This piece is co-authored by Abhijnan Rej, resident Economist at the JustJobs Network.
Behind the incessant headlines about Greece's unsustainable debt and the ramifications of a "Grexit" lies the stark reality of what this crisis means for regular Greek citizens. Large-scale unemployment plagues an economy on life support. And a bailout that goes toward servicing Greece's 323 billion euros in debt will do little to resuscitate employment and economic growth in the beleaguered nation.
Ultimately - Grexit or no Grexit - the only viable solution will consist of debt relief: an extension of the period in which Greece has to pay back any remaining debt and more favorable interest rates on existing debt. But most importantly, Greece must use the "savings" from debt relief to invest in the real economy - in skills training and boosting the growth of small businesses. Only in this way can it support job creation and growth.
Greek government debt stands at 175 percent of its Gross Domestic Product (GDP). A recent report by the International Monetary Fund notes that Greek debt is on track to peak at close to 200 percent of GDP in the next two years.
While a myopic focus on drastically reducing debt at any cost is too narrow a solution to the Greek crisis, it is undeniable that Greek debt is out of control. Why? Because the government now spends as much as 2.6 percent of its GDP on loan payments. That means a country already in severe economic depression is diverting over 6 billion euros a year away from job-creating investments like infrastructure, financing for small businesses and skills training and toward loan payments that in no way benefit the Greek people.
What would pro-job and pro-growth investments look like?
To support small businesses - which produce 72 percent of all revenues and 58 percent of employment in Greece - the government should explore preferential taxation, or taxing small businesses at lower rates.
Another way to encourage growth of job-creating small businesses is to help them export more through export finance and technical know-how. Other policy interventions could help small exporters move up the value chain - for example, to move from exporting food and beverages to exporting sophisticated laboratory equipment. Greece has a small but well established manufacturing sector capable of producing higher-value products. Focusing on exports enables Greece to address its trade deficit of US$ 27 billion.
If Greece's creditors seek to help the country eventually stand on its own two feet, it should provide the debt relief that could make Greek products more competitive internationally. A half-percent decrease in the current interest rate on loans could be used to set up a billion dollar trade finance fund.
Supporting businesses is one side of the equation. The other part is investing in human capital. One in 10 Greeks is between the ages of 15 and 24. The country must develop a skilling program for the workforce that enables the move up the value chain.
A large component of economic growth comes not from increased capital and labor inputs but from increases in how these two are put together, with know-how and skills. Long-term growth depends on this right combination of physical capital, profitable trade, skills and introduction of new technology.
Greece is not unique: Debt crises and the heated debates they generate are flaring up across the globe - from Puerto Rico to other countries of southern Europe.
Sound economics, not dogmatic politics, must carve the way forward for countries with mountains of debt. The pragmatic approach to tackling debt while creating opportunity is simple: spend less money on servicing debt and more money for investment in infrastructure and skills.
Indebted countries must pursue this strategy, and their creditors must enable it.