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Daniel Gros, Director of CEPS, Interview to Christina Vasilaki

According to Daniel Gros, Director of the Centre for European Policy Studies (CEPS), the unprecedented recession that struck Greece and the ongoing crisis of its economy until today are due to the incomplete implementation of the programme by the Greek governments. In an exclusive interview to the Crisis Observatory, Mr. Gros explains the reasons why the Memorandum has not had the expected results in Greece, while also referring to the need to reorganise public administration, in order to combat tax evasion and corruption as well as to boost exports.

INTERVIEW TO CHRISTINA VASILAKI

      1. How close to an agreement is Greece with its partners? Could you imagine an agreement without one of the two sides removing its red lines?

So far there has been a lot of theatre and very little of real negotiations, on the substance. There will be an agreement. Everyone will talk about a new plan for growth for Greece. It will sell very well because finally there will be an emphasis on growth. But this will be only empty talk. The cruel reality for the Greek people is that one year after these big promises for growth, the administration won’t work better, corruption will be the same as before, tax evasion will maintain and the exporting firms will face lots of difficulties. So, growth will not come back.

       2.What are the necessary reforms in your opinion in order to achieve growth?

Get a grip on your administration. Make it work honestly. Reduce tax evasion. But that’s not big announcements. That’s hard work every day. I don’t see any concrete sign for the fight against tax evasion. What does combating tax evasion mean? It certainly does not mean nice speeches in parliament but actually having an administration that works. And that is not something you create overnight. And that is not something that Europe can enforce. The Greek administration, the Greek ministries, the Greek people have to do it on their own.

       3. After five years of austerity do you find the plea for greater breathing space on fiscal targets reasonable?

What does “austerity” mean? Let’s take the example of a family, which always spends money coming from its credit card, and at some point the bank says “you can no longer overspend. You don’t have to repay you debt but you cannot get fresh credit. You have to live on what you earn”. Do you call that austerity?

       4.But haven’t these cuts on expenses already taken place? What result did they produce?

Of course you can say that there are fewer jobs out there. That is true. But many of the jobs created beforehand were based on credit cards. They were partly in construction and partly in consumption. So, the shopkeepers are no longer needed. Mainly because people don’t have money, but this is unavoidable. The big question is why the shopkeepers did not become tourist guides for example or productive in exports. That is the key question that nobody addresses. Varoufakis has said exports have stagnated but it is all because of the credit crunch. Greece has now a balanced -more or less- current account. That means there is enough money in Greece to finance all the investment needed.

        5.Isn’t this money needed for the repayment of the debt?

Greece is not repaying any debt. It’s not even paying interests. There is a very small primary surplus. So it is up to the Greek government to decide whether it wants to invest this money or spend it on pensions. It’s just that they cannot spend other people’s money anymore. They cannot have both. They will have to choose. If you pay out less to people on pensions you save some money for the government. These are concrete things and if the government doesn’t have money, that’s what they’ll have to do. I think somebody once said that the problem with socialists is that they run out of other people’s money.

         6. So, after five years being in a programme, what are the advantages of the Greek economy in your opinion?

These five years were basically spent cutting the expenditures, too much in investments and too little in pensions, although I know the impression is different. However, exports have not grown. That’s a big mystery and I’m working on it right now. It worked everywhere else.

I am discovering right now that a large part of the Greek exports have very little to do with Greece. Take for example maritime transport or shipping. These ships are financed by London or Germany. The crews are from third world countries. And what happened in 2008 was that this sector went down globally. But exports of goods have not increased either. Some people say that’s because of the credit crunch. But the credit crunch comes from political uncertainty. So, in a certain sense, it was homemade. If you have political uncertainty, people withdraw their money.

          7. Do you think there is any space for Greece -being member of the Eurozone- to grow its export economy?

The export industry never really existed in Greece. But nobody saw that as long as the country was getting lots of capital from abroad. And that started already in 1995. There is space to do it. Portugal did it, which has the same GDP per capita, similar wages, and similarly bad industrial structure. Of course there is space. Especially where Greece is situated, near Turkey, a really big market and the Middle East. There is a lot of space, if you have domestic conditions which allow enterprises to grow.

           8. Do you agree that the same programme which was implemented in Ireland and Portugal succeeded while in the case of Greece it failed dramatically? If yes, what are the reasons?

The programme failed in Greece because the initial conditions were perhaps even more difficult than in Ireland, Portugal and maybe in Latvia. And also, because it was so badly implemented and very much subject to political problems, so its effectiveness was further reduced. The impact on the real economy was negative but not only negative in the first two three years, which is unavoidable, but negative even over five years. Whereas, everywhere else where the programme was fully implemented, after several years the impact on the real economy became positive. It was more or less the same programme, which was implemented everywhere.

          9.Do you believe that the Greek government’s claim to reduce the targets of the primary surplus (currently set for 3% and 4.5% in 2015 and 2016 respectively) is honest? And what would this mean for the sustainability of the debt?

That’s not a problem. That’s only in paper. Whatever they have promised they will not fulfill it. And the creditors know that. If they agree on 2.5% the result will be 1% or zero. These numbers are just to present them to the parliaments. And one year’s tiny primary surplus has no meaning at all for the debt. Greek will have to repay its debt in 20 years. The key thing is to get the economy growing and exports growing.

         10. What do you think the goals of a possible third programme should be? An additional loan by the partners in exchange of reforms or a real plan for the reconstruction of the Greek economy combined with some arrangement for the reduction of the Greek debt?

A plan for reconstruction of the economy is completely useless. You can always have plans. But it has to be the Greek people who implement this stuff. They were told by the troika that certain things should happen in the long run, like labour market reforms, product market reforms, etc. Please implement! And what was the response? Not of the government but of the whole system? The government and its ministers, the officials, trade unions and the people on the ground? We don’t do it! Greece anyway doesn’t pay anything net. It just gets some money to pay back the ECB. The current account is in equilibrium, so it does not need any fresh money from abroad, only some money to pay back the debt that comes due. I would say “bye bye Greece, you do what you want and we meet again in 20 years, whether you can pay or not”. I don’t see why we should put more conditions.

         11. In relation to 2012, do you believe that an exit from the euro is more imminent or less?

An exit from the Eurozone doesn’t really make sense right now. Current account balance is there, primary surplus (or balance) is there, and wages have fallen. You can just have more political uncertainty, but this doesn’t make things much better. Of course, mistakes happen. But I don’t think it makes sense.