Dr. Kimon Valaskakis: There is always a danger of Grexit as there is of Brixit

By Justine Frangouli-Argyris

The stark contrast between the stance of the International Monetary Fund and the European Union on the Greek debt crisis is all too evident with the IMF insisting that Greek debt will have to undergo a new haircut while Germany stands pat on a policy that considers any such discussion to be taboo.

 

The finance ministers of the Eurozone continue to anticipate the troika’s next report so they can release the most recent, long-delayed tranche to Greece, while the troika itself still waits for the country to show economic progress.

 

The data received by the troika from Athens, however, are often conflicting, with the Greek government claiming that it is running a primary surplus of €691 million for the current fiscal year.

 

Analysts continue to comment that, as things are evolving, Greece will not be able to respond to the enormous debt burden it faces.

 

According to Germany’s international broadcaster, Deutsche Welle, Greek debt rose after the haircut of 2012, recently reaching an astonishing 175% of GDP.

 

The economist, Dr. Kimon Valaskaskis, an expert on the EU, responds to questions on the outlook for Greece in the following manner.  “The recovery is fictitious. In the last six years, Greece lost a quarter of its GDP and now has huge unused resources, 27% unemployment and almost 60% youth unemployment. The divide between rich and poor is very high and presents a clear danger of class warfare that could bring about, God forbid, major social unrest. We must remember that Greece underwent a very tragic civil war immediately following World War II and many of the root problems of that conflict are recurring.

 

On whether a danger of a “Grexit” still exists, Dr Valaskakis notes, ”there is always danger of a Grexit just as there is of a Brixit (British withdrawal). The same thing is true for Italy and even France if LePen were to win. The key challenge is not withdrawing from the Eurozone but, rather, reforming the entire zone. Greece's wthdrawal would neither help Greece nor the Eurozone.

 

How can the Greek debt be eliminated since the Germans continue to refuse to consider any reduction plan?  ”The cancellation of Greece’s debt, along with a strictly enforced explicit development strategy, is a much better option. Although Germany resists this approach so far, if things heat up and there is a real danger of political collapse, everything will be reconsidered. Necessity is the mother of invention.” 

 

What solution can put Greece back on its feet?  “A development plan that will enhance and use Greece's competitive advantages, of which there are many, with a clean reset, sort of like when you reboot your computer. This could be part of a Europe-wide new “Marshall Plan.” The contours and configuration of such a plan could be designed in a relatively short period of time.”

 

When can we expect a recovery? “No sustainable recovery can happen without a true rebooting of the economy along the lines discussed above. The austerity policies that have been a complete failure should be replaced by a strong expansionist policy encouraging entrepreneurship. In this context, the Diaspora Greeks can be very useful in helping finance such a new expansion.”

Kimon Valaskakis Ph.D
Ambassador of Canada, RET President, New School of Athens
Professeur Honoraire, Université de Montréal