Greek Crisis: Whose Growth? Which Innovation

Submitted by DPP on Friday, July 24, 2015 - 00:43

Whose Growth? Which Innovation?

Theo Papaioannou

On July 13, 2015 the Greeks woke up to a new bailout deal that will keep the country in the Eurozone. In return, they will have to implement a new austerity programme that will not only plug the country into an even deeper recession but also will undermine any prospect of development and innovation for the years to come. This is so for a number of reasons.

First of all, the recipe of tough financial discipline without public investment into innovative projects in areas of comparative advantage (e.g. agriculture, renewable energy, tourism, shipping, etc.) and intellectual and physical infrastructures will miserably fail to grow the economy.

Secondly, the fact that there is no debt relief or ‘haircut’ for Greece means that the reached agreement is short term because debt will continue to rise undermining economic recovery.

Thirdly, the new bailout and accompanied austerity measures will achieve legality but not legitimacy. Those of us who research politics of development know that legality is one thing and legitimacy is another. Lack of legitimacy can lead to disobedience of the rule of law and therefore negation of legality of austerity measures from below.

Fourthly, the new agreement has already started destabilising Greek politics with resignations of key figures of the SYRIZA governing party. History teaches us that no economic development can come about in conditions of political instability.

Fifth, during the last few days it became clear that the new bailout was in fact forced upon Greece after the country was pushed to close its banks and default on €1.6 billion loan to the IMF. The referendum that followed on July 5, 2015 was an unprecedented democratic action. However, it was essentially ignored by the dominant neoliberal powers of the European Union (EU).  Therefore, the process of reaching the new agreement was far from democratic. This does not only undermine politics of development in Greece but also the political future of EU and the ideal of integration.

Of course Greece is a country that needs massive reforms, starting with fixing the state apparatus and the governance of economic system. The question is towards which direction these reforms should go? It is worth remembering that Greece has not arrived to this catastrophic stage on its own but with the ‘help’ of the European Monetary Union (EMU). Therefore, the mismanagement of the Greek economy and the public finances are not the only reasons for the crisis. Both economic competitiveness and political competence vary within the EMU and that’s a fundamental problem. In fact, powerful countries such as Germany were benefited by the corruption of the Greek public sector and the over lending to the uncompetitive private sector. This is because it was mainly German goods and services bought by the corrupted and inefficient Greek state (e.g. military equipment), the uncompetitive companies (e.g. technological products) and the individual consumers (e.g. cars), increasing German exports and decreasing the productive capabilities of Greece.

Bearing in mind all these, one would have thought that Europe would share responsibility for restarting the Greek economy and fixing the state apparatus through long term investment in inclusive innovation and a series of interventions in public administration. On July 13, 2015 we learned that this is not the case. Instead, it is the case of politics of power that imposes a third programme of austerity that almost certainly will have catastrophic consequences for both the economy and the state. No one should be surprised if in a few years down the line we witness exactly the same crisis. The EMU is impossible unless the neo-liberal political and power dynamics in Europe change, moving away from damaging austerity policies and towards inclusive innovation and growth for all EU countries.