JULY 15, 2015
IN dominating the debate over how to address the Greek crisis, Germanyhas shown that economic success brings political influence, which it wielded last weekend to brush away requests from France and Italy for more lenient treatment of their neighbor.
Not everyone loves German rigidity, but Europe should be grateful for it. While we don’t yet know whether the latest accord will stick, let alone succeed, the requirements are necessary to bring the Aegean country back to economic health and to save its participation in the common currency.
Too often, the debate over Greek economic policy is oversimplified into a classic macroeconomic tussle between “austerity” and “stimulus.”
Prudent fiscal policies are, of course, central to a well-functioning economy. What has gotten less attention — but is equally important — is the need for structural reforms in Greece’s inefficient, overregulated economy.
Take, as one small example, medications. Greece is one of the few European countries that sets prices for over-the-counter drugs, which can be sold only in licensed pharmacies, the Organization for Economic Cooperation and Development reported. Pharmacies must be owned by licensed pharmacists and they can each own only one. Other rules dictate where new pharmacies may open, as well as their operating hours. As a result, prices for consumers are higher, as are retail margins for the pharmacies.
Meanwhile, entry is restricted in a flotilla of fields including taxi and truck drivers, engineers, notaries, actuaries and bailiffs. Most shops are required to close on Sundays. Greece is the only country in Europe that, by law, limits the shelf life of milk to five days, leading to higher prices and restricted choice for consumers. Bakeries can sell breads to consumers only in a few specified weights. And on and on.
Some experts say that Greece should pick up and leave the euro so that it can reinstitute its own currency, which in turn would allow for monetary devaluations aimed at making the country’s exports more competitive.Continue reading the main story
High Pension Costs, Tax Shortfall
Greece has among the highest pension costs in Europe, as well as a large gap between potential and actual tax revenue.
But neither the Greeks nor anyone else should kid themselves. Devaluation would sharply raise the cost of imported goods and services (more than a third of Greece’s economy), adding to the inflation rate and further reducing the purchasing power of Greek consumers.
Defenders of Greece say that the country has already taken tough medicine, such as reforms to overly generous public pension plans. And overall spending by the Greek government has fallen by 30 percent since it ballooned during the financial crisis.
But these statements are half-truths, in that the middling cutbacks follow years of vast giveaways. Take, for example, pensions. Before the country’s first bailout, the retirement age was 60 for Greek women and 65 for Greek men. In certain “strenuous” professions — including, for example, hairdressing — Greeks could even retire at 55.
While that system was replaced with a retirement age of 67 for both men and women and the loopholes were substantially reduced, significant gaps were left untouched, particularly the ability of older workers to continue to retire on the same terms as before. Older workers have been retiring in droves, pushing up government spending and shrinking the labor force.
Similarly, Greece runs a Swiss-cheese-like tax system in which large sections of the economy (such as electricity, hotels and many of the country’s islands) fall under a lower rate of value-added tax. Under theagreement, there would be a higher, more streamlined tax rate with few exceptions.
The strict deadlines for implementation are remarkable, a manifestation of the lost trust between Greece and other eurozone members. The beleaguered nation was given just three days — until July 15 — to adopt legislatively some of the most important changes to the tax and pension systems.
This harsh treatment is warranted by Greece’s repeated failure to institute reforms, both those that should have been obviously desirable as well as those that it had agreed to institute as part of previous bailouts.
Ironically, by electing the Syriza party in January and then voting “no” on July 5 to a rescue offer from Europe, Greece did itself an enormous disservice, as it is now being forced to agree to more draconian changes.
Germany, and Greece’s other minders, recognize the country’s precarious economic condition and are offering a carrot of a longer debt-repayment schedule and 35 billion euros in investment funds, if the required reforms are implemented.
Under that scenario, the eurozone members should open their wallets further to help Greece climb out of a downturn worse than the Great Depression.
The latest turn of events is already exceedingly unpopular in Greece. That’s understandable. But in reality, Germany and other tough-minded European nations should be thanked for forcing Greece to bring its economy into the 21st century.
If Greece chooses not to comply, it will have no one but itself to blame.
Steven Rattner is a Wall Street executive and contributing opinion writer.
No comments:
Post a Comment