Perhaps Greece should get all the financial help it needs right now. A Greek meltdown is not good news for anyone, either to Europe or to the world at large. The European Central Bank (ECB) and the International Monetary Fund (IMF) should allow a moratorium on Greek debt, if not a write off. Last Sunday’s ‘No’ to austerity measures is indeed a desperate measure for a country that has been suffering from economic contraction for too long. But this will not be sufficient for Greece to move forward. It needs a plan as to how it wants to rebuild its economy.

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It does not mean the end of Greece if it wants to walk out of the euro, nor will it mean the beginning of the end for the euro and the European Union (EU). But what it would require is that Greece will have to reinvent itself economically. The Syriza government could print enough money to keep up the pension payments, which is a significant chunk of its expenditure, for the time being. It could also continue to pay the salaries of the many who are working with the government and in the public sector. But this will remain a short-term measure.

The government will have to get economic activity going, and not all of it can be done through public spending. Critics of the austerity measure go to the other extreme in believing that governments and financial institutions can pull an economy out of recession through increased public expenditure. This remedy works in a situation where the economy has contracted because of the cyclical boom-bust factor. The friends and sympathisers of the present plight of Greece seem to forget that the problem arose because of the spendthrift ways of the government. 

The drivers of the Greek economy are tourism, construction and oil revenues. With the global economy still reeling under recession, tourism is not the boom sector that could keep Greece afloat. Construction could not sustain economic activity either. What seems to have happened is that Greek expenditure, public and private, did not go into productive sectors. Not many national and economic assets were created. It became a consumer economy based on borrowings. It was inevitable that there would be trouble at some point of time and the economy would go bust.

The New Democracy Party of Kostas Karamanlis, which is conservative and moderate, as well that of Panhellenic Socialist Movement (Pasok) of George Papandreou, have been indulging in governmental spending on the basis of fragile tax revenues. Both the major parties have openly engaged in the American system of spoils by employing their respective supporters in the government. A greater flaw was that the Greek government in 2009 had conceded that it was suppressing the real deficit figures, which gave the false impression that the economy was more buoyant that it really was. The new far left party, Syriza and its leader Alexis Tsipras did not create the mess, but they have to work their way out of the mess. Mere populist rhetoric will not help. 

This should be a moment of truth for the Greek leaders. They will have to forge a new deal for their people, where public investments will replace public expenditure. The politicians will also have to consider whether they would consider increasing the age of retirement so that older people could return to work and pressure on pension payments could be eased. The other suggestion that is being mooted is that Greece must rationalise the presence of illegal immigrant workers so that they would be in the tax ambit and it would end the parallel economy. 

The problem in Greece is that people are dependent on the State, and the State is insolvent. There is a need to get the economy going and to get the State out of the economy.   

The author is a consulting editor with dna