Let us imagine that an agreement will be reached in the current negotiations. Will it end the crisis, will investors be ready to invest in Greece ? Because investments are the only way that sustainable growth can be generated in Greece.
Clearly not, as we have learned over the last 5 years, one unacceptable agreement will lead to another afterwards, with all the drama surrounding the negotiations, the IMF led Troika programme is set up like that. That will continue the uncertainty. That will continue the political instability. And that in turn will continue the dearth of investment.
Unless the factors causing this instability are tackled head-on by the Greek government there will not be any growth. Or any reduction in unemployment.
The four factors which impede investments are:
Unless there is a firm and credible commitment to Greece in the Eurozone, there will not be any investment. Why should an investor invest now, when, after Grexit and devaluation he could get the same Greek assets at a reduced Euro price, due to devaluation?
2. Economic Collapse
The economy has shrunk due to the policies implemented by the Troika. These policies are still being persued. Continuing along the Troika path will mean further recession and deflation. Nobody will want to invest in such an environment.
3. 180% debt to GDP ratio
This ratio, if it were to paid down by taxes, would base a very high tax burden on the economy. Each 1% reduction would mean an additional 1% tax which would have to be found from the economy each year, roughly. So unless there is a sustainable debt level, perhaps 100% of GDP, there will be no further investment.
4. The Troika Tributes
The insistence of Troika tributes, a.k.a. primary surpluses, of up to 4% has not only a further recessionary effect on the country, but are also seen as illigitimate, as the debt itself is seen by the Greek government as an “odious debt” which does not need to be repaid. The primary surpluses, are as well perceived as reparation payments were in Germany after WW1. And will have a similar effect. The Troika policies stir resentment, political upheaval, and unrest. Nobody invests in a situation of such political uncertainty.
So the solution is simple, Greece should declare a unilateral moratorium on the debts to its European creditors and the IMF and suspend negotiations for one year in an effort to bring calmness, stability and growth back to the economy. Only that will shrink the large unemployment numbers of 26%.
Further, Greece should state that it is fully committed to the Euro, fully committed to export-led growth, and fully committed to repaying its debt, as long as the European partners commit to buying additional goods and services.
Greece should state it will repay debts based on these additional exports, and not follow the diktats of the IMF-led Troika any more.
If that cannot be committed to by the European partners, Greece should insist of cancelling half of the debt to Europe, from 240 bn to 120bn Euro.
Greece should say it is time to end negotiations with the institution making up the Troika, but Greece is happy to talk to the German government as the biggest creditor on behalf of all others after the 1 year cooling down period.
As long as Greece has a balanced primary budget, the creditors will not be able to do anything. It would be suicidal for them to push Greece out of the Eurozone, so they will have to go along with these proposals, ultimately.
Greece is much in the stronger negotiating position, and should now take advantage.