Fortunately for all, the Greek government and the rest of the Eurozone reached an agreement extending the country’s bailout program for four months. This extension will allow all parties to apply clear and critical thinking towards resolving this challenge.
However, four months is an incredibly brief time span. If not managed properly, the extension will prove to be a Pyrrhic victory.
Without this deal, Greece faced the prospects of quickly running out of cash. The country’s finances are getting tighter, with an average of 2 billion euros a week leaving the country.
However, successfully negotiating a restructuring of the bailout package without giving equal and emphatic attention to tackling the country’s structural challenges equates to applying a temporary bandage to a gaping wound.
The first dilemma facing the government is avoiding the impression that it has reneged on its campaign promises. However, on the positive side of the equation, implementing many of the structural reforms required were central to the current government’s campaign promises.
Tackling corruption, ensuring compliance in tax collection, increasing transparency in government, reducing red tape, simplifying the ease of doing business and implementing many other structural reforms are critical to energizing the Greek economy.
Amazingly, they also represent the agenda items on which the German government – far from being obsessed about “austerity” – is almost perfectly aligned with the Tsipras government.
In the midst of this crisis, it is easy to overlook the fact that the Greek government has a tremendous opportunity within its grasp. Long before the recent campaign, Tsipras, Varoufakis, et al., have rightfully spoken of a pressing need to re-imagine the Greek economic model.
This crisis thus presents the government with an opportunity to implement structural reforms that would be difficult to implement under normal conditions.
Time is of the essence
That the Greek government has recognized the need to implement reforms that are the root cause of many of the country’s problems is a positive sign — but it must do so now.
There is a critical need for a strategy to address the current crisis. Politically, Mr. Tsipras can make a strong case that previous Greek governments are responsible for the present mess. It is because of their errors of omission and commission that Greece’s credit is maxed out. That is not the fault of the EU or its banks.
Over time, the government can deliver on its campaign promises, but only by implementing an overarching strategy. This is Greece’s one and only chance to break the “Iron Triangle” of establishment parties, oligarchic business interests and affiliated media.
With this as a starting point, the crucial task — redirecting sentiments of national pride and bravado towards what Greece needs to accomplish — is critical, but eminently possible.
It stands to reason that Germany’s Finance Minister Wolfgang Schäuble will stand by Tsipras’s side to make sure he succeeds with that reinvention mission. In contrast, what Schäuble is adamantly opposed to is any more business as usual, or sliding back on the reforms that were actually beginning to be implemented.
Mind the basics
The government must decide what it needs to do to fix its structural challenges. Continuing strategic communications will be a critical element of its strategy.
By immediately implementing the needed structural changes to improve good governance and rule of law, the government will start the process of promoting competitiveness, confidence and economic development.
Such measures would also go far in promoting outside investor confidence. As government regulations improve, the business community, investors and entrepreneurs will be able to turn their attention towards making profits instead of navigating through government red tape.
Structural reforms, such as in tax collection, need immediate attention. It doesn’t take an economist to understand that tax evasion deprives the government of the tax revenues required to pay for social programs, pensions and the salaries of civil servants — including those the government has promised to rehire.
Greece’s lack of competitiveness is problematic. It ranks last in Europe. In the European catch-up index, Greece is the EU laggard, being exceeded by all the Central European countries, ranking near the bottom at 27th out of 35 European countries surveyed.
It would be wrong for the government and the people of Greece to view its current dilemma as a result of its sovereign debt. It is Greece’s structural deficiencies that have caused its sovereign debt crisis. Now is not the time to waste a good crisis.