Friday, June 15, 2012

Greece In Limbo

by Güneş Aşık and Kostas Matakos


Centre for Policy Analysis and Research on Turkey
June 15, 2012

All eyes are focused on looming elections in Greece, scheduled this Sunday, June 17, where the young, charismatic and populist leader of the Coalition of Radical Left—known as SYRIZA party—

Alexis Tsipras 37, attempts to achieve the unimaginable: to challenge and defeat the dominance of the old political elite represented by the centre-right New Democracy Party, led by Antonis Samaras, and the Socialist party (PASOK), led by former Minister of Finance Evangelos Venizelos, two parties that ruled Greece non-stop since 1974 and are mainly responsible for the current status of affairs: corruption, inefficient public administration, nepotism and clientelism. A potential Tsipras victory will be a major upset to anyone unfamiliar with Greek politics. However, to those who have been paying attention to what is happening in Greece in the last two years, the news of SYRIZA’s electoral success might not come as big surprise. In this article we make the claim that the fiscal adjustment and consolidation program that is being implemented in Greece has failed, mainly for two reasons: the two establishment parties were unwilling to implement drastic reforms and the targets set by the Europeans were overly maximalist. Hence, irrespective of the outcome of the forthcoming elections, tougher days lie ahead for the ravaged Greek economy and desperate electorate. No matter which party emerges victorious a new program has to be implemented. Even under this assumption, nonetheless, a Grexit might still be difficult to avert. Hence, even the formation of a coalition government led by Samaras’ party might not be enough to save the day. This leaves room open for alternative scenarios.

In a country ravaged by unemployment (official numbers put it at 22.7% in Q.1 of 2012) that on the top of it has chronic problems, such as corruption, nepotism, inefficient public administration and tax collection system, and an ailing economy that scarcely produces something of export value, all of them attributes of the clientelistic structure of the economy and the party-system, it should come as no surprise that the rescue plan failed to deliver what it promised: fiscal adjustment, stabilisation, and most importantly, growth. The reason is that instead of much needed reforms (increasing the efficiency of tax collection, curbing tax evasion and reform social services, to name a few) another road was chosen: obstinate persistence in horizontal spending cuts, and across the board tax-hikes in order to mimic and internal devaluation. At this stage, however, it seems no longer viable to keep on slashing wages and imposing further taxes on the population in order to achieve “internal devaluation” to gain competitiveness, promote recovery and at the same time trying to put government budget in order.


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