Greece: Seeking a way forward

by Elias Papaioannou, Richard Portes & Lucrezia Reichlin

Vox
June 4, 2015

Greece seems to be on the verge of an agreement that would release much needed funds. This column argues that an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. The focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.

Press reports suggest that Greece and the IMF, ECB, and European Commission (formerly known as the ‘troika’) may finally reach a tentative agreement on the completion of the final review of the current (second) economic adjustment programme. This would release funds that Greece needs to meet its obligations due over the next month. It would also allow the Greek government to make payments to suppliers that have been delayed over the past months.

While preferable to a descent into chaos, an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. Policy mistakes and uncertainty have pushed the economy back into a recessionary spiral, with some evident increase in unemployment, deposit withdrawals, and a liquidity squeeze. Thus the focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.

Relations between Greece and its Eurozone partners and international lenders are fragile, marked by suspicion, distrust and polemical rhetoric. At the same time, within Greece there is rising polarisation of views on the country’s role in Europe. It is not helpful to assign blame for this situation, although there is quite enough to go around. Policymakers must look forward and must convince the citizens of Greece and its partners that the country has a viable future in the monetary union. Absent a credible long-term programme, even if only in outline form, whatever agreement may be reached now will not be fulfilled.

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