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05-15-2012, 09:47 AM
There are many things Alexis Tsipras likes about Germany. The leader of Greece's Coalition of the Radical Left (Syriza) party drives his BMW motorcycle to work at the Greek parliament in the morning, Germany's über-leftist Oskar Lafontaine is one of his political allies, and when it comes to his daily work, his colleagues have noticed a certain tendency toward Prussian-style perfection.
Tsipras could easily count as a friend of the Germans, if it weren't for the German chancellor. Greek magazines have frequently caricatured Angela Merkel dressed in a Nazi uniform, because she imposes her fondness for balanced budgets and austerity on the rest of Europe. The Greeks, says Tsipras, want to "put an end" to the Germans' requirements and their "brutal austerity policy."
--
It's time to rethink the treatment. The Greeks were never ready for the monetary union, and they still aren't ready today. The attempt to retroactively bring the country up to speed through reforms has failed.
No one can force the Greeks to give up the euro. And yet it is now clear that withdrawal would also be in the country's best interest.
It isn't a matter of abandoning the Greeks. Greece is and remains an important part of Europe. A Greek withdrawal from the euro will have serious social, political and economic consequences -- mostly for the Greeks, but also for the rest of Europe. The continent's solidarity is not tied to the euro, which is why other European countries will still have to support Greece with massive amounts of money.
But only a Greek withdrawal from the euro zone will give the country a chance to get back on its feet in the long term. The Greeks would have their own currency once again, which they could then devalue, making imports more expensive and exports cheaper. As a result, say American economist Kenneth Rogoff and others, the Greek economy could become competitive again.
--
An exit from the euro zone would be the prerequisite for the political new beginning that the country's reformers believe is inevitable. One of those reformers is Gikas Hardouvelis, 56, the chief adviser to transitional Prime Minister Lucas Papademos.
His job description was easy to write but difficult to fulfill: He was supposed to ensure that Greece remains in the euro zone. Since the end of November, Hardouvelis has had possibly the most beautiful office in the country. The Maximos Mansion, next to the National Garden in downtown Athens, is the prime minister's grand official seat.
But since taking office, the economist has also had a mission which could well be described as impossible: to revamp a country that has been completely mismanaged.
Until last summer, the total number of government employees wasn't even known, nor was the number of government agencies, which were often established for the sole purpose of concealing the enormous expenditures of certain ministries.
--
The privatization of state-owned companies, which was intended to help fill up empty government coffers, has hardly even begun. Of the €50 billion in anticipated revenues by 2015, the program has only generated €1.6 billion to date.
The sale of real estate holdings, in particular, is more difficult than expected. Until recently, the Greeks were almost wholly unfamiliar with the concept of the land registry. After over 10 years of efforts to develop such a registry, only 6 percent of all real estate has been entered into the system.
The liberalization of restricted sectors of the economy has also ground to a halt. Symptomatic of this failure is the plan to open up the services of architects, lawyers and shipping agents to competition. There are roughly 140 so-called closed professions; no one knows the exact number. The members of these professions received the licenses for their profitable activities under the former military junta, and they are passed on from generation to generation or sold for a lot of money. Sums of €100,000 to €150,000 are not uncommon for the purchase of a taxi license in Athens.
--
The only progress, albeit modest, that the Greeks have to show for themselves is in the fight against the budget deficit. To this end, the value-added tax was raised from 19 to 23 percent, several new taxes on luxury goods and special duties were introduced, pensions were cut by 15 percent and the salaries of government employees slashed by 30 percent or even more.
Through these efforts, the budget deficit was reduced by an impressive 7 percentage points. A historically unparalleled debt haircut, in which 95 percent of creditors relinquished 75 percent of their claims, also brought some relief. Nevertheless, the successes of the debt reduction effort remained modest. Despite creditor participation, the country still suffers from a debt burden of 160 percent of gross domestic product, which threatens to suffocate the country in the long term.
This is aggravated by the fact that the established ruling class has no interest in the reforms being a success. To accommodate the programs called for by the so-called troika of the European Commission, the European Central Bank (ECB) and the IMF, laws were established that could not work, "because the relevant cabinet ministers didn't want them to work," says Hardouvelis.
