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Yanis Varoufakis and the New Deal for Greece

Recently speaking at the Brookings Institute in Washington, new Greek finance minister Yanis Varoufakis expressed his mission to map out a forward-looking economic recovery plan for the country.
Varoufakis noted that while 3 months of negotiations between the Greek government and its European and international partners had brought a lot of convergence on the steps required for overcoming years of economic crisis and bring about sustained recovery in Greece, no deal had yet been reached.

He stated that the two sides were in agreement that the tax system of Greece needed revamping, and revenue authorities be freed from corporate and political influence. They also agreed on the ailing pension system and the broken credit circuits of the economy; and that the labor market had been devastated and deeply segmented by the crisis, thereby stalling growth of productivity. Public administration was in dire need of modernization, while public resources had to be utilised more efficiently. Overwhelming obstacles were blocking new company formation while product market competition was too circumscribed. Moreover, inequality had attained such outrageous levels as to prevent Greek society from uniting behind important reforms.

But even while there was consensus on these issues, there were hurdles to agreeing on a new development model for the country. The first hurdle involved how to approach the fiscal consolidation of Greece. The second hurdle involved the requirement of a comprehensive, reform agenda to underpin this consolidation path, while inspiring the confidence of the Greek public at large. The aim of the government, he said, was to map out a forward-looking plan based on reasonable assumptions that can stabilize the Greek economy, as well as the country’s debt ratio.

While the partners of Greece remain adamant that the previous reform program not be rolled back, the government of Greece believes that the program has already failed, thereby leaving the Greek population weary of reform. Varoufakis expressed his fear that the measures put forward by their partners would only end up causing further damage to the already-stressed social fabric of Greece, and thereby render it incapable of providing the support the nation’s reform agenda so desperately needs.

Yet, the finance minister maintained that the current disagreements with their partners could be bridged. He added that the Greek government was eager to rationalize the pension system, establish a fully independent tax commission, boost entrepreneurship, go ahead with the partial privatization of public assets and address non-performing loans that are clogging the credit circuits of the economy. The only differences that remained were those concerning the understanding of the relationship between these reforms and the macro environment.

Varoufakis expressed his belief that this did not mean that a common ground cannot be immediately achieved. What the Greek government desires is a sensible path towards fiscal consolidation, and reforms that all parties agree are important. Therefore, their task was to convince Greece’s partners of the strategic nature of their undertakings and that their logic is sound. The task of Greece’s partners was to let go of an approach that had already failed.