>One of the main issues dominating the G7 was the Greek bailout. For the seven leaders attending the Bavarian summit, resolving the debt crisis in a way that is acceptable to Greece and its international creditors remains at an impasse. Both Barack Obama and Angela Merkel called on the Greek government <a href="http://www.theguardian.com/business/live/2015/jun/08/greek-germany-finance-ministers-debt-talks-g7-live#block-5575a393e4b0f9a3b096a33e">to implement economic reforms</a>.</p>
<p>While securing a new deal is important, much of the focus has been on how to deal with Greece’s debt. Ultimately, however, Greek debt will not be tackled by cutting government spending alone. </p>
<p>The Greek economy needs economic reforms to embark on a wider programme of structural change if it is to become competitive again. This demands reconfiguring its institutions to support competitiveness and business growth if Greece is to become economically and socially productive – and again open for business. </p>
<h2>Political grandstanding</h2>
<p>In many ways there is a political battle at play. The election of the Syriza party in January 2015 reflected the frustrations of the Greek electorate, and there is now a need for their prime minister, Alexis Tsipras to prove his party’s mettle in office. </p>
<p>Meanwhile Greece’s creditors, led by Germany in the eurozone, have their own electorates to speak to. As a result, they appear resolute that even a Grexit is preferable to a default as they do not wish to encourage other anti-austerity parties which are on the rise in, for example, Spain and France. Indeed, Angela Merkel has spoken of time running out for a deal to be reached. </p>
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<p>Through the G7 meeting this week, political leaders outside of Greece have emphasised that Greece must stick to its path of austerity and its commitment to repayment of debts. Yet this ignores the need for an increased emphasis on creating a competitive Greece. Though very much a long-term aim, without it, the country will never climb out of its current problems and paying off debts will continue to be the (sole) emphasis for years to come. </p>
<h2>Competitive roots</h2>
<p>In re-examining the roots to the crisis, our research shows that Greece’s competitiveness <a href="http://www.tandfonline.com/doi/abs/10.1080/08985626.2014.995723?journalCode=tepn20">was in decline before 2008</a> as the business base shrunk. As a result, the Greek government needs to enact reforms that are now long overdue to revitalise entrepreneurial activity that will add to the economy and society more broadly.</p>
<p>But wider-ranging reforms are ultimately necessary. From the ineffective system of taxation to the burgeoning public sector, the country’s major institutions are in need of an overhaul to support increased competitiveness and improve productivity. Without this, the tax base will not grow meaning that Greece has no route out of its economic problems. </p>
<p>Likewise, there is a need for the IMF, EU and Greek government to harness the existing cultural commitment to the European project of solidarity, and leverage this for the benefit of both the Greek and eurozone economy.</p>
<p>The goal of creating a Greek economy characterised by sustainable jobs and growth, and reinstating a sense of fiscal responsibility is viable, but only with commitment. It requires root and branch reform – there is no quick fix. As time passes and repayments are postponed, Greece cannot navigate the debt crisis with political grandstanding. </p>
<h2>Breaking the downward spiral</h2>
<p>The Greek business base is in what might be described as an existential crisis as competitiveness declines. Yet at its roots Greece is an enterprising and entrepreneurial society, given the relatively high historical rate of entrepreneurial activity among the general population. </p>
<p>There is a need for a collective commitment, both within and beyond Greek borders, to break what has become a downward spiral. Whereas debt restructuring was once thought to provide the solution, it cannot now succeed in isolation. The inability of Greece to recover and establish firm economic foundations might be considered an economic miscalculation at best. Now there is a need for institutional reform to improve the business environment over time. </p>
<p>Rebuilding relationships with political partners and lenders is important, but the need to rejuvenate the business base from entrepreneurs to large corporations is commonly overlooked. More than managing debt, overcoming the Greek crisis is about reestablishing economic confidence. </p>
