Emerging Greece from the Crisis. The Free Market Solution

Panagiotis Evangelopoulos

The ultimate purpose of this article is to show that the Greek statesman, Antonis Samaras, the leader of the center-right, the major opposition in Greece, firmly supports and consistently develops a free market economic strategy for emerging Greece from the crisis. The members of our European Union have to listen him and our allies and institutional partners in the west have to let our country to follow his paradigm.

In a macro-economic environment where the global public debt crisis is Keynesian, the only tried and tested way to emerge from it is to follow the approach dictated by policies of promoting the free market.  In other words limiting the size of the state and the extent of its intervention to bring it into complete conformity with the requirements of supply-side economics.

Faced with the impasse of social democratic politics both internationally and in Greece, the greatest and most welcome surprise in Greece’s grey and gloomy political landscape was the announcement by the President of the New Democracy party, Antonis Samaras, of his comprehensive economic proposal entitled euphemistically Zappeio II[i], which brings to the fore the most dynamic mix of a well organized free market economic policy upheld by the twin pillars of privatizations and  low taxation.  Zappeio II is in itself an economically free market ideological manifesto which, in conjunction with the timeless conservative traditions, principles and values of the people of Greece: integrity, hard work and ingenuity, has the potential to make the greatest contribution to effective handling of the crisis and the construction of a new state, a private-oriented economy and a dynamic community that will turn away from lowest-common-denominator leveling  and acknowledge the distinction, the leadership, of the intelligent and able, who provide the only competent and effective guide for promotion of both the public and the national interest.

The Political Economy of Zappeio  is the all-out counter-offensive of the Centre-right against the sterile, ill-fated and – in a word – unsuccessful politics of the Memorandum[ii]. The Political Economy of  Zappeio is the most apt riposte to social democracy in its death throes which, following the demise of its lamentable cousin socialism, seeks through introduction of its disastrous economic architecture to sound the death knell of the Greek economy.

Essentially, in today’s painful Greek economic reality, what are in conflict are two diametrically opposed economic strategies. On the one hand social-democratic  procrastination and reluctance to  make drastically urgent breaks and on the other the free market economic dynamic which wants to, and is obliged to, impose them immediately. Worst of all is the fact that the social democrats (PASOK) are not only in the former camp but also the sophisticated leadership of it, is surrounded by hard-line palaeolithic socialists, who are in no way willing to see any reform or any structural change proceed. Thus the only economic policy tool remaining in the hands of the sophisticated leading social democrats is imposition of taxes on everything under the sun and the siphoning off of incomes. In brief the strangling of the totality of our economy.

The truth is that social democrats have traditionally relied on state intervention in the economy. Their policy and their economy philosophy has always been to accord the collectivity priority over the individual. Collective structures and centralized institutions have had preference over  individual initiative, free entrepreneurial action and individual rights.  In this way, whether via the socialist populism of Andreas Papandreou or via the more house-trained social democracy of George Papandreou, each – father and son – in his own way, PASOK led Greece into an indisputable and  unprecedented impasse.

George Papandreou, who prior to his election advocated Keynesian reheating of the economy, increases in salary, income redistribution, with assurances that “the money is there”, is today in a weakened position and is canvassing for fellow-travelers and proposing unholy alliances in support of ineffective policies. Unthinkable expectations.  As I analyzed in Epikentra[iii], as early as Autumn 1998, politics of this character spells the End for Social Democracy. Today’s politics of the Memorandum, Part I (2010) or Part II (2011), are simply the finale to the Last Great Regression to Keynesian and Social Democratic ideas.

In contrast, therefore, to what is being implemented through the dead-end social-democratic economic strategy, based on over-taxation and the gouging of incomes, that has been in force over the nearly two-year period since they assumed office,   what Greece needs immediately if it is to recover from the grave economic crisis into  which we have been plunged is implementation of a full-blooded free market economic programme based on immediate and drastic reduction of non-salary expenditures in the hard core of the public sector, on abolition of ineffective public sector instrumentalities, on an extensive programme of privatizations in the broader public sector, on genuine liberalization of professions, on flexibilization and freeing of the labor market from government regulations and stifling bureaucratic controls, on disengagement of business operations from trade unionist and syndicalistic malpractices and of course on reductions in taxation. Only coherent, consistent and well organized application of these free market policies can lead us to economic upturn with corresponding increase in tax receipts, and indeed from all sources.

