DIW: Is the Greek crisis a tragedy without catharsis?

DIW: Is the Greek crisis a tragedy without catharsis?

Athens, April 14, 2016/Independent Balkan News Agency

By Spiros Sideris

Dedicated to the Greece crisis is the last volume of the German Institute for Economic Research (DIW) in Berlin, entitled “The Greek crisis: a Greek tragedy?”.

In an edition that is structured as a tragedy, 20 researchers – mostly from Greece or the Greek diaspora – attempt to illuminate the consequences of the economic policy of the past few years, presenting at the same time the outline solutions to terminate the crisis.

As he explained to Deutsche Welle, economist Alexander Kritikos, Director of DIW research, who curated together with his colleague Professor Christian Dreger, the last volume of the institute:

“This volume, which is comprised by ten articles does not deal only with the current issues of the crisis, for example the debt and economic growth in general, but also tries to have a look behind the events and analyze how individual sectors and specific reforms developed”.

Researchers are finding, for example, that due to the crisis, the construction industry has been hit hard and that “ultimately the introduction of property tax has almost paralyzed it”.

Regarding the cuts measures, Alexander Kritikos notes that in the last 7-8 years all governments have implemented to the greatest extent the necessary measures. However, that was not the case for the much-needed structural reforms.

The factors that repel potential investors

In the new volume of DIW researchers stress the need for the implementation of agreed reforms, even referring frequently to the examples of countries that have benefited from similar programs.

But what specific reforms are deemed as necessary to restart the economy and attract investors?

“They relate to structural reforms at three levels: first, the opening and closing of business today, which is accompanied by such a number of conditions (…) that leads many entrepreneurs to not want to even enter the process, preferring to invest in other countries. The second field concerns the reliability with respect to business taxation, where we see many changes in the past 6-7 years. Traders want to see here as well reliability and continuity”.

The third relates to the administration of justice, with the average case time trial in Greece vary to four years, he says. An obstacle to development, entrepreneurship and productivity, according to Alexander Cretan, is also the closed professions.

Regarding pension reform, the economist believes that this generally is necessary, especially in terms of increasing the retirement age.

He however criticized the fact that in recent years no government saw to it that pension cuts be accompanied by a parallel introduction of social allowances to act as a “social safety net”.

On continuity and consistency

Researchers however, emphasize the importance of continuity and consistency in specific areas of policy action, for example in health or education, and to not change the basic coordinates each time governments and ministers alternate.

Important role in the analysis of experts of course plays the issue of Greek debt sustainability.

“The conclusion is that in the long-term the debt is not sustainable. In one of the articles it is clearly stated that one should count a haircut of 30%. It remains open whether this should be direct or indirect. In a further extension of the repayment of loans and reduction of interest rates you can also bring about a corresponding reduction”.

A haircut, according to Al. Kritikos, is a signal to investors that the discussion of a Grexit and debt sustainability is finally ended.

Regarding the ongoing Greece and creditor negotiations, the economist believes that the two sides will exhaust all possible time frame before reaching an agreement, which means that it should not be expected closure of the assessment and disbursement of tranches as long as Greece has immediate need to repay loans.

The conditions of “catharsis”

Do researchers see a light at the end of the tunnel? Will there ultimately be a “catharsis in the Greek tragedy”, as is the almost homonymous title of “output” of the 20 researchers, signed by Alexander Kritikos?

“As long as the policy that was followed in the last year continues I see no catharsis. With the term catharsis myself and the researchers generally express the hope to be in the near future an economic policy and a reform policy that serves the interests of the entire country, not individual persons. (…) We hope a next government to launch the much-needed structural reforms, but also something which is missing in Greece and which we know from other countries: to conduct a constructive dialogue between all society strata for the good of the country”.

He sees the final exit from the crisis when it will be possible “to establish businesses in Greece that will invest in research and innovation and which will thus create the conditions for exports, apart from agricultural products and tourism. When this is done, and this is why catharsis is needed, then Greece will actually emerge from the crisis”.