<p>While regaining the confidence of its creditors might be achieved by meeting repayments, regaining the confidence of people and businesses around the world will be harder. Rebuilding the Greek economy is, and arguably always was, about more than debt.</p><img src="https://counter.theconversation.com/content/43018/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Much of the focus on Greece has been on how to deal with its debt. Yet the debt will not be tackled simply through cutting public spending.Nick Williams, Lecturer in Entrepreneurship, University of SheffieldTim Vorley, Professor of Entrepreneurship, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/429532015-06-09T08:34:46Z2015-06-09T08:34:46ZLife under austerity shows why Syriza is fighting it so hard<p>Greece has been a key talking point at the G7 summit of economic powers. The current impasse in negotiations between the Syriza-led government and the country’s creditors comes down to some significant differences in opinion over austerity. While Angela Merkel says time is running out for Greece to accept the reforms required for its bailout funds, Syriza <a href="http://www.bbc.co.uk/news/world-europe-33009034">continue to question</a> conditions that require cuts to the country’s pensions, civil service and VAT reform. </p>
<p>Alexis Tsipras’s firm stance against austerity has led to the Greek government being labelled as intransigent throughout negotiations. The analogy that has become common is that Greece is a patient <a href="http://www.wsj.com/articles/five-years-on-doctor-and-patient-split-on-greek-cure-1431031991">that refuses to take its medicine</a>. But the irony of this is that the country’s healthcare system has borne the brunt of austerity measures – the extent of which has become evident to me while carrying out my PhD fieldwork, focusing on the restructuring taking place to Greece’s political economy and welfare state.</p>
<p>Greece has undergone <a href="https://theconversation.com/the-long-and-winding-road-to-reform-greeces-economy-38309">significant reforms</a> in the five years since the debt crisis began. But the focus on Syriza undoing this and acting intransigently at the negotiating table ignores the depth of austerity that Greeks have endured and how this continually tests the cohesion of Greece’s social fabric. </p>
<h2>The austerity experience</h2>
<p>In order to understand why further austerity is so strongly rejected in Greece it is imperative that we understand how it has been experienced. One of the areas where this can be seen most vividly is in the country’s healthcare provision. </p>
<p>Access to healthcare and medicine in Greece is traditionally based on social security contributions made through employment, which can then also be used by immediate family members. But these contributions have become increasingly more difficult to maintain as the effects of austerity have bitten. </p>
<p>Statistics around employment and income highlight why. Since 2010 (when austerity was first introduced) there has been a <a href="http://www.bbc.co.uk/news/world-europe-33020420">fall in GDP of 25%</a> and unemployment has ballooned to 26% of the total population (<a href="http://crisisobs.gr/wp-content/uploads/2013/03/2.Unemployment1.pdf">up from 7.7% in 2008</a>). The figures are even more stark when we consider that youth unemployment, <a href="http://crisisobs.gr/wp-content/uploads/2013/03/3.Unemployment-rate-by-age-group1.pdf">which stood at a staggering 58.3% in 2013</a>, <a href="http://www.tradingeconomics.com/greece/youth-unemployment-rate">remains around 50%</a>. And, of all those who are unemployed, 19% have been <a href="http://www.tradingeconomics.com/greece/long-term-unemployment-rate">for a year or more</a>. </p>
<h2>Systemic cuts</h2>
<p>This inability to pay for healthcare is then compounded by the fact that only one in ten receive <a href="http://www.macropolis.gr/?i=portal.en.society.2487">some form of unemployment benefit</a>, which could provide a buffer against these growing insecurities. For those who still have “wage-related income”, there has been a decrease per household by an average of 10.9% between 2008 and 2012 or 34.6% for those already in the lowest income bracket. Many will tell you they are lucky to earn just €400 a month from a full-time job. All of this is exacerbated by lower income groups seeing their tax burden <a href="http://www.boeckler.de/pdf/p_imk_study_38_2015.pdf">rise by 337.7%</a>.</p>
