The FINANCIAL — On 30. June, a few hours before the debt service failing through the Greece government, the IMF published the debt sustainability analysis. The IMF reported about the € 52 B outstanding debt amount for the next three years, knowing full well that the Hellenic country can not afford in their own. The rescue depended on the foreign support, even they have been limited by the International Monetary Funds (IMF), the European Central Bank (ECB) and the EFSF-ESM (European Financial Stability Funds , European Stability Mechanism) as plenipotentiary Institution of the European Union. The size of liabilities with medium and long term duration exceeds € 250 B, having time buffer up to 30 years, so in the sum – the accumulated public debt/annual GDP ratio of the country – the most important macroeconomic data – should lie at 180%.
The institutions (the former Troika of the above mentioned organizations) facing such challenge created the rescue plans N-1 (2010-2012) and N-2 (2013-2015), which enabled the Greece government to relieve the debt burden over the period. The sustainable growth of the real sector, the primary proficits in the national budget, the functionality of the banking sector, the cautious comeback onto the capital markets have been belonged to the positive results of the foreign aids for the deeply indebted country. The institutions made good job : Greece stayed under the European umbrella and at the same time the institutional creditors got the return on those funds which Greece borrowed 1975-2010.
The institutions have organized a kind of labor division among each other : the EFSF issued the guarantee tranches (totally: € 183 B) on the parity basis between the EU member countries (€ 68 B – Germany, € 43 B – France , € 14 B – Holland etc), the ECB helped with special cash facilities, also it equipped the Greek bonds with the special rights in its purchasing programs (€ 18B), whereas the IMF overtook the financial Aids for the debt restructure with the non-Euro lenders (€ 43 B of which € 21 B – directly by IMF ; € 11 B – USA; ca € 11 B – other countries).
The fiscal countermeasures, which should be implemented by the Greece government in return to the aids, has been fallen in the manner, that only the current payments has been effected, but the existed debt burden kept.
Three main principles might be considered in order to gauge the efficiency of the public finance :
1) Havelmoo-Theorem of balanced budget undermines the necessity of the public savings, which might be accumulated only through the consolidated proficits over the years. Although the Greece government earned the primary proficits 2013-2014, but the debt burden is dimensional huge, so the cost-cutting policy is belated, because it has neither the contractionary nor the compensatory effects.
2) Ricardian-Theorem of debt equivalency refers the distribution of the debt burdens over the generations, if the government will try to compensate the reduction of the tax revenues through an additional debt. The main difference between the proposals of the Greece government and the institutions lies in the tax increase. The Greece government fears the total slowdown of the economy, if it sets the higher VAT on the costs of private consumers, whereas the income tax evasions are enormous encouraged through the elitist corruptions, but first of all – through the misusing of progressive income taxation approach over the decades.
3) Keynes-Theorem of interest on deficit spending supports the indebtedness of the public sector only in favor for those projects, which on the short- , on the medium- or even on the long-run could earn the return on the public investments. Over the years the state behaved as the “welfare-distributor” at own indebtedness in Greece, which guaranteed the sacrosanct existence of the elite, but without any productivity on competitiveness effects for the national economy.
Even the names like Samaras (NeaD), Papandreou (PASOC), Karamanlis (NeaD), Simitis (PASOK), Mitsotakis (NeaD) and Papadopulos are associated with the political oligopolies, which has dominated over the country last half century. They shared the power among each other, but never gave up to the Republicans and Liberals. During their dominion the population got welfare but on the costs of the following generations, which has now to wear the burdens of the indebtedness.
The Finance Minister for five Month Yanis Varoufakis (the professor of the microeconomics at the Athen University, with the specialization on the Competitions Modelling & Games Theory) made responsible the French-German oligopoly for the disaster in his own country, whereas, as he well knows, the roots for such negative developments are in domestic origins. He, even resigned thereafter, organized own population and appeared through the referendum the “OXI” to the conditions of the offered austerities.
The scheduled conditions might be hard and therefor inacceptable for the domestic voters, but at the same time are inevitable for the liable adherents as tax payers in France, Germany and around. So, most preferred outcomes of the potential referendum, would be taken place in the rest of the Eurozone, should be double “OXI” – one for the Debt Haircut and the another – for Grexit.
Jacobashvili is the Professor at the Business School of the Georgian American University (GAU) and Senior Portfolio Manager of International Reserves at the National Bank of Georgia. The opinions expressed in this commentary are solely those of the author.
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