The Greeks voted “no” to an arrangement for their creditors to extend their debt repayment. In a way this was a triumph for the people of Greece. Very onerous conditions were being imposed on them.
The choice to solve a crisis was either to pump money into the economy as United States did or austerity as Europe tried to do. On hind sight pumping money into the economy was more effective in getting out of the crisis. The austerity solution as it is being imposed on Greece was imposing untold hardship on the people without the results wanted being achieved. In Greece the pensioners’ allocation was reduced by 40% in their dole out. About a quarter of the economy is out of work. How then do you expect the economy to pay for its debts? There must be a balance. If the people are not working, how will they earn the needed money to pay for their debt?
The caution is that if you pump money into the economy, there may be a balloon created that could bust at any time and the economy is left in a worse condition. But this has been avoided by the United States. There has been no balloon that has burst. On the other hand, the austerity prescription has produced suffering on the people without the wanted results. And the people who suffer were not the cause of the crisis.
How did the crisis start or what caused it?
The easy and believable answer is that the government was riddled by corrupt people who looked to their personal pockets rather than for the good of the nation. The blame is on crooked governments in the past. They had no export goods for the goods that they import. Their economy was basically one of tourism and it was not enough to pay for the goods that they imported so they end up with an external debt that they now could not repay. Corruption and being overtaken by circumstances are the two possible causes of the crisis in Greece.
There is some parallel to what happened to the Philippines in the 1980’s. Corruption jacked up inflation to about 33% p.a. and at the same time we were overtaken by circumstances. The countries around us that prospered were exporting goods, like Japan, S. Korea, Hong Kong and Singapore. We on the other hand had no export policy or capability. We looked to import substitution. We were in a situation where the peso dropped from 2 pesos to the dollar to 50 pesos to the dollar and a big debt we could not pay. Right now the evaluation or the ranking of our economy has been raised to investment grade of BBB+. And our inflation is lowest in many years. It means conservative funds in the USA, Japan and Europe could now invest in the Philippine stocks and bonds without fear of default on our debt.
Although our external debt is above $55 Billion, we have a foreign exchange reserve of about $80 Billion. But we still do not have an export policy that will make us competitive in the world market. We have been able to export human beings in our OFWs; we also have the equivalent of exports in our Call Centers and BPOs; we have IT manufactured goods; and we also export high value agricultural products like bananas, pineapple, sugar and mangoes. These have been good for us but we must look for other exports if we are to be competitive in the future. We must not allow ourselves to be overtaken by corruption and circumstances like not having an export capability.
What will now happen to Greece?
They need breathing space to be able pay for their debts. To do this they have to rev up their economy so that people have jobs so as to contribute to the economy. The restarting of the economy will not be easy and it will take time. There may have been some fault in the corruption of past governments but that is water under the bridge. They must be given time and helped to put up an export industry over and above the tourism that they have. Art articles could help but may not be enough. Together with Greece we have to look towards innovation and entrepreneurship. With Greece we have a common maritime industry that can be developed further. Germany never paid their debts for WWI and WWII.
(Fr. Emeterio Barcelon SJ holds numerous post graduate degrees in Business Administration from prestigious US universities. He was a professor at the Asian Institute of Management and Senior Fellow of The Development Academy of the Philippines. He was President of Ateneo de Davao University in 1974 and was assigned to Xavier University in Cagayan de Oro to become its Academic Vice-President and later Vice President for Special Projects.) <emeterio_barcelon@yahoo.com>