<p>The effects of austerity on the economy and employment has itself created a difficult enough situation for Greek citizens to access healthcare. This has been compounded by the specific measures taken to the healthcare system. As a <a href="http://www.ox.ac.uk/news/2014-02-24-greeces-deepening-health-crisis">study in the Lancet</a> highlights, “from 2009 to 2011, the public hospital budget was reduced by over 25%”, while there was an introduction of “new charges for visits to outpatient clinics and higher costs for medicines”. The overall reform effort has produced a 47% rise in people who feel they are not receiving the healthcare they medically require.</p>
<p>As the authors of the study recognise, none of this is to deny the need for reform of a health system that already did not adequately meet the needs of its users. But “the scale and speed of imposed change limited its capacity to respond to its population’s increased health needs”. This is putting things very politely.</p>
<h2>Solidarity movements</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/84260/original/image-20150608-8704-yp18qv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The traditional system is broken.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/future15/186563145/in/photolist-bSY4X4-bE4UqJ-bSZ8oe-bSYhDP-bE5wS9-bE54mJ-bSXFzk-bE5KS3-bSYa5M-bSZm32-bE5DYj-bSZHFZ-bE5URq-bE5esN-bE4ASJ-4bpor4-Y8a6f-4k6MXE-4btpSC-bSXNAi-bE5j6y-bSZLF8-bE4bso-bE5t9C-bE4Q1f-bSYdCt-bE4YKY-bE5NCY-8Bs9vc-avFfft-4Ddjsa-hubHX-6stuko-7zvYyq-6stG1S-6Wqi7t-hT5q4-2Z8d7m-5QMwHE-5QMwK3-4bfc7L-7wUxiW-fTifWd-r48VyF-aCDbRg-6AWSzV-62j6jP-cqvz6-6hEWMc-f7Wohy">future15pic via flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Where there has been a severe curtailment on people’s ability to access healthcare, there has in turn been a flourishing of solidarity. So many of the most vulnerable Greeks now find their needs met <a href="http://www.theguardian.com/world/2015/jan/23/greece-solidarity-movement-cooperatives-syriza">through volunteer run Social Clinics (and many other solidarity structures)</a>. </p>
<p>These clinics were first set up by volunteers in the wake of the anti-austerity <a href="http://www.culanth.org/fieldsights/70-the-movement-and-the-movement-of-syntagma-square">Squares Movement</a> in 2011 to meet the growing medical needs no longer met by the state. The larger organisations, such as those in the Athens suburb of Helliniko or city of Thessaloniki, attempt to provide comprehensive primary level provision – anything from dentistry to psychiatry. Most also organise social pharmacies, to dispense much needed medicines to people who can no longer access them from the state. In all, there is a national network of about 50 clinics.</p>
<p>These organisations are proving to be profoundly important. Without them, the severely underweight babies who were being brought to the Helliniko Clinic because parents had to cut their baby’s milk formula one to six parts, instead of one to three, or the two cancer patients who donated ten days of their drugs each to ensure that a third person could have at least the same as them, would not have their needs addressed. </p>
<p>While completely run through voluntary work with all donations, equipment and medicine provided through donations, it is important to emphasise the fact that the individuals who organise the clinics do not consider this an act of charity. It is very much a social movement that is run democratically and, as well as providing medical care to citizens in need, aims to show the reasons why these people are asking for help.</p>
<h2>Strange logic</h2>
<p>For all their success, volunteers at the social clinics never expected their organisations to be around for so long. Now they do not expect them to disappear any time soon, as Syriza struggles to combat calls for further austerity measures. This, despite the fact that their existence shows that the state is failing to meet the basic healthcare needs of its citizens, instead having to rely on volunteers. </p>
<p>But it seems that somewhere along the way the experience of austerity has been lost on those who continue to believe in its logic. And where principles of solidarity and democracy are so richly practiced by those involved in austerity-countering initiatives like Greek social clinics, the very same principles are being actively undermined by Greece’s creditors – even though they are meant to be the bedrock of the European project. </p>