--
One of the peculiarities of the Greek state is that, although there are 32 laws on deregulation, there is in fact no deregulation in reality. Greece routinely ranks poorly on the World Bank's Doing Business index. Neither the troika nor the local EU Task Force for Greece, whose goal is to actually implement reforms, have been able to change this.
Officials from the Greek Interior Ministry complain that the ministers are usually the ones getting in the way of progress. "We have to fight with our own bosses when it comes to administrative reform," they say. There is a rumor that the minister of public administration advised the environment minister to agree to the troika's proposals, but not to implement them.
The international envoys and the EU Task Force staff members are familiar with many such examples, as are those ministerial officials who truly want to change things and have given up on the old system.
--
The two men have been professional politicians -- a term that is now perceived as an insult in Greece -- for decades. Samaras has been a cabinet minister three times and a member of the Greek parliament since 1977. Venizelos has held eight cabinet posts since 1990.
Samaras' campaign was a ludicrous farce, difficult to surpass in its political miscalculation and overconfidence. In defiance of all polls, he campaigned on the expectation that New Democracy would govern alone, and he made election promises that could easily compete with those made by Tsipras. "His rhetoric is straight out of a 1985 campaign manual," the newspaper Kathimerini scoffed.
--
Seen in this light, Syngros is at the forefront of the campaign to overcome Greece's poor image as a place for investment. The country is viewed as a nightmare for entrepreneurs, a place where it can take years to obtain something as simple as a license.
If Syngros has his way, all of that will now change. There has even been an expedited approval process for large projects for the last year. Nevertheless, Greek government agencies, with their Kafkaesque structures, sometimes even drive Syngros to desperation. It recently took two months until all required signatures had been appended to the minutes of a meeting of the relevant committee of ministers.
But the main problem is that investors are hard to come by. "They shy away from the sovereign risk," says Syngros. As an example, there has been only one taker so far for an extremely attractive loan set up for that purpose by Germany's KfW development bank.
--
The banks complained that they were forced to agree to the supposedly "voluntary" haircut. But if Greece now withdraws from the euro and Athens can no longer service its debt, private-sector creditors will benefit from the fact that they have already survived the worst.
"The direct costs of a Greek government bankruptcy are manageable for private creditors," says Jürgen Michels, chief economist for Europe at Citigroup. Furthermore, only a portion of the remaining debt lies with banks and insurance companies in the euro zone, while the rest has been taken on by speculators outside Europe. This is why a bankruptcy would probably not severely affect the European banking system.
--
European leaders are now convinced that a Greek withdrawal from the monetary union would be manageable. "The risks of contagion are no longer as great as they were a few months ago," says Luxembourg's Finance Minister Luc Frieden.
European leaders, at any rate, are no longer willing to depend on the foresight of Greek politicians, and so they have instructed their experts to make preparations for the worst-case scenario. For around the last year, a "Greece Task Force" appointed by German Finance Minister Wolfgang Schäuble has been developing a possible exit resolution. Isolated from the rest of the German Finance Ministry, the group is working out models and scenarios on the potential consequences of a withdrawal, both for the rest of the euro zone and for Greece itself.
--
It wouldn't be the only bill coming Europe's way. More and more Greek debts have been assumed by the public sector in the last two years. In the wake of the March debt restructuring, private creditors, such as banks, insurance companies and hedge funds, now hold sovereign debt worth only about €100 billion.
There are also loans in the amount of €73 billion that were disbursed by the members of the euro zone and the IMF in the context of the first aid package for Greece. Now Athens has also received the first tranches from the second aid package. And then there is the roughly €35 billion in sovereign debt held by the ECB. It is unclear what will happen to the ECB's claims against the Greek central bank, the so-called Target-2 balances, which recently added up to about €100 billion.
The Fitch rating agency estimates that public-sector claims against Greece will grow to more than €300 billion this year. If the majority of these claims became worthless, the German finance minister alone would face a loss of tens of billions of euros.
