Wednesday, March 25, 2015
Missteps and miscalculations that could cost Greece the euro
March 25, 2015
Despite having lots of the economic logic on their side, the newly-elected Greek government is slipping further behind in its goal of restoring economic dynamism, jobs and financial viability. As a result, both Greece and its European partners risk losing control of the one thing they seem to unanimously agree on — namely, maintaining the country within the eurozone. Understanding the five main reasons why this is happening also sheds light on what needs to be done.
The new government led by the leftwing Syriza party was elected with a manifesto that contains three policy changes that many economists agree on: reducing excessive austerity, revamping structural reforms to unleash broader economic dynamism, and removing crippling debt overhangs that undermine existing productive activities and discourage the stimulus that comes with new investments.
But in translating intentions into actions, Greek officials with little or no governing experience have mishandled five issues that now risk eroding their credibility. First, they opted to negotiate with their European partners, and Germany in particular, in an overly public and confrontational manner.
Second, angered by European intransigence, they ended up politicising what should have been the technocratic work of specialist economic negotiators. Any chance of reaching an understanding was undermined by competing political narratives and noisy nationalistic accusations. In such an environment, good economics had no chance to prevail.