Myths, Misinformation and Truths about the Greek Crisis: Sciolism in an Era of Specialization

Sciolism in an Era of Specialization

Myths, Misinformation and Truths about the Greek Crisis: Sciolism in an Era of Specialization

With the third bailout program under way, and the new general elections now scheduled for September 20, many analysts reasonably wonder “What will be different this time?” Without a dramatic change in Greece’s political decision-making, the answer is “nothing”, because the principal decision- makers are beset by ignorance and are supported by media that continue to feed myths and misinformation about the origin, developments and possible resolution of the Greek economic crisis.

In my essay with the same title I argue that most aspects of the Greek crisis during the past five years have been misrepresented to the Greek electorate as a political choice (Left vs. Right), whereas in reality the arguments reflect unfamiliarity with fundamental economic relationships. The analysis by most anti-austerity commentators has been based on axiomatic positions that ignore the root cause of the Greek problem and underestimate the severe financial constraints facing the government after it lost access to international capital markets in 2010.

In my conclusion I call for a two-pronged concurrent approach: first, a government based on a broad coalition that would include internationally recognized specialists in macroeconomic stabilization and many areas of structural reforms; second, a government granted the authority by parliament to decree laws with only broad parliamentary oversight until the end of the bailout program. In my view, such a radical strategy is a necessary condition for Greece to remain in the Eurozone, and the upcoming general elections are the last hope for the implementation of such a strategy.

7 Comments

  1. Apostolos Kakaes says:

    Quite a radical opinion–bypass parliament?
    Is that consistent with the current Greek Constitution? If so, great. If not, the idea is quite problematic. Is there a legal opinion to support an affirmative answer to the above question?

  2. Pavlina Kousi says:

    Correct me if I misunderstood your point but I think you are suggesting the abolition (or 3-year suspension) of elections and any parliamentary authority and the appointment (by whom?) of a group of technocrats to rule Greece… doesn’t that constitute, in short, an economic dictatorship?
    Would this regime comply with the regulations of the European Parliament and the foundations of the European Union or should we ignore that too in the name of “macroeconomic stabilisation”?

  3. Despoina Chryssochoidou says:

    Nobody is happy with the way that the greek parliament legislates !! In the other hand a broad legislative authority as described remind of how Eleftherios Venizelos it has become Prime Minister.

  4. Vasilis Samoladas says:

    I find myself agreeing in much of your analysis of the causes of the crisis. However, you seem to conveniently overlook some of the aspects of the story since 2010, particularly those that shed an unfavorable light on your previous employer.

    “MYTH I: There were painless alternatives to the adjustment path that Greece had to follow in 2010”

    A valid point is that the domestic elite promoted such myths starting from 2010. However, you seem to overlook several aspects of this myth:
    (a) Nobody around the world saw the path of Greece as problematic pre-2008; indeed, Greece, in living beyond its means, only followed the example of such exemplars as (1) the USA–subprime loans (2) Ireland and Spain—real-estate bubbles (3) Dubai (4) Iceland etc.
    The “living beyond our means” narrative is only hindsight for everyone concerned.

    (b) The GG from Papandreou to Papademos indeed failed to explain the simple truth. But attributing this only to “sciolism” is not convincing; it overlooks the obvious self-interest of these elites, trying to keep to power-an issue of political survival.

    (c) The IMF itself was not “telling the simple truth” either; this is reflected in the completely fictional “macroeconomic predictions” that accompanied the adjustment programs, according to which, Greece would return to the markets in mid-2011.

    MYTH II: The Troika-supported program failed.

    Indeed, fiscal adjustment was “fully successful” in the narrow sense of converging fiscal indicators. However, this success was at the expense of restoring the real economy; Olivier Blanchard admitted as much, but you seem to dismiss that effect.

    Indeed, structural reforms were not implemented satisfactorily, and you correctly point out the lack of competence that is often misinterpreted as lack of will.

    However, you completely ignore the very real effect of arrears; while fiscal targets were being met, arrears on taxes, loans and social contributions effectively paralyzed Greek businessmen from further investment (a form of Japanesque balance-sheet recession [cf. R.Koo], which along with the structural deficiencies made most investments in the Greek economy infeasible).

    MYTH III: Public expenditures in an economy under financial distress can always be set according to national priorities

    There is little to disagree with on this myth, as it applies to Greece.

    However, in defense of Keynesian theory, I would say that it assumes that the country in question is at least able to
    (a) devalue (drop the gold standard/euro—cf. Krugman/peg to a hard currency if needed)
    (b) is willing/able to impose capital controls.

    Indeed, the IMF has a long history of spectacular failures on adjustment programs that did not include (a) and (b); and a long list of successes in programs that did.

    MYTH IV: The political cost impaired the implementation of reforms

    This critique of SYRIZA/Varoufakis’ competence may or may not be justified (you are hardly an “objective” party in it after all!), but I will graciously give you the “benefit of the doubt”.

    Still, I would expect the “take-it-or-leave-it” options offered to Greece, to at least get some support from other parties (e.g. the American economic community) as being “tough but effective”.

    On the contrary, the economics community is unanimously proclaiming the next program to be a disaster. One cannot help but think that the political cost **of the creditors** is the primary factor for the current debacle.

    As per your recommendation, other posts have covered my concerns.

    Best Regards,
    Vasilis

  5. Ele says:

    In my view the Greek Parliament should not be ignored . The main problem is the implementation of the laws, being primarily the responsibility of each Government.
    As Thanos pointed out, a very important issue is the misinformation of the Greek people . As a result most of them become suspicious, confused and eager to follow the politicians who make unrealistic promises

  6. A. Kakaes says:

    I agree that “Greek [or any other, for that matter] Parliament should not be ignored”. However, I think that Thano’s proposal calls for a two-legged involvement of the Parliament: (1) the “granting of authority” and (2) “broad…oversight”. If only the members of Parliament could recognize (and ADMIT) that they do not know it all (I need not remind anybody of words of wise ancient Greeks pointing to precisely the opposite) and agree that DELEGATING is OK, especially when time is of the essence, and that a broad oversight would provide the necessary checks and balances, maybe we could get somewhere.

    How likely is it that the (new) Greek Parliament Members are likely to admit that such innovative approach is not only good, but effectively essential during these times, I do not know. If I had to bet, I would take the opposite side, though!

  7. vagelis m says:

    Thank you very much for the effort to enhance our understanding about Greece’s bankruptcy . And the myths we are keep on consuming. . I agree that the politician and the mass media neither tried nor they had the knowledge to explain the events after 2008 .In addition they all could not bear the political cost ,an issue that significantly contributed to the bankruptcy . The Blanchair acceptance of the coefficient /mistakes make me ask whether the greek authorities have their own coefficiencies or they were entirely relied on IMFones?
    An other issue is why the IMF accepted the authorities view on default loans especially for those that although they have the capacity to repay the loans they opted not to do so supported not only by the SYRIZA but also from all populist parties. .This issue contributed to a vicious circle of instability and uncertainty and additional suffer for the tax payers.

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