The obsession with Greek debt shadowed the whole point of borrowing—that is, helping Greece grow again. While the debt matters, it matters even more when it’s well spent on policies that would reverse the recession. And this genre is totally different from today’s media coverage.
What plans does Europe have for Greece?
Greece itself doesn’t stick to any long-term plan. That’s both good news and bad news. Having several years of economic decline in a row, people try to rotate the left and the right in power, and new elections introduce new policies. The Papandreou government prioritized the business climate. In the best-practice style, it committed itself to the 2012 bailout terms and Greece even earned 48 positions in the World Bank’s Doing Business ranking since 2010 (praise by St. Louis Fed’s economist). This is how GDP responded:
Getting rid of bureaucracy solved no urgent economic problem. Business can include red tape in the price, but it can’t escape the falling demand on its own. Eventually, Greece got a good business climate without business.
Syriza had tried to argue with the creditors, so in response, the ECB cut the Greek banks off liquidity. Surely, the ECB did so in compliance with the June 30 official deadline, but it could negotiate the extension. Such events shake the public opinion, and Greek governments change each other. So which plan of long-term growth should we assess?
The plan of the creditors, of course. They have a large impact on short-term economic stability, which is a lever for making long-term decisions. With a small abuse of democracy, the troika writes a detailed plan for Greece and waits till the Greek officials accept this plan as their own.
This plan escapes the debtor’s fluctuating politics, so the bottom line remains the same since 2012. It includes the “milestones” that unlock new tranches from the EU:
The full manual concerns just everything:
(Along with some alternatives by academics, this plan tells something about the contribution of economic growth theory to the current affairs, or, rather, the lack of thereof. While growth theory speaks esoteric ideas, like creative destruction and rule of law, practitioners reduce recommendations to straightforward cost-cutting.)
But isn’t there a conflict of interest in this plan? A creditor’s planning horizon ends where his bonds mature. The debtor hopefully lives a little longer. So, their plans don’t coincide. If the troika wants its interest from the Greek bonds (that mature in 5−10 years), then its plan may be short-termed, compared to the recovery cycle. For example, the US stimulus was opting out of the economy for six years:
Maybe Angela Merkel loves the Greek people as much as the German people who elected her. But if not, which system would provide a German plan consistent with the Greek interests? Perhaps, the one where the Greek and German people elect a single representative.
How would it happen if merely adopting a single European currency took fifty years? Through the crises like the current one. The troika pays Greece for being more like Germany. As the new agreement is getting closer, this crisis management team continues controlling Greece even after the ruling party has been replaced. Then, wouldn’t the Greek people have more power if they affected the German politics directly, in joint elections?
That would be possible if the Greeks couldn’t quit. But Germany can’t take over its neighbors like the Thirteen Colonies did. And there’s already much disagreement about voluntary unification:
Greece, Spain, and Italy don’t enjoy being a hostage of the euro, even if this allows them to borrow cheap. Whatever these countries get from being more like Germany, they get it after giving up independence. How much could they get? The local unifications of Italy and of Germany didn’t lead to the full convergence of the regions, so the prospects are unclear. Meanwhile, it’s not even clear what “being more like Germany” means because the north of Germany is poorer than some South European regions:
If the Greek people could affect German politics, this would lead to more consistent plans, but not necessarily effective. Again, we know some general things about taming GDP fluctuations, but too little about the impact of structural reforms. And after the troika switched from macro to structural reforms, it must explain well why their experts think they know Greece better than the Greeks do.