Before Greece even signed the so-called memorandum with its foreign creditors, this author was arguing that Greece would never exit this crisis unless it implemented a policy that combining fiscal reform, the exploitation of the country?s untapped growth potential and a sufficient haircut. Fiscal stability can be achieved by increasing revenue and trimming spending at the same time.
In Greece, wealth and tax distribution follow very different patterns. What was needed, in other words, was the use of new tools to tax wealth that has not been taxed — and which is often parked outside the contours of the market, often in foreign banks. In this manner, the state would earn new revenue without making an already dry market downright desert-like. But the government took the beaten path, raising taxes for those who already paid taxes — a decision which fanned the recession.
The government took a similar approach to spending. Instead of introducing a number of case-specific cuts, it chose the easy albeit unfair path of horizontal cuts.
However, the problem in Greece does not so much concern the size of spending (which is around the eurozone average) but rather the fact that they are to a very large degree counterproductive. What is needed thus is a re-examination of all expenditures and their qualification on the basis of their returns. This is the tough but efficient path — because it would on one hand save a lot of money and, on the other, because it would lead to a redesign of the state sector along more productive lines.
The introduction of the labor reserve scheme — which would more accurately be described as sackings after a transitional period — further exposes the government?s ineptness. At the same time, it demonstrates how the public dialogue has moved from the need for rational spending cuts to a cultish obsession with sackings in the public sector.
However, a rational approach would first of all mean productive restructuring of the public sector and realignment of state workers. If after that there was a need for more layoffs, these should take place on the basis of merit, not age.
The government is dealing with the issue by pushing workers into early retirement or putting experienced officials into the labor reserve scheme — and their absence will seriously damage the efficiency of the state apparatus at a very crucial time.