<p>No one I spoke to in Greece negated the responsibility that had to be taken for past failings that led to the crisis of 2010. But neither should this make us blind to the failings of the politics of austerity that have dominated the European landscape. It seems likely that if Greece continues to be considered the patient that didn’t take enough of its medicine, further prescriptions of the very same medicine are only likely to lead to an overdose with <a href="http://news.sky.com/story/1496547/greece-people-are-dying-as-cash-runs-short">further tragic consequences</a>.</p><img src="https://counter.theconversation.com/content/42953/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jamie Jordan receives funding from the Economic and Social Research Council. He is affiliated with the Centre for the Study of Social and Global Justice, at the University of Nottingham.</span></em></p>Greece has undergone significant reforms in the last five years. A look at the effects on the country shows why Syriza’s rejection of further austerity is not unreasonable.Jamie Jordan, ESRC PhD Candidate in Politics and International Relations, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/428282015-06-04T13:40:55Z2015-06-04T13:40:55ZThe compromise that’s needed in the Greek bail-out negotiations<p>Following five years of imperfect <a href="http://business.cardiff.ac.uk/sites/default/files/working-papers/E2014_16_0.pdf">yet noticeable economic progress</a> Greece is once again at the epicentre of the financial world’s attention. The country is due to repay €1.6 billion to the IMF in four steps between now and June 19. The first payment of €300m is due on Friday June 5. </p>
<p>But the Greek, Syriza-led government is at loggerheads with its international creditors over making these payments. To pay them, they require access to more loans – specifically €7.2 billion – which have been held up for months. </p>
<p>Greece’s creditors refuse to release the bail-out before Syriza agrees to economic policies that confirm fiscal discipline and further reforms in Greece’s civil administration and goods, services and labour markets. Syriza, on the other hand, refuses to adopt policies that are <a href="https://theconversation.com/syriza-sweeps-to-victory-in-greek-election-promising-an-end-to-humiliation-36680">contrary to its election mandate</a> to stop austerity and reverse many of the structural reforms completed over the past three years.</p>
<p>The present situation is clearly unsustainable, so what is likely to happen next? Making predictions within the current environment of complicated politics is of course very difficult. But, assuming Greece’s top priority is to remain in the eurozone, the most likely outcome is a compromise deal closer to the lenders’ positions rather than the Greek government’s.</p>
<h2>Economic realities</h2>
<p>Syriza’s pre-election promises were unrealistic. To start with, the cash necessary to deliver them is not available. Raising taxes on an already highly taxed population is politically very difficult, reducing the widespread tax evasion will take time and political will that the new government has <a href="http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_28/04/2015_549546">not yet shown</a> and Greek government yields have returned to levels that forbid Greece’s access to international financial markets. </p>
<p>The only realistic source of financing any expenditure beyond the state’s receipts in the foreseeable future is the bail-out programme provided to Greece by its international partners. Syriza’s plan seems to have been to force Greece’s creditors into accepting its pre-electoral programme by threatening contagion from a renewed Greek crisis, a kind of mutually-assured-destruction strategy. From the very beginning, however, that strategy was clearly misguided. </p>
<p>Although nobody wishes Greece to leave the eurozone and a Grexit would certainly not be costless, 2015 is not 2012, and it would hurt Greece more than it would the eurozone. The European Monetary Union has put in place <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1468-5965.2012.02288.x/abstract">significant institutional firewalls since 2012</a> to protect other members from a new Greek crisis. Plus the credibility cost that would follow Greece returning to unsustainable economic policies would be even greater for the long-term sustainability of the euro. In short, Greece needs Europe more than Europe needs Greece. So the latter will have to compromise more than the former. </p>
<h2>The economic argument</h2>
<p>The economics underlying the new Greek government’s negotiating positions have been fundamentally wrong. The emphasis of the Greek negotiating team is on the demand side. They argue that the Greek economy is in recession due to reduced demand and to overcome the recession a boost in demand – or, in other words, an end to austerity – is necessary. </p>
