Greece: growth versus austerity

Greece: growth versus austerity
By Euronews
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A new government in Greece will mean changed circumstances, and so Brussels has said that Athens and its international lenders will have to renegotiate its latest bailout – without which the government will soon run out of money.

May’s inconclusive general election and the return to the ballot box on Sunday June 17 meant delays in implementing the austerity part of the EU and International Monetary Fund programme.

This year’s 130 billion euro rescue package follows on from a 110 billion bailout two years ago. Athens will not get the all money until those holding the purse strings are satisfied it is meeting all the conditions.

Constantine Michalos, head of the Greek Chamber of Commerce, said the fear among Greeks is of more austerity, with no end in sight: “The liquidity crunch that the private sector has been feeling over 12 to 18 months is tremendous. There will have to be sacrifices, but the Greek people need to know how long these sacrifices will last, when these will end, when will they exit the tunnel of crisis.”

Many ordinary Greeks, as well as politicians and economists, say unless austerity is balanced with growth the downward economic spiral will cause the total collapse of the Greek economy

The EU and IMF remain focused on debt sustainability and reforms to get Greece back on the growth track.

The situation is complicated. The United States, the largest IMF member, said it supported discussions to review the Greek bailout programme, but German Chancellor Angela Merkel has said that loosening Greece’s reform promises would be unacceptable.

EU must foster growth in Greece – Samaras adviser

The Greek flag has cast many financial shadows over the country and Europe. Now post election does a more enlightened time lie ahead?

Getting a government – of political parties who stand accused of leading the country into bankruptcy in the first place – and the financial institutions to march in step will be one trick.

Can austerity and growth co-exist? Is it a balance which can kick start an economy in its fifth year of recession?

Euronews spoke to Dmitrios Somocos, the Oxford educated economic adviser to New Democracy leader Antonis Samaras, the election winner.

Laura Davedescu, euronews: “If austerity for the sake of austerity has failed, and if the new Greek government has a chance to start anew, what should this new government bargain for, what is its vision?”

Dimitrios Tsomocos: “The starting point is here and now renegotiation and replacement of austerity measures with growth and enhancement policy measures. Restitution, rectification and reconstitution of social injustices that have been committed. Liquidity of the capitalised banks to be channelled to the real economy. A more opportune and auspicious investment plan. Fast track an investment plan and expedite that at the same time as structural reforms.

“Last but not least the tax system has to be reformed. Lower taxes are needed. The Greek economy is in a recession trap. Greek businesses are closing one after the other. The Greek population has economic problems, therefore, a more benign tax system, lower VAT (sales tax) rates, corporate tax rates, as well as personal tax rates will jump start the economy, will get the economy out of the recession trap.”

euronews: “I am a Greek businessman, my head full of brilliant ideas, I come knocking at the door of the new Greek administration. What answer will I get? Will I have the green light for business?”

Dimitrios Tsomocos: “The main objective of the new Greek government is to restabilise market expectations, to restabilise market sentiment and the business confidence.

“Then, foreign and domestic investors will start investing, trusting the Greek economy and only when the relations between the state and the real economy become simple, efficient and intelligent, as compared to the paternalistic, passive and bureaucratic relationships that have existed so far.”

euronews: “At the end of the day all this means money and it is going to have to be negotiated with Germany, the main fund provider, and with the other European partners. Will the new Greek government have the power to sit across the table with those partners and not blink when it comes time to negotiate?”

Dimitrios Tsomocos: “Samaras has proved in his career in politics that he’s a tough negotiator and he doesn’t blink. Secondly, I wouldn’t like to view the relations between Greece and Germany in a antagonistic way. We are all together in this. Now is the time for the European Union to wake up, so to speak, foster growth, replace austerity with growth and realise that the Greek sovereign debt crisis is a pan-European problem. And it cannot go on for long to have perennially surplus countries – the northern European countries – and perennially deficit countries. Measures to converge the economies, measures that were established first by Jacques Delors, Helmut Kohl and Francois Mitterand, should be enhanced, should come into action and I’m pretty confident after what happened in Spain, Europeans have started realising the urgency of changing the mind-set.”

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