The Greek Crisis Needs Mediation Now, Not More Confrontation

The latest meeting earlier in May of the eurozone's finance ministers in Brussels, anticipated by an increasingly frustrated audience worldwide, routinely marked five years of interminable talks getting nowhere since Friday 13, April 2010.

Reflected, too, in the fruitless discussions the Greek Prime Minister had with Angela Merkel and François Hollande last week in Riga, Latvia. All three officials in the end merely waving "Good Night" when anxiously asked to comment on what progress was made during their two-hour talks. A classic disappointment all around. From the moment the EU began implementing an unorthodox strict-austerity adjustment program for Greece after "securing" a total financial aid package of €240b from the IMF, the European Commission and the ECB.

Both sides have since displayed a remarkable lack of professionalism: ignoring internationally protected human rights standards first; and, second, turning also a blind eye to the grave financial and economic damage their poorly researched program, enforced by Greece's creditors, was bound to entail. Not to mention the inevitable opportunity costs created in the process.

As it happens, the enjoyment of fundamental human rights -- and more particularly the economic, social and cultural rights of the Greek people -- has been undermined as a result by violating existing obligations protected primarily by the Constitution of Greece, Article 2(1) postulating that "respect and protection of the value of the human being constitutes the primary obligation of the state."

Also abusing, however, standards set out in core international human rights treaties. Including the Covenant of Economic, Social and Cultural Rights that characteristically binds international financial institutions with a mandatory obligation. Namely, to ensure that their policies and activities respect established human rights standards by not adopting or promoting policies, or engage in practices, that put at risk the enjoyment of human rights. Nothing could have been clearer for the trio of lenders here to understand -- from day one.

Nonetheless, Europe's "blind austerity" program went ahead defiantly adopting successive deep spending cuts, drastically eliminating jobs in the public sector, coupled with consecutively compulsive increases in direct and indirect taxation -- prematurely emphasizing structural changes such as privatizations and labor market reforms with arbitrary cuts across the board of salaries and pensions. This bouquet of heavy even aggressive compulsion has directly contributed to a steadily collapsing aggregate effective demand in the Greek economy -- a growing insufficiency of which has been for years pushing the country deeper into merciless recession asymptotically converging at present to a 50% drop of GNP.

This anomaly is currently reflected in exponential rises in unemployment in Greece, especially of younger persons, along with steadily rising homelessness and spreading poverty now threatening a humanitarian crisis already compromising the social cohesion of a member-state of the European Union. So, one wonders, How is it possible that contemporary Europe should also remain indifferent even at the point where some 7,000 ordinary tax-paying citizens in the country, since that fateful day in April 2010, are known to have committed suicide in utter desperation?

The suggestion, recently put forward by Paul Krugman in the International New York Times, that "we live in an age of unacknowledged errors," seems instructive here. Considering that a likely profitable alternative policy, ceremoniously announced by the European Commission, back in 2011, was in the end quietly cast aside in favor of the controversial "bailout" adjustment program in question. Far more reasonable, the idea originally was to launch in lieu a series of mainly labor-intensive "pilot projects." Jointly promoted with the Greek government, but also designed to attract worldwide interest to invest in the infra-structure of the country. Correctly aiming to revive confidence, step by step, and gradually normalizing the financial and economic landscape in Greece: indeed a relatively small country easier to put back on track.

Driven, however, by the demonstrably poor direction subsequently chosen instead, the Eurogroup finance ministers, typically destitute of vision again in Brussels this month, were still pushing headlong for more structural reforms in Greece. With a view to modernizing public administration, liberalizing trade, "opening-up" regulated professions, further ensuring greater labor market flexibility, and so on. All these, needless to add, being desirable initiatives no doubt. But which, of course, would make sense only in different circumstances: more responsibly aiming to help Greece emerge faster from the crisis.

What should have already happened, first and foremost, precisely in order for the country to become capable to forge ahead with these and more reforms, was the scaling-down in real terms (though also as a moral imperative) of the country's bulging nearly unserviceable debt today. Adjusted downwards to reflect the massive damage incurred in financial, economic and human terms from the very day the so-called adjustment program for Greece emerged in April 2010.

Such a key rectification would naturally have established the remaining sovereign debt of Greece as €150b. A pivotal contribution, indeed, bound to create unparalleled enthusiasm in Greece for widespread reform. In remarkable contrast to today's obsessive stalemate with only bits and pieces of occasional progress made here and there. This figure is consistent with privately conducted professional estimates so far -- as, for example, from the Julius Bar and Mitsubishi banks -- in Europe and elsewhere. Significantly down, too, from the €350b level inaccurately presumed to be the case today.

And so, why not consider bringing this whole festering situation before a specially-convened European conference or synod to settle by arbitration this destabilizing issue? The United States is eminently poised today to offer its services and goodwill for mediation -- highly appropriate at this stage -- following the US Treasury Department's intensified and widely acknowledged efforts in recent months to dampen hostility and unnecessary confrontation between the two sides. Greece needs an honest break to get ahead: by completing ex post all known far-reaching structural reforms required to help transform its economy -- languishing in disarray for too long -- into an engine of progress. Securing in the end sustained economic growth serving best the rightful interests of the Greek people.

A just and realistic settlement will also help restore the reputation of Greece's creditors.

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).