There is the need to restore investments and faith, both decimated by seven years of debt’s deflation (2008-2015). But how can this be done? How can we restore investments and faith in line with disengagement speed?
Imagine a Development Bank that leverages
guarantees consisting of funds that the state will retain after the privatizations
and other assets as well (e.g. real estate) with their value easily being
reinforced (and providing additional guarantees) through reform of property
rights. Imagine that this connects the EIB, the “Juncker plan” etc. with the
Greek private sector. Privatization suddenly is being relieved of all relations
based on sellouts and is becoming a part of an ambitious development partnership
of the public and private sector.
In addition, imagine a Bad Bank which helps the
banks to get rid of the legacy of the non-performing mortgage loans and
decongests their financial networking. In collaboration with the virtuous
effect of the Development Bank, credit and investment flows will flood the
hitherto barren areas of the Greek economy, so in the end of the process to
help the Bad Bank to make a profit and be turned into... a “Good Bank”.
The next piece of the puzzle is of course related
to the real economy.
The government is considering the possibility of:
• Liberalizing the gas market.
• Considering the model of the French bilateral
agreements for the regulation of the industry of production and distribution of
electric energy (without, though, privatizing the existing electricity
• Releasing the product specifications (e.g. of dairy
products and non-prescription medicines).
• Simplifying the licensing of businesses (in close
cooperation with the World Bank).
• Legislating the inclusion of all discounts on
invoices of retail trade (for limiting the oligopolistic power of supermarkets
towards local suppliers).
• Strengthening the Competition Committee by equipping
it with its own budget and ability to raise revenue.
Recent calculations show that undeclared work is
one third of the total employed labor. If one adds to this figure the fact that
fewer than 10% of the unemployed workers sometimes receive any unemployment allowance,
it is obvious that the Greek labor market is more liberated than most other
European labor markets. Further limitations to the protection of workers will
have no positive impact on high-quality employees, who will certainly be damaged
and forced to compete against competitors who hire undeclared workers.
In a few words, the labor market needs an adjustment
for formalizing the undeclared workforce with positive externalities on pension
assets and revenues of the state. That is why most employers' organizations in
Greece are in favor of a new legislation for collective bargaining and higher minimum
wages. For this purpose, the Government has already begun a fruitful dialogue
with the International Labor Office (ILO) to shape the appropriate legislation.
When the 2012 haircut (PSI) was concluded, pension
funds lost 26 billion Euros. They also lost one third of the contributions due
to the collapse of the declared paid employment. Shortly afterwards, pensions
were slashed up to 44% in the private sector and up to 48% in the public
sector. As a consequence, the average pensioner in Greece is just one euro away
of the official poverty line defined by the 60% of the median income.
It is obvious that only a return to a growth with
abundant labor supply may make viable again the pension system and any attempt of
cutting pensions now for balancing their accounting records will lead to more
unprivileged people and to another cycle of debt deflation.
Of course, this does not mean that we should not
reform the system while we expect to return to growth.
• Early retirements.
• Consolidation of smaller funds.
Can one imagine Greece recovering dynamically as a
result to these measures? Absolutely! In a world of very low yields, Greece
will be seen as an ideal opportunity for investments, causing a steady foreign
direct investment flow.
As overly negative expectations are being turned
into positive, the problem will be to restrain the "irrational
enthusiasm." The danger then would be to repeat the invasion of capital of
the pre-2008 era which led to a growth of speculation funded by debts.
To assure that this time things will be different,
Greece will need to reform its social economy and its political system.
The creation of a new growth bubble is not
the growth model of our government.
During the cycle of the Greek development which was
based in debts, capital flows were being directed from the commercial banks in consumerism
frenzy and from the state in an orgy of illicit supplies and general waste.
This time will be different.
The new Development Bank will take the lead in
targeting scarce local raw materials in selected productive investments by new
companies, IT companies which use local domestic human capital, small and
medium-sized enterprises which are being active in organic agricultural
products, export-oriented pharmaceutical companies, attractants of the
international film industry at Greek sites, education programs that leverage
the Greek intellectual production and the unparalleled historical monuments
Meanwhile, the supervisory authorities will monitor
carefully the commercial lending practices while a debt brake will prevent our
government from giving in bad old habits, ensuring that our state is not going
to slide back to primary deficits. Cartels, non-competitive pricing practices, the
without reason closed professions and bureaucracy, which traditionally had made
the state the number one public enemy, will soon discover that our government
is their worst enemy.
Let us imagine for a moment the effects of announcement
of such an agreement for the financial, fiscal and insurance ecosystem of
With the banks’ shares to be projected in the
heavens, losses of our state from the recapitalization will be eliminated as its
participation these shares will be overestimated and the pension funds will be
out again in the markets coming from the dividends of the Development Bank and the
contributions from the recently legalized employees.
Suddenly the society which was mired in debt and
deflation and remained “un-reformed” by a reforms’ agenda which was rejected by
the majority, will begin to be corrected and, thus, ready to adopt - as its own-
the reforms we all try to agree on.
So, my question is the following: What do you
ladies and gentlemen believe is in the interest of Europe? What would help
Europe to be integrated in the future?
A Greek and European failure in the implementation
of this program that will lead us all in an uncharted territory? Or the
successful implementation of our program? I leave it up to you to decide.
For my part, I will conclude with what I consider
the triptych of the dangerous myths which put the Eurozone and Greece at huge
1. A Greek exit from the Eurozone could be good for
the Eurozone and for Greece as well.
2. Greece does not have enough [money] during the
last five years and insists to compel other countries, some of them poorer than
itself to pay for its squandering.
3. The Greek new government has not negotiated in
good faith, has not offered serious recommendations to the institutions and has
no credible plan to help the Greek economy stand on its feet among the
None of the above is correct.
1. A Greek failure even in the beginning is being controlled
by an active ECB, will leave the Eurozone to resemble to the Golden Rule of the
interwar period: A hard currency and fixed rate regime which rejects economies
burdened with the largest adjustment obligation. After the realization of this will
flood our hearts and minds, it will be only a matter of time before the Eurozone
will be fragmented with huge costs for each European nation. As for Greece, an enforcement
to exit [the Eurozone] will lead to making even poorer another million of
Greeks - as if the current poverty crisis is not enough!
2. The idea that Greece has not done enough for
consolidating its public finances is nonsense. As we have seen, no economy has been
stabilized more in a period of peace during the last three centuries. Moreover,
Greece has a primary surplus and the new Greek government has been committed to
lessen the deficit which will guarantee that it will not slide into a primary
deficit. Thus, the claim that the Greek State requires loans to pay salaries
and pensions is simply wrong.
3. The Greek government insists, at least from the
Eurogroup’s agreement of February 20th 2015, on the immediate
implementation of a number of important reforms. With joy I certify that much
progress has been made in Brussels in this area.
Eventually, the program which you kindly gave me the
opportunity to present to you today puts forward an invested driven recovery
plan which is based on multi-planar socio-economic reforms which promote
freedom, justice, shared prosperity and the idea that democracy can turn a
vicious circle into a virtuous one.
In 2010, our failures have cost Europe enough. If
we succeed together with this program, a different process can unfold with
Greece being the messenger of good things which will happen throughout
* Yianis Varoufakis is Greek Minister of Finance and Professor of