Europe's Missing Vision for Greece
Europe and the international financial markets are two years deep into Greece's sovereign debt crisis. Yet critical questions not only stubbornly persist, but indeed transcend everything that has been said and done by European leaders. Late last month in Brussels those leaders presented their "grand rescue plan" for Greece. They continue to act as if just applying more and more of what they have been prescribing will alleviate the crisis. It will not. In fact, it will only make things worse. Why?
Today the EU, ECB and IMF - the so-called "troika" - require Greece to approve their new debt deal, which pushes private creditors to accept voluntarily a 50 percent loss on their Greek bonds in return for a fresh €180 billion bail-out package. This will be complemented with an injection of €106 billion in capitalization of weakened banks presumably coming from an emergency fund of the European Financial Stability Facility apparently due to expand to €1 trillion from €440 billion.
Indeed, the coalition government of Greek Prime Minister ad interim Lucas Papademos was installed on November 11 precisely to underpin that program by implementing even harsher austerity measures. In December the troika will disburse the still pending €8 billion tranche for Greece to meet current obligations and sanction another €70 billion pay-out in February.
This process is doomed to success. In the short run, Papademos and his European backers are likely to make progress in trimming Greece's excessive expenditures in the state sector. They may even be able to open up some closed professions and privatize a few public assets before expected general elections in spring 2012 reshuffle Greece's political deck, and very probably force Papademos from the scene. Yet none of this would be sufficient, even if fully attained beyond the troika's wildest dreams. Deliberately shrinking economic activity is not enough.
We can predict that if we deny food to an ill patient, he will lose weight. But would that be good medicine? What's needed is a healthy economy in Greece, not one forced to exist on life-support equipment for years to come.
What is missing? Quite simply, European leaders lack a visionary approach that would stimulate growth within a specifically Greek context. First, they trample the time-honoured principle in elementary economics that you can only grow - not shrink - an economy out of recession. Second, they present grand plans for manipulative financial engineering that reshape mountains of Greece's debt, but do nothing to change the commercial landscape and prepare the way for a new economy.
Where is the program that taps into the iconic entrepreneurial heritage of remarkably profitable ventures that, say, John Latsis or Aristotle Onassis, left behind in Greece and abroad? Where are the plans for development, prosperity, and rising employment and an enlightened business acumen that are key to an honest recovery in Greece?
The models for such an alternative approach to the troika's emphasis on austerity do exist. In Greece there are many high-profile ventures designed precisely to stimulate the economy and in a manner consistent with Chinese, or Arab, and other emerged markets' serious financial and economic aspirations in Europe as a whole. For example, Greece is pursuing a solar energy program with Germany named Helios (Sun) that over time is expected to contribute an impressive €15 billion reduction of Greek debt while sustaining high profitability and creating thousands of jobs in both the short and long terms.
The €500 million Costa Navarino Resort, probably Europe's most exclusive and eco-friendly tourist destination, is already profitable and creating jobs in the southeastern Peloponnese - with a further €500 million investment envisaged for additional "dream residences" in the greater area of historic Pylos. Or the Harilaos Trycoupis suspension bridge, a rare engineering marvel three kilometers long and constructed at a cost of nearly €1 billion with the French Vinci Group. It connects the Peloponnese with mainland Greece in a manner that directly spurs economic activity.
Any austerity plan imposed on Greece will not be successful if it does not also embrace a complementary behavioral option that is manifestly available and that would provide hope to ordinary people in Greece, whose mounting distress is real and must be taken into account. This would reassure international markets as well.
To put it bluntly, rather than using Greece as a scapegoat for failings that also are to be shared more widely in Europe, euro-bureau-technocrats in Brussels could have saved billions if at the beginning of the crisis they had formulated a development plan that actively helped turn Greece into our continent's Palm Springs or Florida, as it were. A dozen or two of such pilot projects directly capitalizing on the country's beautiful climate, diverse mineral resources, and decisively strategic position would have sufficed.
It is not too late, and that is so because Greece is a rich country. State-owned real estate alone is worth well in excess of €500 billion and dwarfs the country's current sovereign debt standing at some €390 billion. These assets could quickly be legitimately exploited via standard 35-year leasing agreements, as in the case of Eleftherios Venizelos International Airport in Athens, one of the busiest in the world.
In addition, world shipping today is at a crossroads given the looming abandonment of conventional heavy fuels in favor of more environment friendly liquid natural gas. Current demand for revolutionary clean propulsion engines already stands at an impressive €4 billion. Consistent with a brilliant heritage in shipping, Greek shipyards in Syros and elsewhere in the country remain fully competitive. Thanks to a traditionally highly skilled labor force their current capacity to remove conventional machinery and install new generation LNG engines, coming from leading makers such as MANN and B&W, is bound to broaden already profitable horizons and create thousands of new jobs.
Meanwhile some in Europe fantasize about the Union itself being bailed out from Beijing's sitting fortune of nearly €3 trillion in foreign exchange. However, given the lack of vision plaguing Brussels, probably the last thing China would do is "throw away the country's wealth and be seen as just a source of dumb money," as Professor Li Dankin, a distinguished academic and leading member of China's Central Bank Monetary Policy Committee, aptly remarked. Yet a set of innovative proposals with a series of legitimate and intelligently conceived wealth-generating and job-creating projects in Greece, purposefully designed in Europe but naturally marketed and financed worldwide, would undoubtedly excite not only the Chinese but other international investors as well.
To be sure, the troika and others are right that Greece's stifling bureaucracy inhibits financial activity and has to be dismantled to enable economic growth. But audacious plans for that growth need to be made simultaneously with the Papademos government's pursuit of deep structural changes, including a fresh ethos of "minimalist taxation," reforms in labour relations, and elimination of closed professions.
We need a clean break not only with Greece's internal economic practices, but also with how the Troika is attempting to impose its program of austerity on them. Absent that, Greece, as the birthplace of the best of Europe originally, will emerge as the macroeconomic sacrificial lamb that started the process of undoing the great European project of an effectively and realistically functioning Union.
