Instead of piling extra loans and debts onto the Greek economy, the European Union should provide a "Marshall Plan" to Greece for strategic investments such as the modernisation of property registration and tax collection systems, argues Barry Eichengreen.
Barry Eichengreen is a professor of economics and political science at the University of California, Berkely. He has written numerous books on economics and economic history, notably 'Exorbitant Privilege: The Rise and Fall of the Dollar and the Future International Monetary System'.
"It should now be clear to even the most blinkered observer that the Greek economy is in desperate need of help. Unemployment is 16% and rising. Even after a year of excruciating spending cuts, the budget deficit still exceeds 10% of GDP. Residents don't pay taxes. The system of property registration is a mess. There is little confidence in the banks, and even less in the government and its policies.
Since the economy needs help, here's a novel idea: provide some. Now is the time for the European Union to come forward with a Marshall Plan for Greece.
Rather than piling more loans onto the country's already unsustainable debt burden, the EU should offer a multi-year programme of foreign aid. The Greek government and donors would decide together the projects that it financed. These could range from building new solar and wind power-generating facilities, in order to turn Greece into a major energy exporter, to updating its ports to help make it a commercial hub for the Eastern Mediterranean.
Foreign aid and expertise could be used to modernise the property-registration and tax-collection systems. Funds could be used for recapitalising the banks and retiring some debt. They could help finance government support for the unemployed, indigent and elderly, who are among the principal victims of the financial crisis.
The EU should contemplate this option, because, for starters, it bears more than a little responsibility for Greece's plight. It offered membership to a country with deep structural problems. It then accepted Greece into its monetary union with full knowledge that its fiscal accounts were not worth the paper they were written on. And it looked the other way when French and German banks recklessly enabled the Greek government's profligacy.
Second, the current strategy, which amounts to trying to extract blood from a stone, is not working. There are limits to how quickly a country can reform. A society can bear only so much pain and suffering before it loses faith in its political system. EU leaders need to acknowledge this reality before it's too late."
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Published in parnership with Project Syndicate