Greece facing its last chance, say economists

Top economists have warned that new EU-IMF life-support for Greece represents the «last chance» for Athens to enact radical reform ? otherwise, the country will slip into «Third World» status.

“This is the last chance for Greece,» wrote 19 leading academics from New York to Frankfurt or London, including 2010 Nobel laureate Christopher Pissarides, in an open letter to the English-language Athens News.

Arguing that default simply was not an option for Prime Minister George Papandreou, who emerges with a squeezed majority in parliament after this week’s voting amid riots, they say Greece would have faced «poverty and isolation for decades.”

Instead, the government has to rip up its «quagmire of a dysfunctional economy,» and eradicate «rampant corruption» to avoid «regressing to being a poor Third World country.”

According to Costas Bakouris, head of anti-corruption campaigners Transparency International in Greece, «about one in 10 Greek households are involved in incidents of corruption, given or received,» almost as much in the private sector as in public life.

Crucial to the reform drive, the economists wrote, is «efficient and fair tax collection from all, including salaried workers, businessmen and professionals,» holding out the promise of tax cuts only once that job is done.

Platon Monokroussos, an Athens analyst for Eurobank, agrees that «to address convincingly the debt sustainability, we need to generate the conditions for growth,» highlighting «aggressive» privatisation.

“I hope and pray that logic will prevail and the government will speed up the reforms,» he told AFP.

Greece «clearly should never have joined the eurozone . . . the Greeks swindled and deceived» everyone, says former German finance minister Theo Waigel, the architect of the European Union’s Stability Pact who also first coined the currency’s name in 1995.

The scale of the revamp, which all these experts say can no longer be avoided, nevertheless remains enormous ? and while market sentiment has improved for the short term, some investors do not believe that Greece can overcome its problems unless they, as holders of Greek debt, participate by taking a loss at some stage.

The International Monetary Fund said that Thursday’s decisive vote would now «pave the way» for a financial drip-feed which will run for years. However, a former IMF board member, Miranda Xafa, maintained that «at some point there will be a restructuring ? a haircut», referring to a loss for bond holders.

Now an investment manager with Geneva-based IJ Partners, she told AFP: «It’s too soon just now because Greece has nothing it can offer creditors, that approach risks contagion in the periphery and European banks are not ready to take a hit.”

Fundamental in her view is that the government «hacks back its bloated public sector,» although she also warned that the public companies in a key privatisation drive «won’t raise anywhere near 50 billion ? more like six billion.”

Finance minister Evangelos Venizelos’ emerges as the key figure for experts on the ground in Athens.

“Venizelos is a very important change,» Angelos Tsakanikas of the Greek employers’ federation’s research institute told AFP. «He has the political brains and antennae to drive through the changes we need this time.

“Buying time is finished as a strategy. He can offer the Greek people the vision, the leadership they need to buy in fully,» tipping elections within six months and suggesting «everybody here agrees Papandreou won’t last the distance.”