The failure to reach an agreement in Greece is because, from the start, the diagnosis has been wrong. So in the end, the patient got sicker – and now wants to stop being treated.
As Greece’s finance minister Yanis Varoufakis has been repeating from the beginning of this crisis, Greece did not have a liquidity crisis, but a solvency crisis. The latter was caused by a competitiveness crisis and made worse by the financial crisis. And this kind of crisis cannot be fixed by cuts and more cuts, but only by a serious investment strategy, accompanied by serious – not token – reforms (e.g. to how the state, and hence also taxation, is run) to bring back competitiveness.
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.
Yep, that’s Mariana Mazzucato.
Nothing quite like having just the one answer for everything, is there?
Even Danny Blanchflower manages to do better than this:
Greece also has deep structural problems, mostly in product markets with oligopolies in almost every industry, closed professions, administrative and bureaucratic impediments to entrepreneurship alongside barriers to trade and exporting, none of which have been addressed.
Compare that with Mazzucato’s:
a long run-focused stakeholder type of corporate governance (rather than the short-termist shareholder Anglo-Saxon model that southern Europe has copied),
The more I see of Mazzucato’s economics the more convinced I am that she’s a fascist economist (note, please, “fascist economist”, not “Fascist” who happens to be an economist, one who follows the economics of fascism, not someone who is about to invade Abyssinya).