Dragasakis: ‘All we ask is that Europe give Greece a chance’

Dragasakis: ‘All we ask is that Europe give Greece a chance’

Athens, March 18, 2015/ Independent Balkan News Agency

By Spiros Sideris

The country is in a situation comparable to that of Sisyphus, says Deputy Prime Minister Giannis Dragasakis in his intervention.

In his article to the «Financial Times» Dragasakis chose to comment on the developments in Greece and abroad.

In an article entitled “All we ask is that Europe give Greece a chance”, Dragasakis emphasises the risk to condemned an entire generation to a future without hope.

In more detail the Deputy Prime Minister said in his article:

It is common belief that the Greek government seeks special treatment compared to other Eurozone countries. This is not true, we ask equal treatment.

Since the outbreak of the crisis, our economy has shrunk by 26%, unemployment has reached 8% to 26% and wages have fallen by 33%. These results are worse than those experienced by countries during the 30s and much worse than those provided under the Greek adjustment programs. This is the reason the Greek government criticised these programs.

Our fiscal adjustment is much greater than that of other countries. Since 2009, the spending reductions and tax increases exceed 45% of household disposable income. In Portugal (the equivalent rate) was 20%, while in Italy and Ireland it was 15%.

Not only fiscal measures were wider, but for every percentile adjustment unit, the economy shrank by a larger amount. This was because the Greek economy is less open than others.

Any decline in demand affects products produced in the country, more than the imported ones. Successive rounds of austerity exacerbated the contraction of GDP, while at the same time the proportion of debt to the GDP became unmanageable. Greece is borrow even more to pay off old debts.

We entered the crisis having high deficits. With inflation close to zero, the reductions that had to be made in order to strengthen competitiveness, were made with high cost for eurozone countries facing problems.

Production was supposed to drop, creating inflation and burdening debt dynamics. It is difficult to stabilise a high debt when the strengthening of deflation increases the real value of debt. In the 20s Britain had high primary surpluses, but deflation was increasing its debt, as a percentage of the GDP.

The program of the ECB bond buying aims to help to reduce borrowing costs for countries facing problems. It also essentially reduces Greek debt levels held by banks of the Eurozone core. But Greek banks still hold a large share of debt and the cost of restructuring will have to be payed by the Greek taxpayers.

Capital inflows from countries facing problems has dried the liquidity of the banking system, while it has strengthened the ability to provide loans to the banks of the eurozone core. The loss of skilled labour staff has reduced the capacity of countries facing problems. The implications of the above will take a generation or more to reverse.

The parents of the euro, envisioned a monetary union that would resemble the classical gold standard, whereby the adjustment between countries with surpluses and countries with deficits would be symmetrical. In the Eurozone, the burden of adjustment only burden the countries with deficits.

Between 2008 and 2014, the external balances of countries with problems, showed surpluses, while there were large deficits. The external balances of Eurozone core countries have not changed.

As a result, the country is faced with a situation comparable to that of Sisyphus – a man condemned to push a rock on top of a hill, only to see it rolling again at its foot.