<p>There is little doubt that Greece indeed faces a problem of reduced demand relative to its production capacity – a fact reflected in the <a href="http://www.tradingeconomics.com/greece/unemployment-rate">very high Greek unemployment rate</a>. And indeed, a number of very prominent economists have argued that austerity in Greece in particular, and Europe in general, <a href="http://mainlymacro.blogspot.co.uk/2015/02/greece-simple-macroeconomic-guide.html">may have gone too far</a></p>
<p>But there is no mainstream economist, including the most vocal opponents of austerity, who does not acknowledge that the supply side of the Greek economy <a href="http://www.ft.com/cms/s/0/639cf9b0-a1a0-11e4-bd03-00144feab7de.html#axzz3c5i0ii6R">suffers from serious deficiencies</a>, namely excessively low levels of productivity, competitiveness, private investment and institutional performance. The new Greek government has not presented any credible plan to address these. </p>
<p>On the contrary, Syriza is committed to reversing most of the reforms that have taken place since 2012, largely because they go against the interests of those pressure groups that constitute its main voter pool. As a result, from the perspective of mainstream macroeconomics, the present Greek position appears outdated and unsuitable to address the main causes of the Greek crisis – namely the weaknesses in the Greek supply side. </p>
<p>There is little chance that a demand-oriented policy, with ever-increasing borrowing, will be acceptable to Greece’s lenders and international financial markets. More importantly, such a policy is not in the best interests of Greece and its citizens. </p>
<p>Perhaps ironically, the Greek negotiating positions have so far reinforced the demand problem which it emphasises. By not adjusting their position, the Greek authorities maintain and intensify the climate of uncertainty and have <a href="https://theconversation.com/ecb-decision-should-be-good-news-for-greece-but-syriza-will-get-in-the-way-36578">cut the country off</a> from the demand-boosting quantitative easing programme initiated by the ECB earlier this year. This results in conditions of credit crunch and postponement of investment and consumption decision. It will also cause capital flight, hitting demand from the monetary sector. </p>
<p>At the same time, and as the economy slides into a deepening recession, the fiscal deficit widens creating further pressure for raising tax and more expenditure cuts. Given the present fiscal dynamics, Greek authorities will eventually have to increase taxes and cut expenditure at levels significantly higher than planned a year ago to achieve a lower surplus than previously projected. Greece at the moment faces economic uncertainty, political uncertainty, a liquidity squeeze and deteriorating fiscal outlook. It is hard to define a more recessionary profile than the one created in Greece since January 2015. </p>
<h2>The democratic argument</h2>
<p>Eurozone countries are all run by democratically elected governments which, ultimately, answer to their voters. Public opinion polls <a href="http://sputniknews.com/business/20150526/1022555900.html?utm_source=t.co%2FzmPcY21Siz&utm_medium=short_url&utm_content=pfz&utm_campaign=URL_shortening">in almost all of them</a> show decreasing support for further financial assistance for Greece without conditions. This raises a two-way democracy-related argument. </p>
<p>On the one hand it is argued – and with some justification – that if Greek voters decided that they wish an end to austerity, their choice should be respected. On the other hand, an equally plausible argument is that if an end to Greek austerity presupposes increased financing by other European countries, it is the democratic right of the voters of those other countries to refuse this, if Greece does not observe mutually agreed conditions. </p>
<p>This brings us back to the internal contradictions of the pre-electoral promises given to Greek voters. It is not possible for Greece to maintain its participation in the eurozone without financing form their fellow eurozone members – which brings with it certain conditions. That is why the most likely outcome of the current negotiations is a deal closer to the lenders’ rather than the Greek government’s positions.</p>
<h2>Question of priorities</h2>
<p>There is a caveat in my prediction, namely the assumption that the overriding objective of the Greek government is to maintain Greece’s status as a euro-member. The assumption is based on public statements of top Greek officials, including the Greek prime minister, Alexis Tsipras, and is affirmed by Greek public opinion polls showing overwhelming support (in the order of 65% to 80%) <a href="http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_05/05/2015_549713">for continued participation</a>. Syriza, however, includes a substantial number of far-left members, known as the Left Platform, who openly argue that Greece should leave the euro if staying in it comes <a href="http://www.wsj.com/articles/greeces-governing-left-divided-over-debt-terms-1432578490">with any conditions</a>. </p>
