The unfolding of the relations between the new Greek government and the EMU / the creditors is worrisome. With reference to possible developments some context could be helpful. John A. Economides* writes:
The main fiscal problem of the Greek economy is not the debt but the public deficit(s). The deficits derive from the public sector consumption on which the Greek economy is based. In order to control and contain the deficits it is necessary that the orientation of the Greek economy changes to private sector production which can generate development, income, jobs and taxes. This change requires structural and economic reforms which if implemented will attract capital and investment. This will then power business and push the Greek economy into development and growth. The administrative and economic reforms to this direction are mandatory not by the Troika or the creditors but by economic necessity, the national interest and common sense. The reforms will improve the domestic production not only in the private sector but also in the public sector, especially in the public services. The rebound of production in the public and the private sector is therefore mandatory for any hope of economic recovery.
The Greek government’s rhetoric of the first week certainly does not reveal any such direction. Quite the opposite it points to roll back of all previous reforms and return to the economics of state consumption, deficit, debt and insolvency. Whether this rhetoric will convert to action and what sort of action – progressive or regressive is yet difficult to discern. Soon however a reform and development program will have to be agreed with the Troika and the creditors with the paramount aim to power production in the public (services) and the private sector. This is easier done than said especially by a left wing government. This is because in the new age of information technology and economy even the old leftist dogmas cannot but share some common liberal and economic principles (as those mentioned). Therefore parties can still meet half way without too much political reconfiguration. The Greek government can implement policies on the paramount principle of improving the public services. The creditors can agree to provide liquidity to the Greek economy on the paramount principle of empowering the private sector, the independent enterprises and businesses.
In any case it is the Greek side (the obligors) not the European side (the creditors) which must be more flexible and accommodating. The Eurozone is an economic and monetary system underwriting a common currency. This system is based in principles and values, let alone terms and conditions which have to be respected by the member states. These conditions are not in favour of relation aggravation by the Greek side. The Eurosystem is acting predominantly if not exclusively on the principle of the protection of the (economic value of the) currency. For this reason it will support a member state in financial distress and will go at lengths about it as it has shown. For the same reason it will not support a member state which unilaterally evades contractual obligations or arbitrarily defaults on credit obligations. The more when such member state demands on top debt write offs and continuation of EMU (ECB/ESM) funding without presenting any credible prospect of economic growth, business development, investment attraction and fiscal solvency.
The said principles are not exclusive of the Eurosystem but of the financial, credit and commercial trust system and the legal system in Greece and worldwide. This is why only honouring obligations and reasoning over solutions rather than Grexit contemplations or propensities, are still on the cards.
*John A. Economides is an attorney in Greece – partner in the law firm Aristides Economides & Co in Athens. In the late ‘80s he launched an initiative together with other young shipping professionals for the establishment of Hellenic Shipmanagement Principles. In addition to the shipping law practice he engages in philosophy. He is author of the comprehensive philosophical treatise published in Greek 2010 under the title “The Theory of Cosmos” and in English 2012 under the title “The Universe of Interactions”.