Thursday, September 17, 2015

17/9/15: Greek Crisis: Structural & Institutional Drivers

A lot has been written about Greek economy, with basically two divergent views (ignoring comical extreme perspectives usually harboured by the media) of the core problem:

  • The first perspective is that Greek economy has been driven by wrong-footed European policies (austerity, failed restructuring of Private Sector-held debt), as well as by deceptive practices of some private sector players (that somehow facilitated Greek Governments' false declarations of deficits, questionable restructuring of pre-Euro era debts etc).
  • The second perspective is that Greece suffers from chronic, long term institutional failures that have left economy deeply non-competitive.
In my view, both narratives coexist in reality, even though the first one became the dominant preferred narrative of the 'Left' while the second one became the dominant one on the 'Right' of political spectrum within Greece and outside.

Ideology aside, here is an interesting and wide-ranging view from the second perspective, courtesy of Edmund S. Phelps. Worth a read... 

As a note to this, one part of the first perspective that is glaringly false is the perception of Greece as being a victim state of the 'international bankers'' manipulation of the national debt accounting (the so-called Goldman Sachs Swap deal). Greek Government, at the time, wilfully and freely contracted Goldman Sachs to execute the deal. Informational disclosures available to the Greek Government at the time were sufficient for the Government to know exactly what it was doing and why. Eurostat was notified of the deal and did not object. There appears to have been no deception nor any coercion involved, except for the deception by the Greek Government at the time, knowing neglect of the issue by the Eurostat and soft coercion of the EU in dealing with Greek Accession to the Euro.  

Far from being a victim, Greek authorities have actively, willingly and knowingly participated, over decades, in shaping numerous institutional failures that strongly contributed to the economic destruction of the country. These authorities acted on the basis of electoral mandates. Their failures are briefly listed in Endmund S. Phelps' article linked above.

This does not, of course, diminish the pain from the crisis and does not eliminate the need for cooperative assistance and support to be extended to Greece, including direct debt relief. But it does call for a better balancing of analysis of the Greek economic situation overall. And it does call for the Greek people to engage in some serious soul-searching as to the nature and quality of the political leadership they elect. Especially, given the fact that they are about to go to the polls on September 20th.

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