Comment on NYT editorial

Today's editorial is an absolutely correct assessment of the "Greek problem", albeit it an assessment which the EU-elites refuse to accept. One is tempted to think that this is not due to a lack of willingness but, instead, to a lack of competence. Below is a commentary on this editorial.

It is not sufficient to simply issue Euro-bonds, lower the interest cost for Greece and hope that this newly gained financial breathing space will lead to growth. There can be no sustainable growth in an economy where every available Euro (and much more!) is spent on imports and capital flight.

One has to pursue a modular approach. Instead of attempting to transform the entire economy at one time, one should begin with “pockets”. Greece should establish a few selected Free Trade Zones where the rules of an internationally competitive economic framework apply. Those rules should be confirmed in a new constitutional Foreign Investment Law, the compliance with which should be guaranteed by the EU.

New manufacturing should be built up in those FTZ. Wealthy Greeks hold hundreds of billion Euros in foreign bank accounts. Some of that would quickly flow back to Greece if there were good investment opportunities; if there were security and potential for returns higher than the 2% which they presently earn in Switzerland.

One should start with producing all those products which are presently being imported but which could just as well be produced in Greece if the economic framework were “right”. It would be like a nirwana for the foreign investor: from the start, he finds a market for the products which he can produce profitably. Over the years, the conditions in the FTZ would “rub off” onto the rest of the economy.

Presently unemployed would find jobs and pay income taxes; profitable companies would pay corporate taxes; and owners of profitable companies would pay taxes on dividends.

These measures would have to be accompanied by provisional special taxes on imports (up to 100% on luxury goods; 0% on priority goods). Such import controls would have to phase out as the new businesses have proven international competitiveness.

Finally, there will have to be strict controls on capital outflows for some time. It is absolutely indefensible that tax payers’ money is sent to Greece so that wealthy Greeks can transfer their money to Switzerland. As Greece becomes a competitive economy over the years, capital flight will disappear. Instead, capital will flow voluntarily to Greece in order to take advantage of the outstanding investment opportunities in an economy which is “on the rebound”.