A real national unity government
At the time of writing, the situation in Greece remains fluid, with the parliamentary majority (PASOK) and the major opposition party (ND) only last night agreeing on a general framework of a transitional government with elections to be held mid February next year.
Aside from the fact that the uncertainty since Friday left the country exposed to a number of catastrophic developments, disorderly default by mid December the most imminent, one of the most concerning aspects of the current situation is the obvious interpretation that the two main players in this effort of a coalition government seem to have put forward proposals that are based on short sightedness, personal and partisan agendas.
If we were to interpret, the Government wishes to have ND involved in a transitional governing schema that will ratify the October 26 summit deal and the associated terms, targets and measures, with the hope that when the short election period opens, potential popular dissatisfaction will be shared. Additionally, during the sour period in the run up to the elections (because it will be sour) the Government will argue that whilst in opposition, ND opposed (pun intended) the policy mix, but when in government, even shared, they succumbed to the pressures of the troika because there is no room to ‘negotiate’.
ND on the other hand, wants this transitional government to be as short-lived as possible, only to ratify the deal but not the terms. Interestingly, they seem to think that this will be acceptable to the troika. With the leading place in the recent polls and the nation’s pride hurt by the unthinkable handling of the referendum fiasco from the government, they believe that they could win (best case scenario) the majority, or alternatively with a large enough margin that will allow them to call for a second round of elections or give them the undisputed upper hand in the formation of a new coalition government.
A national unity government
Both proposals are fundamentally wrong and put Greece at risk considering the extremity of the situation, the essence of time and the number of commitments and obligations the country has to fulfil in the near term.
Greece does not need a transitional (or coalition) government, with the known limitations and deficiencies especially in the country’s past experience, but a stable government of particular expertise and the participation of recognised political, academic and technocratic figures, for the duration of the current parliament term (end of 2013) that will not only ratify the October 26 deal and its terms but backed by the vast majority of the parliament will drive the reformation of the country.
Greece needs a taskforce with a specific roadmap of six main pillars that are historically important given the country’s geopolitics and their effective functioning, or reform, are essential in order to bring it back on the right track.
These pillars consist of the country’s finances, the economy’s development, the reorganisation of the public sector, energy and natural resources, foreign affairs and public safety.
With the exception of the period 2000-2002, the Greek state has been living beyond its means, running on primary deficits and debt fueled overall deficits peaking at the catastrophic for the country’s fate year 2009 of EUR36.6bln or 15.8% of that year’s GDP.
Troika or not, the country needs to take a good hard look at its finances, review and evaluate every single line item of its budget from scratch. After a number of applications of horizontal cuts, emergency taxes and solidarity tax contributions that only suppress the demand side and fuel the recession fire, the greek state will need to focus on the expenditure side with a serious intention of cutting the fat and unnecessary or irrational spend.
Priority in the unity government’s focus will be a stable and fair taxation system. One that will make the country attractive and friendly for domestic and foreign direst investment, will distribute the tax burden equitably and will ensure that it has the mechanisms, expertise, technology and desire to collect its dues.
The combination of an honest and unbiased review of the spending and a tax system that can be a reliable stream of revenue will allow to reach the hugely important primary surpluses that automatically make the country self-sufficient and help regain some of the independence in defining its fiscal policy.
It has been repeatedly reported that one of the areas of discontent, and source of the humiliating campaign against Greece in the press, of the countries that participate in the support programme is the fact that they feel that they finance our deficit and further they have made clear to the current Greek government that in the new deal they will take care of the debt and locally Greece needs to handle its deficit.
Public sector reform
In 2010, out of approximately EUR90bln of general government revenues, compensation of employees stood at EUR27.5bln, just over 30% of the government’s revenues or 12% of the country’s GDP. Adding to this the running costs the figure goes well above EUR30bln. These figures are only given as an indication of the size of the public sector in Greece.
It is widely known that the Greek public sector was historically used by successive governments on a clientelism basis, using it as the main tool to sweeten voters and pay back electoral favours.
The current government has taken significant steps in rationalising the public payroll, in particular the complete anarchy of benefits and a central payroll authority for the entire public sector, allowing for better expense control and management. These efforts need to carry on and be completed as upon implementation they can bring quick wins and costs relief.
However, a comprehensive reform of the public sector requires a deep and unbiased review of its processes and services. The corporate and industrial fields have an abundance of process evaluation procedures designed to assess process efficiency and optimal resource allocation.
With the aim of a nimble, citizen friendly, adequately resourced key functions (education, health and security forces) and freedom from political manipulation and influence, it is feasible to have public services that guarantee the well-functioning of the state while at the same time do not heavily burden the budget.
In the daze from the fiscal consolidation and the surrounding drama the economy of the country has been reduced from being the main area of focus to just another casualty of the austerity ferocity, sacrificed in the name of government finances, having lost more than 400K private sector jobs. The emergency government will have as a mandate to regain the focus back to the economy, bringing it back to the basics of economics of growth and employment.
We often hear the argument of the lack of competitiveness of the Greek economy, usually based on unit labour costs computations, but a proper competitiveness analysis requires the assessment of the country’s competitive environment, in which segments it competes and who it competes against.
