Root-and-branch reform the only way forward
Kyriakos Mitsotakis said he needed a fat majority to deliver deep reforms. Now he has the power to take bold action. But it is still unclear that the reforms he has in mind are the ones that will transform Greece: imposing the rule of law and curbing the country’s huge current account deficit.
Top of the list should be the rule of law. The country suffers from tax evasion, corruption and weaknesses with the justice system. And then there’s the Predator spyware scandal, which has undermined democracy.
Increasing investment without running up unsustainable debts is crucial because there’s no spare capacity in the economy
Greece could, of course, hobble along. But if Mitsotakis chooses root-and-branch reform, he will create a modern European country which could thrive for many decades to come.
To do so, the prime minister would have to tell his cabinet that there will be zero tolerance towards corruption within the government – and put in place a mechanism to enforce this. He would also have to confound his critics and properly investigate the spyware scandal.
Meanwhile, Mitsotakis needs to bring down the country’s current account deficit, which last year was 9.7% of GDP. Energy prices, which shot up after Russia’s invasion of Ukraine, were partly responsible. But even stripping this out, the underlying deficit is around 5-6% of GDP.
Greeks are spending more than they earn – and private sector debt is rising fast. Consumption is 67% of national income, compared to the EU average of 50%. Meanwhile, investment is still only 14% of national income, compared to the EU average of 23%.
The return to investment grade will boost investment. Greece will also benefit from about 70 billion euros in EU funds by 2026. But the country will not be able to sustain a much higher investment rate unless it saves more.
Increasing investment without running up unsustainable debts is crucial because there’s no spare capacity in the economy. Without expanding the country’s productive base, high growth will fuel inflation and suck in imports.
The obvious remedy is to tighten fiscal policy.
He will need courage to confront vested interests. But what’s the point in having power if one isn’t prepared to use it?
Mitsotakis was a good prime minister in his first term. He now has the chance to be a great one. Will he take it?
Hugo Dixon is commentator-at-large for Reuters and an avid philosopher.
