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Sunday, April 1, 2012

The Greek problem is different from the rest of the Periphery

In this very interesting analysis by Prof. Yanis Varoufakis, the author concludes that "...the only option that the Periphery has ... is not an exit from the euro but a few decisive steps that will utilise existing EU and Eurozone institutions to unify the eurozone’s banking sectors, a large portion of eurozone public debt and, last but not least, aggregate and disaggregated investment strategies".

I think the approach recommended in this article may apply to other countries of the Periphery but Greece is different.

Greece is – according to the World Bank/IFC – by far the worst place in the EU for doing business (#100 worldwide; between Yemen and Papua New Guinea). And – according to Transparency International – Greece is by far the most corrupt country in the EU (#80 worldwide). Finally, Greece just recently set the precedent of implementing a law with retroactive effectiveness, one of the most effective ways to scare off foreign investors.

All romantic illusions notwithstanding, there is no way that an entire country can change the above within a short period of time. To change value structures takes years (if not generations).

What Greece could/should do (and which would show results immediately) is to establish Special Economic Zones where the business framework is such that they would rank #1 in the above two indices. Then foreign money would flow voluntarily and in large volumes for investment there. And while this happens, the rest of the economy can be reformed gradually.

These are measures which Greece, and only Greece, can implement. Others can/should help but Greece has to do the job.

Why Greece should worry about what happens in international capital markets escapes my understanding because Greece has been taken off the markets for some years anyway. If the present debt structure doesn’t work, there will simply be another one (and another one) but all of that has very little bearing on the need that Greece starts working on its own problems.

I see marvelous initiatives for self-help on the part of individuals and local groups (“return to the country”, potato movement, new “local currencies”, etc.). It is high time that Greek leadership and Greek brainpower learn to do what common Greeks are already doing!

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