This is a large amount, and yet most economists believe it is manageable. It would roughly correspond to the German government's net borrowing for this year. In other words, the economic damage of a Greek withdrawal from the euro for Germany would remain within limits. "The Greek economy is simply too insignificant for that," says the Oxford-based German economist Clemens Fuest.
http://www.spiegel.de/international/europe/why-greece-needs-to-leave-the-euro-zone-a-832968-4.html
Tsipras could easily count as a friend of the Germans, if it weren't for the German chancellor. Greek magazines have frequently caricatured Angela Merkel dressed in a Nazi uniform, because she imposes her fondness for balanced budgets and austerity on the rest of Europe. The Greeks, says Tsipras, want to "put an end" to the Germans' requirements and their "brutal austerity policy."
--
It's time to rethink the treatment. The Greeks were never ready for the monetary union, and they still aren't ready today. The attempt to retroactively bring the country up to speed through reforms has failed.
No one can force the Greeks to give up the euro. And yet it is now clear that withdrawal would also be in the country's best interest.
It isn't a matter of abandoning the Greeks. Greece is and remains an important part of Europe. A Greek withdrawal from the euro will have serious social, political and economic consequences -- mostly for the Greeks, but also for the rest of Europe. The continent's solidarity is not tied to the euro, which is why other European countries will still have to support Greece with massive amounts of money.
But only a Greek withdrawal from the euro zone will give the country a chance to get back on its feet in the long term. The Greeks would have their own currency once again, which they could then devalue, making imports more expensive and exports cheaper. As a result, say American economist Kenneth Rogoff and others, the Greek economy could become competitive again.
--
An exit from the euro zone would be the prerequisite for the political new beginning that the country's reformers believe is inevitable. One of those reformers is Gikas Hardouvelis, 56, the chief adviser to transitional Prime Minister Lucas Papademos.
His job description was easy to write but difficult to fulfill: He was supposed to ensure that Greece remains in the euro zone. Since the end of November, Hardouvelis has had possibly the most beautiful office in the country. The Maximos Mansion, next to the National Garden in downtown Athens, is the prime minister's grand official seat.
But since taking office, the economist has also had a mission which could well be described as impossible: to revamp a country that has been completely mismanaged.
Until last summer, the total number of government employees wasn't even known, nor was the number of government agencies, which were often established for the sole purpose of concealing the enormous expenditures of certain ministries.
--
The privatization of state-owned companies, which was intended to help fill up empty government coffers, has hardly even begun. Of the €50 billion in anticipated revenues by 2015, the program has only generated €1.6 billion to date.
The sale of real estate holdings, in particular, is more difficult than expected. Until recently, the Greeks were almost wholly unfamiliar with the concept of the land registry. After over 10 years of efforts to develop such a registry, only 6 percent of all real estate has been entered into the system.
The liberalization of restricted sectors of the economy has also ground to a halt. Symptomatic of this failure is the plan to open up the services of architects, lawyers and shipping agents to competition. There are roughly 140 so-called closed professions; no one knows the exact number. The members of these professions received the licenses for their profitable activities under the former military junta, and they are passed on from generation to generation or sold for a lot of money. Sums of €100,000 to €150,000 are not uncommon for the purchase of a taxi license in Athens.
--
The only progress, albeit modest, that the Greeks have to show for themselves is in the fight against the budget deficit. To this end, the value-added tax was raised from 19 to 23 percent, several new taxes on luxury goods and special duties were introduced, pensions were cut by 15 percent and the salaries of government employees slashed by 30 percent or even more.
Through these efforts, the budget deficit was reduced by an impressive 7 percentage points. A historically unparalleled debt haircut, in which 95 percent of creditors relinquished 75 percent of their claims, also brought some relief. Nevertheless, the successes of the debt reduction effort remained modest. Despite creditor participation, the country still suffers from a debt burden of 160 percent of gross domestic product, which threatens to suffocate the country in the long term.
This is aggravated by the fact that the established ruling class has no interest in the reforms being a success. To accommodate the programs called for by the so-called troika of the European Commission, the European Central Bank (ECB) and the IMF, laws were established that could not work, "because the relevant cabinet ministers didn't want them to work," says Hardouvelis.
--
One of the peculiarities of the Greek state is that, although there are 32 laws on deregulation, there is in fact no deregulation in reality. Greece routinely ranks poorly on the World Bank's Doing Business index. Neither the troika nor the local EU Task Force for Greece, whose goal is to actually implement reforms, have been able to change this.
