A reply to the SOS

Eleven prominent Greek academic economists wrote an SOS in I Kathimerini June 3. Non-Greek economists can agree with a lot of what they say. If Greece leaves the euro then this will be rather disastrous for the Greek people. Out of the eurozone, international credit will be difficult, and Greece would have to accept much more austerity than what is now formulated in the agreements with the EU, ECB and IMF. If the Troika would block further support then Greece would have little option but leave the euro. Thus it is better to accept the agreements and concentrate on the true solution which are the internal institutions in Greece. The head of the Greek tax authority SDOE Nikos Lekkas confirmed that tax evasion amounts to 40-45 billion euros a year: “If we could raise even just half of that, Greece’s problems would be solved.” A similar problem exists in Italy and it would help if Greece criticises Italy but also resolves its own problems here. The new French President Hollande is pushing for an investment and growth agenda. This has always been part of Kanzler Merkel’s plan too but first she needed to establish austerity, otherwise all the new funds would evaporate again. The future is bright and the SOS thus is a voice of reason.

The problem with the SOS is that the population has a hard time swallowing this. The political parties who support the agreement are also historically linked to the inefficiencies and tax evasions. The SDOE informs us that banks do not provide information about their clients so that tax collection becomes impossible. But these banks only survive because of European aid. Have these banks and their Greek governers not learned what this crisis is about ? These banks are protected by laws created by the old political parties. The only way for the population to do something about tax evasion by the elite is to reject the old political parties and to switch to the new ones. But, the now popular SYRIZA rejects the agreements and can thus cause Greece to leave the euro. If a new government would indeed reject the agreements then there will be an uproar in Europe. First Greece borrows too much, then it is aided, and then it demands more aid ? Does the Greek orthodox church condone theft ? Thus, Greece is locked in unreason and the future is not so bright.

A subsequent problem is that Kanzler Merkel may be in an overdrive now towards European integration. In standard economic theory a currency union can only exist if it is supported by a fiscal union. Germany and France are committed to Europe and are moving to the unavoidable conclusion that much more integration is necessary for the eurozone to work. One good idea is an European Banking Authority so that also such problems with tax evasion are solved. Deposit insurance for retail banks is a relic of the past. With modern technology each household can have an account at the Central Bank where their money is safe, and retail banks can be regarded as franchises of that Central Bank. Current laws allow banks to record deposits on their balance sheets but this is medieval accounting based upon gold and bundles of paper, it contributes to boom and bust cycles, and in this electronic age we can stop banks recording deposits as their own money. Some aspects in this movement towards more European integration thus are interesting. But Germany and France may also go too fast. Herman van Rompuy circulates suggestions of an elected EU President and a reorganisation of the EU Parliamentary structure, and the formation of an EU Ministry of Finance. Perhaps Southern Europe is desperate enough to accept this, perhaps the peoples of Germany and France are so committed to Europe. Perhaps This Is The Moment, where the EU makes the final step. But we can also expect the UK to jump out, and eventually all peoples in Europe will feel resentment against Brussels, since a crisis about a euro that becomes hated cannot be a foundation for European co-operation.

There is also a non-standard economic analysis, a new perspective on the conditions for a currency union. Let each democratic nation create their own Economic Supreme Court, based in economic science, and with the power to veto a national budget if it contains wrong information for the general public. The rules of Maastricht must be extended with a tax on surplus countries, so that the predatory pricing of exports by Germany and Holland can be countered with investments in the deficit countries. To consider these new ideas is the real challenge to politicians and their economic advisors.

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