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News : EU Economy Last Updated: July 6, 2015 - 8:15 AM


Greece: Stunning triumph could become  Pyrrhic victory
By Michael Hennigan, Finfacts founder and editor
July 06, 2015 - 8:15 AM
 

Alexis Tsipras. Greek prime minister, Brussels, Feb 12, 2015

Greece: The gamble of Alexis Tsipras, Greek prime minister, in holding a referendum to strengthen the hand of the government in its negotiations with its European partners, has worked for the short-term at least from his perspective but the stunning triumph could well become a Pyrrhic victory.

Yanis Varoufakis, the Greek finance minister, who became known as a blogging professor of economics, until his election to parliament last January, announced on his personal blog on Monday morning that he is resigning.

The outgoing minister called the support of 61.31% of Greeks for “No” in Sunday’s referendum as “historic” and a “superhuman effort” but he added that it is now necessary for Athens to reach a deal with creditors.

"Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my...‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.

I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.

And I shall wear the creditors’ loathing with pride."

Tony Barber of the Financial Times writes today: "But with what Loukas Tsoukalis, a Greek economics professor, calls 'a lethal combination of arrogance and the diplomatic grace of an elephant,' the Syriza leadership alienated everyone else in the 19-nation Eurozone. It is some feat to unite Europe’s squabbling political leaders — just think of the continuing, acrimonious rows over how to handle the refugee crisis in the Mediterranean — but Mr Tsipras and his colleagues managed it, bringing catastrophe to their nation."

Barber added: "Europe’s other leaders should take no comfort from this. Their anti-Greek unity is hollow. In theory, the Greek horror show ought to inspire them with the will to grasp the nettle of building the more cohesive banking, economic, fiscal and political union that is essential to the survival of the monetary union launched in 1999."

Deng Xiaoping (1904-1997), the post-Mao Chinese leader and reformer famously said in 1962: “It doesn’t matter if a cat is black or white, so long as it catches mice.”

Earlier in the year the new Greek government put the privatistion program of the previous government on hold for ideological reasons and this annoyed the communist but pragmatic rulers of China.

In recent years Chinese firms invested over €5bn in Portugal and just over €400m in Greece and Yanis Varoufakis said in relation to privatisations: “It’s not very clever to sell off the family jewels in the middle of deflationary crisis . . . It is wiser to develop state property and increase its value using smart financial resources to strengthen our economy.”

That maybe true but with a choice of gaining billions in revenues and squeezing citizens’ income in the short-term, the former maybe the prudent choice.

Cosco, a Chinese state shipping company which operates a profitable container terminal at the port of Piraeus, is interested in acquiring the remaining 67% stake in the company and Reuters reported in May that Greece will finalise “immediately” a €1.2bn deal with German company Fraport to run regional airports and reopen bidding for a majority stake in Piraeus port.

Last week the IMF in a report said long-term debt relief will be necessary.

The Greek economy depends on tourism for 25% of its GDP, compared with 18% in Portugal and 16% in Thailand, and investment in this sector is very important while the leading merchandise export is refined fuel but Greece does not have its own crude oil.

There are lessons that can be learned from Ireland on the difficulty of a small country without significant natural resources developing an indigenous exporting base. This is why inward investment is important, including keeping talent in the country.

Irish lessons for Greece on growing exports and investment

Greece should be helped but it will take two to tango and a relationship of permanent antagonism would likely prompt the other democracies to call time on it.

Slovakia, is a euro member that is poorer than Greece, and last February Robert Fico, the prime minister, said European authorities should enforce tough measures on Greece to ensure money already lent to Athens is repaid, noting the hardship endured by his own citizens.

“This is a red line for us. It would be impossible to explain to the public that ‘poor’ Slovakia . . . should compensate Greece,” Fico told the Financial Times in an interview. “To explain to people that we have to give money to Greece for their salaries and pensions? Impossible. Impossible.”

Finland, a richer country, is also struggling with a steel glut, sanctions on Russia and the demise of Nokia.

It’s decisions made by the Greeks that will determine its future prosperity but to improve on dismal exporting and inward investment records will take a very long time.

Has the Greek government a credible growth plan?

Venezuela, a potentially rich country, blames the Americans for its failed state, and unless Greece has competent governance prepared for the long-haul, that will be its destiny too.

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