Most Greeks have paid enough for past mistakes

Reading Time:

Note: A longer version of this article was published in Slovak in Dennik N on April 8, 2015.

In any community, somebody has to make the free-rider’s life unpleasant. Deception must come at a price, and adequate punishment for wrongdoing, economic models tell us, is an essential ingredient that allows long-term cooperation to be sustained.

But neither economics nor moral authorities necessarily tell us how much punishment is fair. So perhaps it is time to ask: if Greek policymakers want to regulate hairdressers and fitness centers in their own way, is that disagreement really worth a battle of prime ministers? If they want to insist that milk should be on the shelf in the stores for five days, rather than seven (as the Troika asked for), do we really need a real-time drama about this?

Economic activity and tax revenues are uncertain and volatile in Greece, and the Greek economy would benefit from reform. Every headline asking "Can Athens afford to pay immediate bills to its creditors?" is introducing more speculation and fear into the system. Observers across Europe from both the public and private sector debate on social media, seemingly at every hour: can Greece be trusted to follow policies that encourage growth (and thereby facilitate debt re-payment)? And, ultimately, is Greece even solvent?

But here is a major problem: many Greeks feel that they lost their sovereignty, and their dignity. The last six years have been humiliating, making many people dig in their heels and oppose solutions that are perceived to be imposed from abroad.

Yes, many regulations are notoriously inefficient, but perhaps it is time to stop lecturing Greek policymakers from a safe distance. Inefficient laws should be changed -- but they should change when citizens themselves want that to happen. Telling other countries how to run their economy is, apparently, not a constructive thing to do.

The question of fairness

To be clear, this is a time for strict, conservative policies, because well-intentioned policies like wage controls and various types of red tape can have truly insidious effects.

But after five years of austerity,[^1] there is no moral or economic rationale to force Greece to run 4.5% surpluses. A smaller primary surplus could be a reasonable compromise. And, some assistance to help alleviate poverty in Greece is in order. Other policies, like sharing more fairly the burden that refugees are placing on the border states of the EU, are also overdue.

One test of any punishment should be whether it works as a deterrent. Will a potential non-cooperating member of a group be discouraged after witnessing the turmoil in Greece?

The clear answer is that no country would want to go be in the shoes of the Greeks who have gone through considerable pain.[1]

[^1]: Last year, more than 90 percent of the unemployed obtained no government assistance at all. About one in five Greek children are estimated to live in extreme poverty. Thousands of people live their lives on the edge, knowing that they have no health insurance to shield them if they happen to fall and break their arm. According to one study published by a British scientific journal, stillbirth rate rose by about 20% and infant mortality grew by about 40% between 2008 and 2011. An unacceptably large share (nearly one in five Greeks, according to some calculations, which would amount to more than one and a half million individuals) do not have enough to eat.
  1. Average disposable income (wages plus state benefits plus income from sources other than employment) fell between 2009 and 2013 by about 35 percent, according to a recent report from the IMF. More than one in three Greeks are currently at the risk of poverty.

Spanish economy: finally recovered?

One good story of this year appears to be that the Spanish economy is getting stronger. And yet, just like in many places across Europe, it...

What are the effects of QE?

Last month, I posted nine opinions about quantitative easing. This week, Brookings devoted half a day to the (hypothesized) effects of QE on inequality: A widely...