In an exclusive interview with Sputnik, Dr Angelos Chryssogelos, Academy Senior Fellow at the London-based Royal Institute of International Affairs Chatham House, said the chances of a Grexit had fallen to 50:50, but the whole bailout package had been hampered by political divisions, which had over-ridden sound economic arguments.
After the International Monetary Fund (IMF) said the Greek financial position was unsustainable, Greek Prime Minister Alexis Tsipras, suggested a long-term debt relief and payback package – akin to the US Marshall Plan for Europe after World War II and the London Agreement, under which 50 percent of Germany’s debt was wiped out and it was given 30 years to pay back the remainder.
Dr Chryssogelos told Sputnik that option was not on the current agenda, as many European politicians were under pressure from public opinion, within their own countries, only to lend Greece money that would be paid back within their political lifetime and only after evidence that Greece had quickly made massive and socially difficult reforms.
"Politicians needed to create bailout programs that would justify the money being spent on Greece. So if you go, today, and talk to a German taxpayer who is giving Greece money today and say: 'trust us, in fifty years from now – based on the reforms we’re going to do – we’re going to be in excellent shape and we’re all going to be collectively better off 50 years from now'– that would be excellent. But politicians don’t function on 50 year cycles. Politicians function on four-year cycles at best and sometimes on weekly cycles."
Europe to Blame
"Given the fact that all kind of reforms hurt, the fact that [Greece was made to implement] a really tough austerity package in the beginning completely destroyed any goodwill Greek society could have shown to the notion of bailouts and reforms. Essentially, Greece was never given a long-term perspective, which was needed for its reforms to bear fruit. In this respect, Europe is to be blamed,” Dr Chryssogelos said.
In the wake of #Greece, a short history of debt defaults http://t.co/X2utybjvEE #economics #greekreferendum pic.twitter.com/WmvZO036tj
— World Economic Forum (@wef) July 9, 2015
He also said one of the major problems with the Greek bailout – as distinct from the Irish, Spanish and Portuguese bailouts – is that the IMF and the EU had different understandings of reform in their minds.
"Confronted with the EU and the IMF, there is a larger palette of reforms that Greece is being asked to implement and that creates problems for the Greek Government."
Avoid Tax and Retire Early Culture
One of the main issues is the historic nature of Greek fiscal policy, under which huge amounts of taxes remain uncollected and the state is financing a totally unsustainable state pension system, under which many can retire as early as 45 on a final-salary basis. While Chryssogelos is sympathetic to the argument that – for cultural reasons – Greece needs to be given more time to make reforms in this area, it is not a strong negotiating position.
"At the end of the day, I don’t think that any cultural argument can justify the fact that people in Greece have been retiring at the age of 45 or 50 with good benefits simply because their union used to be very well connected with the governing party in the past. Cultural arguments only serve to make these sound better,” he told Sputnik.
"Some of those highly charged and emotionally symbolic issues, like tax collection or retiring young, are things that any functioning state should be able to grapple with. Greece is no exception, just because it has nice weather and nice beaches."
He said he would put the chances of a Grexit down from his original gut-feeling of 75 percent.
"The problem is, we’ve been burned like this before. The Greek Government has circulated positive news before and then things break down and they blame it all on the EU. Holding my breath, if I started off with a 75 percent Grexit, right now I might put it down to 50:50."