Officials from the Greek Interior Ministry complain that the ministers are usually the ones getting in the way of progress. "We have to fight with our own bosses when it comes to administrative reform," they say. There is a rumor that the minister of public administration advised the environment minister to agree to the troika's proposals, but not to implement them.
The international envoys and the EU Task Force staff members are familiar with many such examples, as are those ministerial officials who truly want to change things and have given up on the old system.
--
The two men have been professional politicians -- a term that is now perceived as an insult in Greece -- for decades. Samaras has been a cabinet minister three times and a member of the Greek parliament since 1977. Venizelos has held eight cabinet posts since 1990.
Samaras' campaign was a ludicrous farce, difficult to surpass in its political miscalculation and overconfidence. In defiance of all polls, he campaigned on the expectation that New Democracy would govern alone, and he made election promises that could easily compete with those made by Tsipras. "His rhetoric is straight out of a 1985 campaign manual," the newspaper Kathimerini scoffed.
--
Seen in this light, Syngros is at the forefront of the campaign to overcome Greece's poor image as a place for investment. The country is viewed as a nightmare for entrepreneurs, a place where it can take years to obtain something as simple as a license.
If Syngros has his way, all of that will now change. There has even been an expedited approval process for large projects for the last year. Nevertheless, Greek government agencies, with their Kafkaesque structures, sometimes even drive Syngros to desperation. It recently took two months until all required signatures had been appended to the minutes of a meeting of the relevant committee of ministers.
But the main problem is that investors are hard to come by. "They shy away from the sovereign risk," says Syngros. As an example, there has been only one taker so far for an extremely attractive loan set up for that purpose by Germany's KfW development bank.
--
The banks complained that they were forced to agree to the supposedly "voluntary" haircut. But if Greece now withdraws from the euro and Athens can no longer service its debt, private-sector creditors will benefit from the fact that they have already survived the worst.
"The direct costs of a Greek government bankruptcy are manageable for private creditors," says Jürgen Michels, chief economist for Europe at Citigroup. Furthermore, only a portion of the remaining debt lies with banks and insurance companies in the euro zone, while the rest has been taken on by speculators outside Europe. This is why a bankruptcy would probably not severely affect the European banking system.
--
European leaders are now convinced that a Greek withdrawal from the monetary union would be manageable. "The risks of contagion are no longer as great as they were a few months ago," says Luxembourg's Finance Minister Luc Frieden.
European leaders, at any rate, are no longer willing to depend on the foresight of Greek politicians, and so they have instructed their experts to make preparations for the worst-case scenario. For around the last year, a "Greece Task Force" appointed by German Finance Minister Wolfgang Schäuble has been developing a possible exit resolution. Isolated from the rest of the German Finance Ministry, the group is working out models and scenarios on the potential consequences of a withdrawal, both for the rest of the euro zone and for Greece itself.
--
It wouldn't be the only bill coming Europe's way. More and more Greek debts have been assumed by the public sector in the last two years. In the wake of the March debt restructuring, private creditors, such as banks, insurance companies and hedge funds, now hold sovereign debt worth only about €100 billion.
There are also loans in the amount of €73 billion that were disbursed by the members of the euro zone and the IMF in the context of the first aid package for Greece. Now Athens has also received the first tranches from the second aid package. And then there is the roughly €35 billion in sovereign debt held by the ECB. It is unclear what will happen to the ECB's claims against the Greek central bank, the so-called Target-2 balances, which recently added up to about €100 billion.
The Fitch rating agency estimates that public-sector claims against Greece will grow to more than €300 billion this year. If the majority of these claims became worthless, the German finance minister alone would face a loss of tens of billions of euros.
This is a large amount, and yet most economists believe it is manageable. It would roughly correspond to the German government's net borrowing for this year. In other words, the economic damage of a Greek withdrawal from the euro for Germany would remain within limits. "The Greek economy is simply too insignificant for that," says the Oxford-based German economist Clemens Fuest.
http://www.spiegel.de/international/europe/why-greece-needs-to-leave-the-euro-zone-a-832968-4.html