Greeks, you want to know what to do? Let yourselves be briefed about what the Chileans did in the late 1970s. They inherited a planned economy from Allende which was in much more trouble than Greece is today. The government bet on the Chicago-Boys (brilliantly intelligent Chileans who had studied under Milton Friedman in Chicago). The Chicago-Boys - from the Minister of Finance Sergio de Castro down the hierarchy - repeated their mantra to the Chileans on TV and radio all the time so that at some point the Chilean society got the message of what the government planned to do and what the objective was. Let me summarize that message:
"We have diagnosed our situation. Over 20% of Chileans live in extreme poverty. The reason for that is that Chile, as a delevoping country, has grown its economy by only 2% annually over the last 30 years. If we continue growing at that rate, we will need another 50-100 years before we reach a per-capita income which a civilized country must have. We are, instead, planning to grow the economy by 8% per year or more. That way, we will reach this objective in 10-20 years. In order to accomplish that we will need the savings of other countries to finance that growth because we do not have enough savings ourselves. In order to get those savings of other countries, the state must keep its household in perfect order (in order to get loans) and the economy must become attractive for foreign investors (so that they bring their capital to Chile).
The state will no longer subsidize state-owned companies. If they cannot survive on their own, they have lost their economic right for existence. If they go bankrupt, the assets of the companies will not disappear. A new investor will come and buy those assets at a price at which he can operate profitably. The state will not spend more money than it has income.
For the potential foreign investors we will pass a Foreign Investment Law which will be a constitutional law so that the foreign investors are assured of the conditions which we offer to them. We will offer them our excellent human capital and a market-based economic framework which will be second to one in the world.
This will be an extreme challenge for our society. We aim at no less than converting a planned economy with crony networks into a successful market-driven economy which can sustain and increase the standard of living of all Chileans, and we hope to see the first positive results within the next 5 years. Until then, all Chileans will be confronted with enormous readjustment pains. The unemployment rate will go over 20% temporarily. But this is not really a cost. It is an investment in the country's future and in the future of our children. We will change from a left-side traffic on the road to a right-side traffic in a short time. There will be many accidents along the way. But once we have managed to settle with the new traffic direction, we will be able to look forward to stable traffic in the right direction.
In all aspects we will be driven by the following assumption: we can only be successful, if we are competitive in the world. We have to understand our competitive advantages (a well-educated human capital; natural resources like copper, agricultural products, etc.) and we have to recognize our competitive disadvantages (remote location; low domestic wealth; etc.). We will leverage up on our competitive advantages and we will try to minimize the effects of our competitive disavantages". End of message.
Within 5 years, the formerly planned and inefficient economy became the "darling of foreign investors and foreign banks". During those 5 years, the adjustment pains were so hard that one wonders whether a democracy (which Chile was not) could have survived that.
The Chicago-Boys, despite their intellectual brilliance, were short of practical experience. They observed how the savings of other countries entered Chile in enormous amounts but that they were not only spent on investment but, instead, very much on consumption. The Chicago-Boys ignored that because they believed - erroneously - in the extreme free-market theory: if banks make poor lending decisions (because borrowers make poor decisions as to how to spend the money), then the losses are for the private parties. They had to learn that, in reality, when push comes to shove, the profits are for the private parties and the losses for the tax payers. From that standpoint, the Chicago-Boys failed and Chile got into severe economic problems in the early 1980s.
However, Chile learned from that experience. The Chicago-Boys were replaced by common-sense politicians with practical experience. They managed to keep the good things which the Chicago-Boys had left behind and to part ways with the extreme belief in the free market. That way, the country failed at the first attempt to make a turn-around but they were able to turn this experience into the base for a second attempt and this second attempt worked. Today, Chile is one of the most solid economies in Latin America.
Greece has learned - at great cost - all the lessons of what can go wrong when easily-flowing cheap money is spent on the wrong purposes. From that standpoint, Greece is far ahead of the situation the Chicago-Boys of Chile were in when they first started. Also, Greece has enormous private wealth (which Chile did not have) but that private wealth is still outside the country.
If Greece learns from past mistakes and gets some of her private wealth back into the country, there is no reason why Greeks should not look forward to an economic development which Chile had. Remember that today's power horse Brazil had to reschedule debts about 15 years ago.
There is one basic truth, however, and no one should hide that from the Greeks: when an unemployed hits a jackpot and decides to spend all that money on consumption, he may live wonderfully for 10 years. When the money is spent, he has to return to the standard of living of 10 years ago. Even worse for the Greeks because they didn't hit a jackpot but, instead, they took up debt which is still there.
None of the above will work if the people cannot rally around that new objective and are not willing to pay the necessary price for it. To accomplish that, one needs to make tabula rasa with leadership. Chile had the questionable "advantage" of having an authoritarian regime which, in the economic arena, banked on the right strategy and gave the people who had to execute it unwavering support. Greece has a democratic leadership which has lost the confidence of the people. If the present Greek leadership does not want to run the risk that, eventually, Greece will end up with the same political system which Chile had in the late 1970s and 1980s, they should make room for leaders who are not associated with the wrong's of the past but who can project the vision of a better Greece in the future! That would be the greatest contribution which any government has ever made for its society!