Debt Crisis

Greek politicians agreed to suspend marathon negotiations over budget cuts and reconvene on Monday to discuss proposals for how to meet demands made by the European Union, the International Monetary (IMF) and European Central Bank (ECB).

The troika of potential creditors has held out the prospect that Athens could have a part of its debt forgiven and receive 130 billion euros ($171 billion) in additional aid. These would be potentially crucial steps in Greece's attempts to stave off bankruptcy.

But in return, the troika wants to see Greek salaries reduced by as much as a quarter, the minimum wage lowered, and 150,000 public-sector jobs cut.

Economist Michael Haliassos of the University of Frankfurt in Germany agrees that dramatic reductions in state expenditures are necessary. But he says that cuts alone won't be enough, especially as ordinary Greeks will have less consumer spending power.

"Everyone's focused very tightly on lowering wages and increasing tax revenues," Haliassos told DW. "But they've neglected to create the conditions for economic growth.

Non-existent exports

Heliassos says the fundamental problem with the Greek economy is that it produces too few products that can be sold outside the country.

Greecelives primarily from shipping and tourism and failed to make desperately needed investments in the past few years.

For that reason, Haliassos says, wage cuts and tax hikes are the wrong way to try to kick-start the economy.

"You have to make it easier for investors to set up new, export-oriented firms in Greece," the economist told DW.

Lack of inspiration

Compounding the misery in Athens is the fact that the native investment climate is very poor.

"The problem is not just an inability to attract investors to the country," Haliassos explained. "A lot of Greek money is being taken out of the country."

Thus far, Greek politicians haven't effectively addressed this fundamental flaw.

"Most politicians don't want to inflict any pain on their constituents, which might cost them votes in the next election," Haliassos said.

It's part of a vicious circle. Almost one in five Greeks is without a job, and the country has been in recession since 2009. Wage cuts and tax hikes will likely only exacerbate growth and employment problems respectively.

Government waste

Still, there's no denying that the Greek government's spendthrift ways are part of the dilemma.

According to some estimates, up to 1.1 million Greeks work for the state, even though the total population of the country is only around 11 million. And some critics say that as many as a quarter of Greek employees are paid directly or indirectly by the government.

On March 20, Athens must repay 14.4 billion euros ($19 billion) to private lenders. If it cannot, political leaders risk state bankruptcy. Negotiations are underway to convince creditors to write off some of that debt, and the signs are positive that they will do just that.

But people in other countries in the EU are increasingly fed up with what's perceived as Greece living beyond its means - hence the emphasis on lower expenditures and higher taxes.

"In principle, cutting debt is correct and needs to be done now, Haliassos said."But it won't be enough."

Author: Arne Lichtenberg / jc
Editor: Spencer Kimball