<p>As I have explained elsewhere, this will be a calamity <a href="http://www.usnews.com/debate-club/should-greece-leave-the-eurozone/greece-must-reform-its-economy-and-stay-in-the-eurozone">for Greece and its citizens</a>. To avoid it, Tsipras should not let this minority view hijack policy. At the same time, Greece’s international partners should show the highest possible degree of flexibility, both now as well as during future negotiations for a third Greek financial rescue package, which looks almost inevitable. </p>
<p>The best deal in my view will be one reviving the momentum on reforms in exchange for the minimum possible extra taxation measures – this will allow each party to claim some degree of success. Nobody will gain anything from prolonging the current stand-off – it is time for all parties to contribute towards a pragmatic agreement.</p><img src="https://counter.theconversation.com/content/42828/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Arghyrou is a member of the Scientific Board of the Institute of Democracy Konstantinos Karamanlis</span></em></p>Nobody will gain anything from prolonging the current stand-off; it is time for all parties to contribute towards a pragmatic agreement.Michael Arghyrou, Reader in Economics, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/427882015-06-04T05:19:28Z2015-06-04T05:19:28ZGreece is just the start of Europe’s problems<p>As we hold our breath and wait for the eventual outcome of the <a href="http://www.ft.com/cms/s/0/1fc4ffea-0919-11e5-881f-00144feabdc0.html#axzz3box9vv7A">Greek bail-out negotiations</a>, it’s tempting to see Europe’s challenges as purely economic in nature. We assume that Europe will always hold a permanent and influential place on the world map, championing democracy.</p>
<p>But how robust is this assumption? Is Europe and indeed the West more vulnerable than we imagine? Are we just one catalytic event away from a seismic shift within Europe that the fog of the past and the fog of the present are stopping us from seeing?</p>
<p>Research tells us that successful leaders and organisations must be farsighted. They are good at looking out to the periphery and interpreting – in a less conventional manner – the weak signals of <a href="https://hbr.org/2005/11/scanning-the-periphery">potential seismic shifts</a>. But it is very easy to ignore weak signals and just extrapolate from the past. For example, as the Great Recession broke in 2008 <a href="http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=all&_r=0">few</a> saw the true depth of the crisis. So just what “weak” or somewhat stronger signals do we have out there in Europe to see the future from a different viewpoint?</p>
<p><strong>Economic performance</strong>: We could start from the perspective of economic performance. Europe’s struggle with the impact of the Great Recession is well known. Looking back more than <a href="http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00115&plugin=1">ten years</a>, the performance has been at best chequered. Growth – notably more towards the east of Europe – has been reasonable, in relative terms. For others, including Germany and France, performance has been somewhat more modest and the immediate prospects for development seem to teeter on a <a href="http://www.ft.com/cms/s/0/bb3ada9a-e992-11e4-b863-00144feab7de.html#axzz3YsqY5cWc">knife-edge</a>. </p>
<p>But for some, as we know, the experience has been near catastrophic. The obvious example is Greece. But we must remember that, at the end of 2014, Italy’s economy had experienced, over ten years, <a href="http://www.voxeu.org/article/italian-growth-new-recession-or-six-year-decline">five years of contraction</a>. Spain, Portugal and Ireland too have all struggled.</p>
<p><strong>Fragmentation</strong>: We then have the issue of fragmentation and the rise of secessionist parties, parties that wish to divide and fragment existing nation states. In the UK there is the Scottish National Party making a loud case for an independent Scotland and there are at least another <a href="http://www.washingtonpost.com/blogs/worldviews/wp/2014/09/18/if-scotland-breaks-away-these-8-places-in-europe-could-be-next/">eight areas in Europe</a> that face these divisive pressures.</p>
