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Press reports suggest that Greece and the IMF, ECB, and European Commission (formerly known as the ‘troika’) may finally reach a tentative agreement on the completion of the final review of the current (second) economic adjustment programme. This would release funds that Greece needs to meet its obligations due over the next month. It would also allow the Greek government to make payments to suppliers that have been delayed over the past months.
While preferable to a descent into chaos, an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. Policy mistakes and uncertainty have pushed the economy back into a recessionary spiral, with some evident increase in unemployment, deposit withdrawals, and a liquidity squeeze. Thus the focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.
[...]Policymakers must look forward and must convince the citizens of Greece and its partners that the country has a viable future in the monetary union. Absent a credible long-term programme, even if only in outline form, whatever agreement may be reached now will not be fulfilled.
In the spirit of helping to restore a dialogue and to rebuild trust, we convened a diverse group of senior stakeholders, academics and commentators at London Business School on 18-19 May to discuss the ongoing Greek crisis. Our objectives were to inform the discussions among the partners and to bring the different parties closer on the substance of a strategy for the years to come.1
A remarkable degree of consensus emerged. Greece should quickly reach a new agreement (contract/memorandum) with its partners, in two parts.
A precondition for both tasks is the restoration of the trust that unfortunately has evaporated over the past years.
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Concluding remarks
Sadly, the leaks to the international press on the ongoing negotiations between Greece and the institutions indicate that once more, the discussions are centred on fiscal issues – and to some lesser extent on pensions and further labour market liberalisation. Yet while Greece should not revert to the era of deficits and establishing a sustainable social security system is needed, it is disappointing that there is not much discussion on the major structural deficiencies of the Greek economy. The new programme should focus on opening-up closed and oligopolistic product markets, removing barriers to entry and expansion, reducing red tape, and tackling tax evasion. The new programme should also focus on public administration reform and on building institutional capacity. It is time to tackle the deep issues rather than myopically focusing on fiscal measures.