Once assessed, Greece needs a 5 year and an up to year 2020 roadmaps with specific timeframes, clear annual checkpoints and determined objectives as to where the country wants to find itself on the global stage by 2020.
The plan will need to be as broad and thorough as to even redirect the country’s educational system to develop the required skills and expertise and supply the necessary workforce to execute on the country’s long-term growth plan.
Technology, industrial production, energy, agriculture, tourism, shipping and other services will each have their own individual roadmaps and checkpoints with the intention to drive the country’s sustainable growth. A growth that will be based not the fragile and volatile private consumption but the actual development of a competitive and current account surplus economy.
The country’s strategic plan will need to remain independent from any changes in government and safeguarded constitutionally so the mandate of anyone in power will be to carry on the uninterrupted implementation and prevent any deviations from the national strategy.
Greece has been blessed with a number of natural resources and has a proven, at home and broad, set of skilled and educated human capital. Once resources utilised and the skillful human capital developed to their full potential the country will be on a path of sustainable growth and employment.
Further, in the last years Greece has been taking minimal advantage of development funds from the european union. Historically, and in the last two years as part of the austerity measures and the state’s participation in cofinanced projects, Greek governments never managed to take full advantage and use the full potential of those funds not only in the growth of the economy, with the known multiplier effect on growth, but at the same time investing in the country’s infrastructure a significant component of successful trade.
Energy and natural resources
Despite the fact that even until recently anyone that raised the issue of oil and natural gas in Greece was met with ridicule and contempt, it is evident now, supported by reliable volume of professional research, that Greece has natural resources within the waters of its interest.
It is imperative that the country declares as is justified by international law its exclusive economic zone (EEZ) and together with Cyprus and Israel form an energy supply chain for Europe.
The first results of the exploration in Cyprus have positively surprised both in terms of capacity and quality. Considering there is an estimated USD1.5trl to be shared in the area it is evident that Greece needs to secure its interests as a priority having a priori guaranteed the backing of its allies.
The recent discoveries, if responsibly managed, have the potential to change the country’s future. Greece will simply need to follow the Norwegian example that keeps revenue and management of the country’s natural wealth away from political intervention, with the creation of a fund so next generations will benefit from the current exploitation of oil and gas.
Diplomacy will need to be one of the spearheads of the new unity government. Resulting from the recent crisis, Greece was forced to look inwards, became subject to campaigns of ridicule around the globe and lost much of its prestige and credibility on the international stage.
Restoring the country’s status will be one of the mandates of the unity government as well as making the country more visible and active in the international and regional diplomatic arena.
The current government has made significant steps towards establishing a relationship with Turkey on the basis of good neighboring and collaboration. This relationship will certainly be tested should Greece execute its right to declare the EEZ and will require a redefined diplomatic strategy with Turkey.
Following from the energy matters, the recent experience between Cyprus, Turkey and Israel related to the Cypriot EEZ and exploration in plot 12, suggests that a carefully crafted strategy needs to be formed with the creation of alliances through economic interests and joint ventures that will secure Greece’s right and will safeguard the revenue stream.
In the recent months Greece gives the impression of a lawless country. Break ins, shop robberies and muggings across the country are in the daily news, only overshadowed by the crisis that threatens the country’s own survival. Added, and in some ways related to this, the country is facing a major issue with illegal immigration with estimates bringing the number of illegal immigrants in the hundreds of thousands.
With the country in crisis, not only it cannot afford to provide adequate support and accommodation to such number of illegal immigrants but as a result of the crisis and the significantly reduced employment opportunities it often leads to criminal activity for basic needs, even existence.
Due to the volumes, reception areas across the country are overcrowded unable to offer even the basic provisions of hygienic living. Certain parts of downtown Athens have turned into ghetto areas, where criminal activity, drugs trafficking and prostitution flourish while Athenians feel that they are not part of their own city any longer.
The new unity government will need to form a task force that will focus on the issues of public safety and at the same time shape a strategy on illegal immigration, both for the illegal immigrants currently in the country as well as the prevention of the problem from growing.
A sense of security and public safety are prerequisites for sustainable business activity, trade, investment and economic growth.
Still far from over…
The two years until the conclusion of this parliamentary term is a sufficient period to set the foundations on which a new Greece can be built upon. A unity government detached from electoral agendas and political interests can take the decisive steps of reform that can turn the fortunes of the country and pave the path of sustainable growth and development.
However, assuming that the two main political players will go ahead with their transitional government plan and elections in February, the Greek political elite will miss yet again an opportunity to change the collision course that they put the country into in the last decades.
Damage limitation for PASOK and political ambitions in ND will simply lead to either a prolonged period of coalition governments of doubtful effectiveness or, considering the complete and decisive change in the political dynamics after Papandreou’s referendum gamble, a ND government that will find itself exactly in the same position that Papandreou was since May last year, having to impose a dictated fiscal consolidation programme that until now they were strongly opposing, with the entire opposition and the Greek people against it.
In its usual fashion, the Greek tragedy is far from over…