<p><strong>Inequality and social divisions</strong>: Inequality and social divisions are also signals of a bumpy road ahead. A <a href="http://www.rand.org/content/dam/rand/pubs/research_reports/RR400/RR479/RAND_RR479.sum.pdf">report</a> commissioned by the European Union and published in 2013 concluded that rising inequality fuelled by the effects of the Great Recession, demographic shifts, ongoing economic globalisation and the prospect of lower global growth would be one of the key challenges for Europe in coming years. In addition to inequality, we have to consider social divisions from the perspective of conflicts in views and values as evidenced at least by the rise of <a href="http://www.carnegiecouncil.org/publications/articles_papers_reports/0186.html">extremism in Europe</a>.</p>
<p><strong>External influence</strong>: We also need to turn our heads and look further afield. Events in Ukraine and Russia have shown us the power of nationalism and the growing importance of territorial boundaries. But this external influence is also surfacing within the EU itself in the form of Russian loans to finance <a href="http://www.newsweek.com/2015/05/01/nuclear-power-russias-new-weapon-choice-326198.html">new nuclear power stations</a> in Hungary, a <a href="http://www.bloomberg.com/news/articles/2015-04-20/russia-pushing-greece-gas-pipeline-accord-before-turkey-signs-on">potential new gas pipeline agreement</a> between Greece and Russia and a €9m loan from Russia to <a href="http://www.theweek.co.uk/europe/61498/russia-funds-french-national-front-is-moscow-sowing-european-unrest">France’s National Front party</a>.</p>
<h2>Something deeper afoot</h2>
<p>These may seem like a series of unrelated, disparate problems. But what if they are a warning that something deeper is afoot?</p>
<p>The signals introduced above are forces that collectively can give rise, alarmingly, to a collapse of democracy. </p>
<p>Research into the fall of democracies helps us to pinpoint the toxic conditions for <a href="http://www.jstor.org/stable/30039034?seq=1#page_scan_tab_contents">democratic collapse</a>. Europe already has three in the form of poor performing economies, social divisions and foreign involvement. A fourth signal focuses upon <a href="http://foreignpolicy.com/2011/01/06/samuel-huntingtons-legacy/?wp_login_redirect=0">institutional decay</a> – where broadly the institutions that support democracy fail to keep up with the emerging needs of the electorate. The final warning sign is a history of earlier collapses.</p>
<p>If you thought that there are no viable alternatives to a democratic world, well “viability” is all in the eye of the beholder, and, as we know, there are other models whose voices now <a href="http://www.guancha.cn/observer-tell-west/2012_02_20_66253.shtml">wish to be heard</a> the most notable of which is China’s model of quasi-authoritarianism.</p>
<h2>Preparing for the future</h2>
<p>History tells us that it is difficult to spot seismic shifts before they break. How many forecast the collapse of the Soviet Union? Who saw that the Great Recession in those early days of 2009 was more than a “credit crunch” or a “normal” recession?</p>
<p>The point is that, almost unbelievably, we may be just one catalytic event away from another seismic shift. A shift that will challenge that one deep assumption that underpins many organisations’ business plans. This shift, if it appears, will have wide ranging consequences for business ranging from the behaviour of core customers and choice of target markets through to the emergence of new influential stakeholders and regulators.</p>
<p>And what form could such a catalytic event take? Well, consider <a href="http://www.bbc.co.uk/news/business-32163541">secular stagnation</a> or the next <a href="http://www.cnbc.com/id/102168300">wave of technology</a> that could wipe out the once inviolate jobs of the <a href="http://www.bbc.co.uk/news/business-24058389">middle class</a> – the historical drivers of democracy.</p>
<p>The time is ripe for any leader wishing to build a resilient organisation to prepare for these plausibly seismic shifts. Complacency or the belief that change will merely be a continuation of popular megatrends such as connectivity, ongoing globalisation and consumerism will leave businesses dangerously exposed.</p><img src="https://counter.theconversation.com/content/42788/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Davies provides consultancy services to organisations in the areas of strategy, change and innovation.</span></em></p>It’s not just Greece and poor economic performance that are threatening the future of Europe as we know it.Robert Davies, Senior Visiting Fellow, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.