Europe's Misguided Perception of Greece Is a Growing Threat to Progress

Pensioners stand outside the main gate of the national bank of Greece as they wait to withdraw a maximum of 120 euros ($134)
Pensioners stand outside the main gate of the national bank of Greece as they wait to withdraw a maximum of 120 euros ($134) for the week in Athens, on Tuesday, June 14, 2015. The eurozone's top official says it's not easy to find a way to get Greece a short-term cash infusion that will help it meet upcoming debt repayments. (AP Photo/Petros Giannakouris)

Europe's still missing vision of Greece reasonably explains today why the great potential for economic growth of this southernmost member-state of the eurozone has been squandered in the past five years by disoriented technocrats. Mainly flourishing in Berlin, but directly mirrored in Brussels as well, they have been stubbornly persisting all along with a flawed policy of blind austerity. Showing in effect a deep aversion to government spending as a valid tool to fight economic slumps -- and, in a clear break with Europe's prosperous past, placing total faith instead in austerity-based policies of deregulated labor markets.

Albeit downgrading mainstream -- core -- western economic thinking in favor of poorly researched beliefs long ago proved anathema to sustaining aggregate effective demand in the Greek economy, the life-blood for any economy to grow. As Nobel Prize winner Paul Krugman has succinctly put it, "those supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn't about analysis, it's about power -- the power of the creditors to pull the plug on the Greek economy" (International NYT, 30 June 2015).

Consistent, too, with Einstein's apt definition of insanity, repeating the same (wrong) move expecting it to yield a different result, the latest 'agreement' between Greece and its creditors -- EC, ECB, IMF -- fully reflects this prevailing German-inspired orientation. Particularly during the critical summit meeting of European leaders on 11-12 July in Brussels that proposed a controversial new (third) Greek bailout, this time close to €90 billion. Awaiting now eventual approval from 18 parliaments in the eurozone, it is expected to be finalized by Tuesday August 18th subject to the preliminary mid-ranked technical negotiations that are currently inching along in Athens.

Of course, this is the same genre of exercise we have seen before and so likely to offer yet again a damaging deal for Greece. The entire effort does not correctly target the country's bulging debt and consequently does not help the Greek economy to recover. With the greater part of the Greek economy's painful adjustment already implemented, as eminently pointed out by Klaus Regling, chief of the European Financial Stability Facility, it seems truly fanciful to introduce at this stage heavier austerity measures bound to have a stifling effect on aggregate demand in the system -- and thus probably causing the economy to collapse by (externally imposed) asphyxiation in the end. Perhaps even before the first tranche of aid under the new program becomes available.

This, in a nutshell, is the contradiction in the creditors' latest insistence that the Greek authorities must again legislate for deeper structural reforms in terms of yet more stringent measures cutting down government expenditure.

It is worth noting, too, that this EU's third-time-round initiative -- doomed to success as it might be -- has been the unpromising offspring of the 17-hour negotiating session in question. One that hardly displayed so much as a semblance of consensus between presumed partners and fellow members of the European Union. Singularly memorable, alas, for the multi-dimensional acrimony that reigned supreme throughout its proceedings, laying bare divisions between Greece and European leaders, between Germany and France, between north and south -- but also between the German finance minister and the head of the European Central Bank.

What is missing? Quite simply, European leaders lack a creative approach that would stimulate growth within a specifically Greek context. First, they trample the time-honored principle in elementary economics that you can only grow -- not shrink -- an economy out of recession. Second, rather than professionally scaling down, in the context of restructuring even at this late stage, the Greek sovereign debt of €350+ billion reflecting the massive financial, economic and social damage Greece has so far endured under blind austerity, they present great plans for manipulative financial engineering that merely reshape mountains of debt: but do nothing to change the commercial landscape and prepare the way for a new economy.

Where is the program that taps into the iconic entrepreneurial heritage of remarkably profitable ventures from, say, Stavros Niarchos, John Latsis or Aristotle Onassis, flourishing to this day in Greece and abroad? Where are the plans for development with rising employment and an enlightened business acumen that are key to an honest recovery in Greece? As, for example, the already approved (but now stalled) high-profile redevelopment venture next door to Athens, at Ellinikon-by-the-sea, meant to transform into a unique paradise destination the derelict sprawling area where Greece's main airport used to be? It was scheduled to create 50,000 jobs requiring skilled labor.

Pilot models for an alternative approach to the trio of Greece's creditors' total emphasis on 'austerity regardless' do exist. In Greece repressed high-profile ventures abound designed to stimulate the economy consistent with a variety of American, Chinese, or even Arab financial and economic aspirations in Europe as a whole.

To be sure, any austerity plan imposed on the country will not be successful if it does not also embrace a complementary option that is manifestly available to provide hope to ordinary people in Greece whose mounting distress is real and must be taken into account. This would reassure international markets as well and more realistically keep Greece's lenders happy.

To put it bluntly, rather than using Greece as a scapegoat for failings that also are to be shared more widely in Europe, euro-bureau-technocrats in Brussels could have saved billions. If, instead, the eurozone had formulated a development plan that actively helped turn Greece into our continent's Palm Springs or Florida, as it were. A dozen or two 'forward' pilot projects, both conceived and intelligently financed so as to prove profitable in the long-term, would have sufficed. Directly capitalizing on the country's beautiful climate, diverse mineral resources and highly competent but so far fatally underemployed labor force -- and, above all, decisively, considering the strategic geopolitical position of Greece.

Unelected eurozone officials, unfortunately unaware of what everyday economic activity is all about, are also taking sides in today's standoff. Amazingly, they predict catastrophe if Greece is ultimately prevented from acceding to the creditors' demands that invariably lead to yet deeper depression -- but for which they alone would be to blame.

______________ Nicos E. Devletoglou, Emeritus Professor of Economics, University of Athens, is author of the books Academia in Anarchy: An Economic Diagnosis (Basic Books) written jointly with Nobel Prize Laureate in Economics James Buchanan; and Consumer Behaviour: An Experiment in Analytical Economics (Harper and Row).