Europe
is at a self-imposed crossroads. It has to choose between disintegration,
first of the common currency and next of the common institutions, and a painful
redressing of its shortcomings.
Greece
is the
crossroads. It is not the cause, but the manifestation of the limitations of
the European Union.
The case of Greece in Europe is simple. With the
help of European funds and European institutions Greece grew fast and for a
number of years lived beyond its means, resorting to borrowing which the
eurozone had made cheap and easy. The disconnect between productivity and
standards of living grew faster than output until, in the aftermath of the 2008
crisis, the divide became unsustainable.
Europe tried to help, as any parent would have
tried to discipline a frivolous son. The remedy has not worked and because of
one its members, the whole European Union runs now the real risk of being
severely damaged and potentially unravelled.
Greece has a duty to herself and to Europe to walk
away from this difficulty. And symmetrically Europe has a duty to support
Greece in this effort.
The relationship has to shift away from the notion
of punishment and the fear of banishment, to a rational joint reworking of the
underlying economics.
The Greek book of redemptions ought to have had
three chapters:
●
Debt restructuring,
now complete with the PSI and the new loan agreement.
●
State reform, which
remains as work in progress, with severe measures on salaries and pensions and
significant institutional changes already effected.
●
Restart of the
economy, which is not on the European agenda yet.
To come out of the recession and to enter a period
of uninterrupted growth that will complement the institutional and economic
reforms already in progress, Greece has to bank on her comparative advantages,
as follows:
●
Gateway from the east into central and south-east Europe.
●
Trade passage between the near east and Europe.
●
Global tourist destination.
To exploit these advantages Greece needs to invest
heavily in infrastructure and land development. Such investments have a high
economic multiplier and will fuel growth over the medium term. Infrastructure
projects which exceed €55bn in total investment have been identified, whilst
land development opportunities complement this with at least another €10bn.
Spread between 2013 to 2020 these will add about 3 per cent to GDP annually and
more than 150,000 new jobs.
Around €20bn of the infrastructure and land
development projects are part of the privatisation programme, and their
preparation is well under way.
However, in the current conditions their funding
from the markets is practically impossible. There are two possibilities for
funding projects of this nature, not just in Greece but also in other countries
with a domestic credit squeeze and very high cost of capital.
One would be an infrastructure fund seeded by the
EU with money from the structural funds and possibly managed by the EIB, which
will raise capital mainly from state wealth funds and will provide equity and
quasi equity (about €10bn)
The second possibility is infrastructure bonds,
guaranteed by the EIB, which will be issued by the concessionaires and
developers and sold to the financial markets (about €15bn).
Only by the European Union organising and
supporting fresh access to the international capital markets can Europe help
Greece and other EU countries to shift a gear up and move from recession and
misery into growth and hope.
To step ahead, in the light of the ideas that
created the Union in the first place, Europe must learn how to manage the
variances across nations, economies and cultures. And Greece must learn that
sovereignty does not equal fiscal indiscipline and that the output of the
economy cannot be driven by borrowing only.
These are painful lessons but cheap in an
historical perspective, which if learned will lead to a far stronger European
Union.
Costas Mitropoulos is chief executive of the Hellenic Republic Asset
Development Fund