By Vasiliki Bozani
Economics Research Center
University of Cyprus
Six years after the Memorandum I (2010) and the presence of two new memoranda (2012, 2015) between the Greek government and its partners, the Greek economy continues to have negative growth rates. The combination, during the period 2010-2015, of high unemployment rates and negative growth rates of GDP clarifies the crucial problems Greece is currently facing.
These problems are usually attributed to the structural reforms that stem as obligations from the Memorandums. Although the labour market reforms that were adopted since 2010 onwards created the conditions for achieving internal devaluation (wage reductions and price deflation) and thereby increasing the flexibility and competitiveness of the Greek economy, the expected growth did not appear. This is attributed to the dominance of fiscal austerity that implied the reduction of domestic demand and jobs; conditions that could be smoothed if increases in investment and exports had not been restricted by the coexistence of high uncertainty and low confidence. Additionally, the inability to provide social protection opened further income inequality and social justice’s gaps. Due to these reforms however, some of the chronic problems in the Greek economy were solved, while the weakness of domestic production was confirmed.
Given the need to tackle the high unemployment rates, attention should be concentrated on the conditions that encourage unemployed- especially of long-term and young as well as of those who are close to pension eligibility – to participate actively in labour market and protect their human capital against ‘erosion’. In other words, attention should be paid on Active Labour Market Policies (ALMPs) like training, wage and job subsidy, incentives for entrepreneurship, direct job creation (public sector), and specific measures for youth and disabled that intend to achieve the above targets. The existence of a monitoring body that could check the effectiveness and appropriateness of these measures relative to their goals, and intervene through sanctions when it is required could ensure the proper functioning of these measures. Essential also seems to be, the strengthening of the legislation and the way of dealing with the programs of part-time and of the reduced-working hours, as well as of the self-employment. The presence of a well-organized and staffed Public Employment Services could be helpful.
The positive effects of these reforms could be achieved, if these were to be combined with changes in the demand side of labour. This requires the establishment of a plan emphasizing on innovative and highly productive sectors of the economy, except for tourism and agriculture, as well as the encouragement of investment. So, steps should be taken in favor of the financial support of Small and Medium-sized Enterprises, the appropriate direction and use of European Funds and the attractiveness of private capital. The conjunction of these with ‘supplementary’ reforms in the product market, such as the cutting of red tape, the reductions in the start-up costs or in the high mark-up levels, could possibly enrich the production of highly competitive products and thereby the demand for skilled workers in research and production and thus real growth.
Above all is the need for a tax system, based on actual fiscal needs and targets, which would contemporaneously create incentives for workers and employers. A reduction in tax and social security contributions, especially in the first stages of business, combined with ALMPs, would facilitate entrepreneurship and employment. Moreover if these were linked appropriately with social protection policies, the economic activity could be further improved. The shadow employment could be reduced, while tax and social security’s revenues could be raised, given that all the parties could fulfill their payment obligations. This suggests the need for the presence of an independent monitoring body, which could be able to impose sanctions whenever it is necessary.
Clearly, Greece can increase its employment and economic growth in case it enacts structural reforms that solve problems inherited from the past, but also create friendly and financially stable environment for investment and fair income distribution. Conclusions that have been already drawn, but their implementation requires a well-organized and in-depth plan, combined with seriousness and consistency of decisions released from any interests and the fear of political costs. Any reform needs to ensure current development while setting the foundation for future development of the Greek economy. Our country outweighs in human resources and opportunities, its determination for taking steps beyond is what needs to be reinforced.
*This article is part of a feature regarding the Greek crisis, within the context of a cooperation between “Naftemporiki” and “DIW Berlin”. It is based on the research “The Greek crisis: A Greek tragedy?” and expresses the personal opinion of the author.
