Sciolism, Extra-Ordinary Powers, and the Importance of a Broad Coalition: Part Two

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Sciolism, Extra-Ordinary Powers, and the Importance of a Broad Coalition: Part Two

Not surprisingly, my blog post of September 10, 2015 on myths and truths of the Greek crisis (and the underlying essay with the same title) generated several perceptive and well-argued comments about the analysis and my recommendations. I will now elaborate on the most important issues, namely the relationship between political will and insufficient capacity, the unfamiliarity with budget constraints, and my proposal for a coalition government with extraordinary powers to lead Greece through the stabilization and reform process.

During the Troika-supported program, a perennial question was whether insufficient progress in the adoption of structural reforms was due to lack of political will or lack of administrative capacity. In my view, both factors were important and always intertwined. While creditors were concerned all along about the determination of consecutive governments of Greece to implement reforms (e.g. in tax collections during the New Democracy government), they early on recognized the poor state of the Greek public administration as an important factor in the slow pace of implementation. As a result, they provided massive technical assistance in many areas of economic policy and management (tax policy, revenue administration, expenditure policy, public financial management, banking and bankruptcy laws, etc.) through multilateral and bilateral initiatives. On balance, between 2010-2014 progress was slow, but steady. In my view, it could have been faster with better prioritization and sequencing of the reforms.

But the developments under the Syriza government during January to July 2015 clearly pointed to sciolism, amateurism, and the confusion of macro-economic identities with Keynesian principles of macroeconomic policy by the top decision makers. The issue here was elementary: the Greek authorities had difficulty grasping the implications of the financing constraints facing the country.

The meaning of a “national budget” eluded the decision makers. There was widespread confusion between the unavoidable need to shrink the national pie and the commendable desire to apportion the (necessarily) smaller piecesequitably among the population. Under these circumstances, the government’s proposals were groundless and any attempt by the creditors to negotiate in good faith fell flat.

The fact that the creditors at some point decided to stop paying attention to the suggestions of the Greek government and began submitting their own drafts was not the result of political disagreements; it was a direct consequence of the authorities’ inability to accept (understand?) the simple arithmetic of the relationship between above- and below-the-line budgetary accounts.

Turning to my recommendation, which raised concerns by some readers of my earlier blog, it comprises three elements that I will try to clarify further. First, the new government should represent the broadest possible coalition, and thus constitute a safeguard against one-way politicization of the decision-making process. Second, the government should appreciate its technical limitations and consequently delegate critical parts of economic management to internationally recognized specialists.

Third, parliament should accept to have only general oversight over cabinet and (as appropriate) central bank economic policies, and thus allow the government broad discretion in adopting temporary or permanent measures to arrest the economic collapse of the country. This unorthodox recommendation mirrors the original form of the “Emergency Economic Stabilization Act of 2008” in the United States, which later came to be known as the Troubled Asset Relief Program (TARP).

But for this proposal to have any chance to succeed, it must be preceded by a wide and explicit recognition by all parties and decision makers that there was NO ALTERNATIVE to the path that Greece has followed since 2010: a bankrupt country must reduce its deficit, which implies fiscal consolidation, which in turn implies a decline in the standard of living. There is no way around this truth. Under these circumstances, the only aspect of economic management that a responsible government could possibly achieve is a socially fair distribution of the burden of adjustment among its citizens.

1 Comment

  1. H.Trickler says:

    How should Tsipras, the leftist leader who, before surrendering to the facts, made the most fantastic promises to the population, become the leader of compromise?

    He again has promised to RE-negotiate his capitulation, but there is no reason why this time he suddenly should succeed…

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