Greece decides: Another vote won’t fix Greece's vast economic problems, but definitive action – including debt forgiveness – will


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The Independent Online

The principal problem with Greek politics is that Greek politicians, political parties and voters – or at least an uncomfortably large proportion of them – think that Greece’s debt crisis can be solved simply by electing a new government. If that were the case then Greece’s economy and democracy would be in a much healthier condition than they are today.

So it is that successive elections yield more desperate options, as leftist and right-wing parties try to outflank each other in their extremism and defiance in the face of a foreign enemy. Now the young are abandoning Syriza, moving to the harder-left Popular Unity and to the neo-fascist Golden Dawn. The centre-right parties are also benefiting, as Greek electors thrash around for someone, anyone, to offer a lead and a way out of their agonies.

But the failure of Syriza and the Tsipras government demonstrates that it doesn’t matter who rules in Athens. The debt mountain is still vast and the economic reforms the country needs to place itself on a sustainable footing remain as urgent and intractable as they did the day before the ballot.

The party that eventually forms an administration will need to implement the package of reforms agreed with the European Union and the IMF. Fortunately, Alexis Tsipras and the leader of the conservative New Democracy group, Vangelis Meimarakis, have pledged to press on with the conditions dictated in the bailout agreement. A change of government should not lead to a further attempt to renegotiate the terms of that deal. It does mean that the Greek election is a rather superfluous exercise that has done more harm than good, but that is a minor feature in a landscape with much more difficult terrain still to cross. The Greek government has a difficult and long march back to solvency. It will mean real hardship for the Greek people and some of the richer elements in Greek society as they pay something more akin to their fair share of their obligations to the nation. Pensions, social security and wages all face a further squeeze. Privatisations and deregulation of labour and other markets will also have to be pushed ahead despite resistance.

Those changes will be needed whatever the level of Greek debt, as a precursor to establishing a more competitive economy. Investment is desperately needed in the Greek economy as the best hope of delivering the productivity gains for the Greek people to enjoy the standard of living they have a right to. Borrowing to maintain living standards, wages and benefits is no longer an option, for fairly obvious reasons. That is the reality behind much of the technical talk about haircuts and bond yields – a mistake made by the Greek nation as a whole to borrow on world markets at the low rates available after it joined the euro, but without then investing those funds in a way that boosted the productive potential of the Greek economy.

Yet Europe owes Greece, too. Greece, as almost every economist concedes, has a debt mountain that cannot be paid off, whether the Greek economy grows at normal levels or slumps back into recession. At some point some debt “forgiveness” will again be on the agenda and Germany, in particular, will have to accept the reality of the situation.

More pressingly, Greece and Italy are on the front line in the refugee crisis and, for obvious reasons, unable to cope with the tide of humanity reaching their shores. If the rest of the EU continues to take an overly harsh line on debt, the Greeks may be less than enthusiastic about implementing European policy on refugees, which is glaringly absent in any case.