Seven years
on, most Greeks feel trapped in a maze. Seemingly, every possible exit rout has
been explored, only to lead to a blank wall. Internal and external commentators
translate that perplexity into a baseless desire for some external solution,
for a deus ex machina whose
intervention is repeatedly postponed.
This short
note tries to sketch the source of the perplexity and to suggest that the usual
reactions of simply waiting for something to happen threaten to make matters
worse. This only makes the case for a well-meaning response of swimming against
the current only more pressing.
Figure 1
Source OECD
2016, Greece: Economic Survey
Figure 1
shows in the blue dotted lines the optimistic expectations in terms of real GDP
growth of consecutive reviews of the initial two rescue programs. In red it
plots the actual outcomes. The red is consistently below the blue line, showing
that each policy review (typically following a reform episode) set off with what
proved to be wild optimism. This was disproved again and again, as the actual
outcomes were characterized by underperformance.
If we
forget the specific context of the data in Figure 1 and see it as an attempt at
projections using an econometric model, we could interpret the technical
problems leading to consistent under-predictions as arising from two possible
econometric problems: either from omitted variable bias –there is a variable
which works in the background and which the equation has neglected to include.
Or that our econometric equation has chosen the wrong functional form –meaning
that the way the separate variables interact with each other has been
misunderstood. Translated into more political terms, these two situations could
mean either that accounts of the crisis are missing a key ingredient, or that
mind-frames and institutions that affect how all separate variables work, have
either been misunderstood or are in the process of changing but in a way which
is not understood. Whatever the precise reason, the fact of the matter is that
a number of initiatives were tried out with high expectations, and failed. The
disproving of this type of serial optimism leads to perplexity and
mystification about what the next steps can be.
The next
figure confirms that the reform scorecard is indeed busy. Figure 2 plots the
reform responsiveness rate, an indicator compiled by the OECD, which depends on
the number of reforms promulgated in the period 2011-2014. Greece stands out,
even compared to other bail-out countries, and towers above other countries
such as the Netherlands, Germany, not to mention Belgium and Sweden. Whatever
was the case in the past, procrastination and indolence are no longer the case.
Figure 2
Source OECD
2016, Greece: Economic Survey
The problems of implementation have indeed
plagued Greek programs, as shown in Figure 3. Reform implementation has been
weaker in Greece than in other EU countries. Figure 3 shows the fraction of prior actions and
structural benchmarks for the IMF loans of the respective programs for all
reviews corresponding to each category. However, whilst Greece has a higher
percentage of targets not met, we must remember that Greece had a higher total
number of reforms compared to Portugal and Ireland. Thus, though the statement
that reforms have to be undertaken needs to be qualified, one should note that
half empty is equivalent to half full.
Figure 3
Source OECD
2016, Greece: Economic Survey
This economic performance provides the
background for the perplexity of all those involved in commenting on the Greek
economic performance. Something is seriously wrong but no one knows what. This
sets the scene for varieties of political responses.
How to respond? Three types of answers.
This perplexity has given rise to three types
of response by economic commentators, whether in power or incumbents in
opposition, as well as outside bodies.
First, persist with the implementation of the program. This approach sees the implementation flaws and focuses on fixing technical details and attempting to regain program ownership. This line is favoured by the Troika and will undoubtedly lead to improvements at the margin. However, the supporters of this line sound increasingly uncomfortable and are beginning to adopt positions of blame avoidance more reminiscent of Greek governments. As the spotlight shifts away from the Greek crisis, there appears an implicit tacit assumption that you can keep on trying, but not much can be expected.
The second political response essentially
denies that there was a problem in the first place. As memories fade of the
pre-crisis world, it is easy to pin the blame on austerity: the crisis is due
to austerity and not vice versa. SYRIZA was elected with this line but had to
abandon it in the summer of 2015. Nevertheless, though SYRIZA is implementing
the original program, they lose no opportunity to remind everyone that they
disagree with it and that it is even making things worse. Their hope is to
cling to power and hope that something good will happen from outside. This
manna from heaven is debt relief and, hopefully, write-offs. More sophisticated
versions are hoping for foreign investment, but are doing very little to
attract it.
The third reaction comes from the official
opposition (ND). According to them, the solution of all problems is a change of
political personnel. Today’s crisis is squarely blamed on SYRIZA alone, on the
grounds that if it were not for the first months of 2015, the economy would
have rebounded. This line of argument implicitly assumes that all was fine in
2009 and that the governments of 2004 to 2009 have no case to answer.
Both government and opposition views are
variants of the auto-pilot line of reasoning. They are essentially plumbing for
a wait and see attitude. In other words, they are pinning their hopes on the
«compressed spring idea»: the crisis has gone for so long, that sooner or later
the economy will rebound. So, it’s just a matter of hanging on to power / or
seizing power at the right moment and hope for the best.
Recapitulating, in the face of perplexity and
obvious inability to decide what is wrong, all sides of the Greek crisis are
just biding for time in the hope that something will happen. They would dearly
like the economy to rebound, and are positioning themselves to take the credit
for this. This is only slightly better than old style blame avoidance, but
nevertheless, persisting in doing nothing encourages a generalized sense of
signing off.
This signing off is evident in different ways
for different actors.
·
In terms of external actors, the
spotlight has already shifted to the refugee crisis, abandoning the economic
crisis halfway.
·
In internal affairs at the
micro-level, we are seeing an exodus of individuals, of financial capital and
of entrepreneurship.
·
At the macro-level, cynicism is
entrenched. Interest has already shifted to the politics of redistribution,
arguing that the size of the shrinking pie that goes to electoral clients is
being increased. Perplexity with the economy encourages shifting of attention
to non-economic matters.
Recalling AO Hirschman’s classic book «Exit,
Voice and Loyalty», the perplexity of political actors in all cases shifts and
as people lose heart, shifts the emphasis from seeking a voice to correct
matters, to cutting one’s losses by exiting –whether individually or
collectively. In this way, the inability to provide economic solutions is
encouraging a political process which leads to further decline. The hoped-for
external resolution becomes increasingly unlikely.
Swimming against the current
How should an economist, determined in her own
personal case not to exit and not to seek an individual solution, behave? The
answer must be to swim against the current. Returning to the serial optimism of
Figure 1, she can formulate two possible reactions.
First, a technocratic reaction: try to find
the missing variable. She should look back on the analysis and try to find the
missing factor. Has the crisis been misdiagnosed and misrepresented? In an
LSE/Hellenic Observatory blog I have argued that this crisis is above all a
production crisis, pertaining to the small family firm (http://blogs.lse.ac.uk/greeceatlse/2016/09/16/the-greek-crisis-is-a-crisis-of-production-not-of-public-finance/
). Much of what has been happening during the crisis has made the position of
that most important economic actor untenable. In this way, it undermines any
internal dynamic of the Greek economy to rebound.
Second, a political reaction: try to fix the
functional form, i.e. try to intervene on how economic instruments operate in
society. In order for this to happen, old, pre-crisis mind-frames have to be
revised and a pervasive lack of trust corrected. This means nothing less than a
new kind of politics.
Is such a politics feasible or realistic? The
only feasible route is to lead by example. To reverse the tendencies of exit by
an example of loyalty; to enter politics just as everyone is leaving.
Antigone Lyberaki, Professor of Economics, Panteion University, former MP
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