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RHODES, Greece July 21, 2015/ Troy Media/ – There is a debate in parallel to the Greek financial drama that is being played on the world stage.
Economists are puzzling over the appropriate economic medicine for resolving the lingering financial and economic consequences of the financial crisis of 2008 and the Great Recession that followed.
The two are not mutually exclusive. In fact, Greece is the battleground and the ideological laboratory for these two conflicting economic schools of thought.
Greece finds itself at the epicentre of a contemporary debate about economic philosophy, public policy and economic theory. On the one side are the proponents of stringent austerity measures and fiscal water-boarding to reduce run away fiscal deficits. On the other side are the advocates of a program for stimulating economic growth and kick-starting the economy through public infrastructure investment and job creation.
The austerity paradigm rests on the diagnosis that the economic crisis was essentially caused by consecutive fiscal deficits and excessive public debt. In this context, restrictive fiscal policy is the appropriate solution for the excesses of the past. Understandably, the economic medicine is hard to swallow, but it is presented as the only solution if the patient will survive.
Those on the other side of the debate advocate a growth agenda through a stimulus program, infrastructure renewal, private sector investment, an emphasis on job creation and a focus on economic growth.
There are aspects of the austerity camp that make a compelling argument. It is in the application of the solution that we part company. More specifically, advocates of austerity measures are determined to reign in fiscal disparity within the shortest period of time and inflict consecutive punitive measures of a very strong dose.
My prescription differs. I am in favour of a longer timeline, a more protracted implementation scenario and a smaller spoonfull of the bitter medicine. In essence, what is required is to stretch out austerity programs over a longer time frame.
Relying singularly on fiscal constraints, however, is wrong. I am a strong proponent of advocating a public sector agenda that embraces institutional reforms, introduces workplace efficiencies, raises productivity and promotes innovation. In short, a growth-oriented strategy that emphasizes a new economic governance architecture and supply side reforms.
Neither one of the two warring schools of thought has a monopoly on the right answer. In consequence, the appropriate course of action lies in an economic compromise and a theoretical blend. It will take a concerted effort to bring government finances under control while at the same time investing in strategic economic initiatives that will grow the economy.
The contemporary Greek economy offers a pertinent backdrop for an incisive analysis for the economic merits and efficacy of the two opposing schools of thought. In Greece, the austerity option with its single-minded fixation on reducing the role, size and cost of government has ingrained a perpetual condition of economic malaise, created significant socio-economic turbulence and triggered a five-year recession.
The failure of the austerity measures in Greece is a pertinent reference point for reopening the debate regarding austerity versus growth. This is an opportune time to discuss a different public policy direction.
The prolonged economic recession in Greece, accompanied by astronomical unemployment rates, was triggered by the harsh austerity measures aimed at bringing government expenditures under control. These measures were implemented without due diligence in developing a strategic plan to simultaneously grow the economy and create new employment opportunities.
The Greek scenario should serve as an economic lesson to the international community of nations. The moral of this story is that balance and perspective should be applied in developing economic strategies that are effective for the new global economy of the 21st century.
Dr. Constantine Passaris is a visiting professor at the International Writers Center of Rhodes (Greece). He is also an Onassis Foundation Fellow (Greece), a national research affiliate of the Prentice Institute for Global Population and Economy at the University of Lethbridge and a Professor of Economics at the University of New Brunswick.