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‘The international story is, we’re a basket case’

‘The international story is, we’re a basket case’

The Greeks are in the streets, protesting against tough austerity measures and labor market reforms. But Greek finance minister George Papaconstantinou says the measures are vital.

July 8, 2010 7:16 by

These are pretty radical reforms. How much will Greeks resist them?

There’s a real problem, which is that we’ll go through an adjustment process that’ll be difficult and will hit those who’re not expecting it.

However, Greek society has shock absorbers that you don’t find in northern European countries. You have a gray economy – second jobs, other income assets that shield you from reduction in income, a family structure that will shield you in the sense that 25 percent unemployment in Spain does not have the same social effect as 25 percent unemployment in the US. That number is less frightening than it seems in Greece.

And unemployment will rise? The IMF is estimating that it’ll reach 15 percent in the next few years.
Any unemployment frightens me. But the biggest fear we should have is of getting into a negative spiral where our current problems are not just a phase we have to get through to get the economy growing, but will feed into a vicious circle of depression and lack of confidence in the country’s future. To get out of that, you have to keep talking and working for growth.

The constructive part will be the other kind of changes that will bring back consumer confidence and foreign investment. And secondly, there is a social balancing act we have to do – provide a sense of justice by going after tax dodgers and the kind of conspicuous consumption practiced by people you know are not paying their full share in taxes. And finally, there must be a safety net for those who will inevitably be in trouble.

Even the IMF is not sure that Greece will be able to pull out of this one.
At the moment the international story about Greece is that it’s a basket case living beyond its means. That contains an element of truth, but has been blown way out of perspective. Greeks work more hours than the OECD average and they’ve managed to close the gap in income with other EU countries. If you go around the Balkans you’ll see Greek banks dominating, not to mention shipping [companies]. In 2003-4 we were the fastest growing economy in the EU, faster than Ireland in 2003. But we didn’t use that window of opportunity to do the kind of restructuring that was needed. So now we have to move from a consumer-led, construction-based growth paradigm to an investor-led, export-led, new tech-based green paradigm.

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