Greece and the EU: How to break the stalemate

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Anti-austerity protest, Athens. [Joanna/flickr]

A solution to unlock the stalemate for debt-wracked Greece should be based on mutual obligations, writes Karl Aiginger.

Karl Aiginger is the director of the Austrian Institute of Economic Research. He teaches at the Vienna University of Economic and Business Administration and is managing editor of the Journal of Industry, Competition and Trade.

The negotiations between Greece and the EU are currently stalled, with a Grexit looming, which will be disastrous for Greece, as well as the EU.

The negotiations are stuck because the EU wants Greece to implement measures that are undeliverable (pension cuts, etc), as these are a continuation of a failed policy, and because Greece is requesting money from Europe, which Europe cannot provide due to resistance from the electorates, knowing that Greece has not done its homework up to now.

The following measures could remove the blockade

Europe promises to do everything to report Greek money parked in European accounts, including accounts in Switzerland, Germany, Lichtenstein, Austria etc, by August 1st. The holders have the chance to report their accounts to the Greek authorities up to 15 July, and prove that they have been taxed, or otherwise pay 30%.

Europe promises to put money from its structural, regional funds not used by Greece into a “Special Greek Facility” where Greece can receive it via a fast-track procedure (simpler rules, assistance from EU bureaucracies, no co-finance needed). Greece has promised to provide proposals for the adequate use of these funds up to September 1st, and the funding will begin in November if the proposals are approved by the end of October.

Greece is establishing a Greek investment fund, which all Greek expatriates are invited to invest in, and to which individuals or firms who have not paid decent taxes (at least 20 % of incomes) in the past can contribute (including the church, ship owners, the military).

Out of this “Greek Investment Fund” and of the Special Greeek Facility”, investments of up to 2bn Euro should be started before the end of this year. European governments, firms and agencies are invited to invest in the fund, as are investment funds in China, Norway, Saudi Arabia, and so forth.

Greece is allowing all young Greeks (below the age of 30) to open businesses in up-to-now regulated sectors (transport, taxi, services), at least during the six-month tourism season. If young Greeks engage in housing renovation, insulation or the installation of solar panels, they will receive a surcharge of 10% on their unemployment payments.

The deal

If Greece is unable to increase tax revenue through stricter taxation (of previously untaxed money, non-reported accounts, or the church, the military and ship owners) and unable to deliver proposals for the European Funds or to allow young people to start businesses and begin investing in this year, it will reduce pensions and cut public employment, as currently requested by the EU.

If Europe is unable to report untaxed Greek money and make unused money available from European funds via a fast-track procedure, it will extend the program without further conditions.

It should be possible to receive approval for this program from Greek parliament, as well as from the European Commission, and European voters.