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An economist by training and a risk manager by trade, I thrive on critical thinking. I embrace challenging problems, analyze them and look to solve them. As a senior executive, I welcome all who wish to engage in a fruitful dialogue taking visionary approaches as well as those who seek to employ my services. Contact info may be found under the Contact Me tab. My extensive resume is published on LinkedIn. 

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Monday, January 26, 2015

Why Syriza’s Victory Is a Good Thing

Anybody who has been watching the never-ending Eurozone crisis for the last six years and also refused to drink German austerity Kool-Aid, understood that the failure of that policy would inadvertently lead to a rise of more radical parties on the left and on the right not only in the so-called periphery, but also in the "center". It was equally clear that eventually, such a movement would win an election as the imposed social pain in the deficit countries became unbearable.

Europe is lucky that this event has now occurred and that it occurred in Greece. The Syriza victory of yesterday puts in power a party that has far fewer radical undertones than, for example, the awful right-wing National Front in France. 

There simply is no country that can live in an economic permafrost, where unemployment is near 26%, youth unemployment near 60% and where GDP is 25% lower than before the crisis. The troika's (composed of the European Commission, the ECB and the IMF) imposed solution to the crisis has been disastrous. Greek pensions - which for the most part were not too generous to begin with - have been cut in half. Wages have been depressed and healthcare destroyed.

These so-called austerity measures are inhumane. Suicide rates are up in Greece and other peripheral countries and the countries' brightest are leaving to find hope elsewhere. This brain drain only makes matters worse. What's more, austerity has completely failed to reach its alleged goal, i.e. lowering Greece's debt/GDP ratio. In fact, that ratio has risen to 175% because GDP has fallen so dramatically.

Of course, there are serious structural problems in the Greek economy. One is easily identified: Lack of adequate tax revenue. There are two reasons for that. Because Greece's economy has not been functioning optimally for many decades, the country has a large informal sector. That sector is not integrated into the economy and hence does not pay taxes. The other aspect is the absurd tax evasion of the country's oligarchy. This scissor effect leaves those, who are lucky enough to have a job, carrying all the burden of taxation.

Of course, privatization of state enterprises must continue. Syriza has suggested that it will review this structural reform. There is nothing wrong with that. As privatization in Russia has shown, it is often the oligarchs who unfairly benefit from it. Changing the way in which privatization in Greece is executed is in fact a good idea.

Of course, the labor market in Greece has to be more flexible. But this is not to say that wage depression is what the country should be longing for. In fact, it is counter-productive, because it depresses domestic demand which, in turn, depresses growth further leading the country into an economic death spiral. Even in Germany, wage depression has shown deeply negative effects. It has become such a worrisome issue that even conservative newspapers in Germany, such as Die Welt, highlight the frightening increase in the country's poverty rates and the working poor.

So, the Syriza victory gives hope not only to Greece, but to the entire Eurozone. The era of austerity must end. Structural reform must be redefined. Besides some of the egregious abuses that have been identified in Greece and other countries and that must be corrected, structural reform must not be the desirable equivalent of "impoverishment", but instead it must become identified with "empowerment".

Syriza has a chance to be the leader of this redefinition. The country has to develop a plan to integrate the informal sector into the economy to have proper access to tax collection, while it must end the abusive practices of the oligarchs to avoid paying their fair share. Such steps will improve the fiscal position of the country without tax increases or spending cuts. However, spending should be cut where it does not add anything to Greece's productivity and growth.

At the same time, structural reform must result in immediate and massive infrastructure investments. This can be accomplished through public-private partnerships (PPPs). There are two instant effects of such investments. They create a lot of well-paying jobs enhancing economic growth. But the multiplier effects of these investments is even greater. Those with new jobs will consume more and that consumption will create jobs in other sectors of the Greek economy.

The second pillar of revisited structural reform is to create a modern Greek economy. That means among other things massive investments in education. Greece has done poorly in the recent OECD PISA test scores on education (as has Germany to be sure). Investments in education have a fairly long gestation period and it should not be expected that Greece will be able to create a workforce made up of highly-skilled workers overnight. But the reforms are urgently required, because any delay will also delay the day Greece can better compete.

None of this is going to be easy. First and foremost, Germany must throw away its monocle through which it looks at the world as if it were the 1920s. Instead Chancellor Merkel and her Minister of Finance, Wolfgang Schaeuble, should become early adopters of Microsoft's HoloLens which will give them a different and virtual perspective of the world they are actually living in, because that world has radically changed.

Syriza can become a change agent in the European Union and by modernizing itself, it can help the rest of the Eurozone to emerge from the shadows of the 1920s and fast forward several generations to face the realities of Now.
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