Finding the economy’s pulse

Many are in favor of the recovery program outlined by the International Monetary Fund and the European Union, firstly because they see no other way for Greece to avoid bankruptcy and secondly because they believe it will help modernize the Greek state. In other words, the memorandum provides an opportunity to rebuild the state as well as the economy. No one doubts that it will be a difficult task with many risks. Trying to clean up corruption and tax evasion in such a short time is like undergoing major bypass surgery. Now, we are like the relatives waiting to hear how the surgery went – whether the economy has a pulse or not. It is clear that important elements of the memorandum have failed to yield results. A dysfunctional tax collection system, over-the-top taxes and major delays in slashing costs in critical sectors such as health tell us that something is awry. But the biggest enemy right now is recession and we cannot ignore the fact that the model outlined by the memorandum foresees Greece experiencing a deep recession, with unemployment rates touching upon the 20 percent mark. The problem is that the measures are not just trimming fat but also eating away at a large part of the productive economy. Healthy businesses having trouble borrowing from banks are being hit for more taxes while they wait to collect what the state still owes them. If this situation continues, many of these businesses will either be forced to move to another country or to simply shut down, with inestimable consequences. Then the government will find itself in a truly difficult position indeed. People will become even less tolerant of the reforms, while any attempt to slash state spending by reducing the number of people it employs may provoke a major social backlash. We can find comfort in the fact that the EU and the IMF have taken a risk in helping Greece and they will not let the situation spiral out of control. There is, however, always the risk of a wave of populism crashing in without reason or alternative proposals. Let us hope that our survival instinct helps us turn to more sage solutions: necessary reforms drawn up by people who understand how international and domestic markets work as well as the real needs of the economy.

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