The conditions of the bailout therefore should have been conditions that emulate the kind of public sector reform and investment strategy that characterises many of the competitive powerhouses of northern Europe – including Germany. Indeed, Greece should not do what Germany says it does (austerity), but what Germany actually does (invest).
Over the last decade, Germany has invested in all the key areas that not only increase productivity, but also create innovation-led growth. Companies like Siemens are the result of a dynamic public-private eco-system in Germany, with high government spending on science-industry links (Fraunhofer institutes), the existence of a large and strategic public bank (KfW) that provides patient, long-term, committed capital to German businesses, a long run-focused stakeholder type of corporate governance (rather than the short-termist shareholder Anglo-Saxon model that southern Europe has copied), an above-average R&D/GDP ratio (rather than the below average one in Greece, Portugal and Italy), investments in vocational training and human capital, and a mission-oriented ‘energiewende’ strategy focused on greening the entire economy.
Imagine the very different types of result we would have witnessed had the negotiations been about stuffing an investment strategy down Greece’s throat, rather than more cuts. “OK, we will bail you out, but reform your country, and kickstart public investments (of the type named above), so that you are ready for the 2020 innovation challenge.”
Instead, insisting on the status quo full of more austerity produced an increasingly weaker Greece, more unemployment and more loss of competitiveness. Now alone, the only hope is that Varoufakis’ insistence on a European-wide investment programme will at least find a national solution. Perhaps it can begin with Greece forming a development bank like the KfW, and use it to kickstart the kind of long-term investment strategy that should have been part of this ‘pact’ from the start. Oh, and Italy’s competitiveness is just as bad. So if Grexit now happens— and Europe does not finally get a proper doctor in the room – get ready for Itexit over the next year.
Greek bailout extension refused: a panel of leading economists give their verdict | Comment is free | The Guardian.
If only politicians ever listened to economists…