The New Democracy economic proposal that was recently put forward at the Zappeio moves precisely, and most satisfactorily, in this direction.  Zappeio Political Economy exemplifies Supply Side Economics, the famed Reaganomics: this is the first time that the Flat Tax has been adopted so clearly, unambiguously and firmly by the leader of a Centre Right party. In the New Democracy program privatizations and entrepreneurial drive have become the key developmental lever for the Greek economy generally.  This is not a package of populist proposals but an example of rational and sober free market economic policy!  No New Democracy leader in the past has ever put forward proposals so clearly free market, and indeed from the august Zappeio Megaron. I make the comparison not only with the Karamanlis period where the key element was the inert and stagnant theory of the modest center, but also with the Mitsotakis period where outside a very narrow circle the Flat Tax appeared something incomprehensible to the well-meaning and something unacceptable to the malicious and ignorant.  I reassert that the Flat Tax is a symbolic demonstration of how with Zappeio II Antonis Samaras has crossed the Rubicon. He has brought free market economic policy back to its birthplace in New Democracy.

The Flat Tax was supported passionately and explicitly by Antonis Samaras, above and beyond the symbolic dimension of its uncompromisingly free market content, as an extremely effective economic measure, as succinctly illustrated by the Laffer curve[iv]. The reason that the Flat Tax is so effective is that it possesses the quality of increasing production and productivity alike, of both labor and capital!  It is the tax which, single-handed, represents the total taxation revolution Greece so badly needs! With reforms and schisms of this kind we can change our country, overcome the crisis and again place Greece on an upward trajectory of progress.

George Papandreou is entirely right when he says that instead of restructuring our debt we should first restructure our country! But to restructure the country we must first restructure the memorandum, and the only person to say this so powerfully and persuasively is Antonis Samaras, and he has said it from outset!  This is the best way to overcome the crisis, not only in Greece but also internationally.  With an economic policy of this kind that is comprehensive, sober and well-organized, so as to provide a framework for development of free markets, entrepreneurial dynamism and private initiative, within a context of low taxation and minimal state coercion.

The fact is that today’s economic travails in Greece are the end product of perennial structural problems caused by the extensive  statism, bureaucracy and socialistic management of the economy from 1974 onwards, both by centre-right and by centre-left governments. It is this situation that produced the present-day Gordian Knot of the Greek economy, which holds hostage the most productive and creative forces in Greece. The present-day Gordian Knot of the Greek economy cannot be undone through traditional Keynesian policies but must be cut through with the decisiveness and the power that was shown by an Alexander the Great. That is to say with the power of free markets and the rigor and precision of the economic rationality that is generated by them. Virtue and Daring are what the economy needs, and Freedom and Democracy.

[i] Zappeio is the Athenian Classical Mansion where it usually takes place conferences of the Greek political leaders on major political issues.

[ii] Memorandum is the economic agreement between Greece and Troika. Troika is the three major institutional lenders, European Union, European Central bank, and International Monetary Fund, of the Greek economy. Memorandum is based on economic Draconian austerity that includes heavy taxation, public expending cuts, and free market oriented structural reforms. On the other hand Memorandum offers generous financial support at reasonable interest rate, remarkable lower than that of the market. Nevertheless the emphasis of the application of Memorandum on the heavy taxation and much less on the cuts of public expending with the non activation of the program of privatization and liberalization of the Greek economy, rendered Memorandum totally inappropriate and failed economic policy.

[iii] Evangelopoulos Panagiotis, (1998), “Partition and the End of Contemporary Socialdemocracy”, Epikentra, Autumn, No 6 [In Greek][iv] Arthur B. Laffer “The Laffer Curve: Past, Present, and Future” από το Executive Summary Backgrounder του Heritage Foundation, No 1765, June 2004.

Contact Information

Dr Panagiotis Evangelopoulos
Lecturer
Department of Economics
University of Peloponnese
Greece

Mail-Post Address:
Karaiskaki Terminus
22100 Tripolis
Greece

Tel. +302710230070
Mob. +306977772323

econ.uop.gr/~econ/index.php
Personal e-mail: panos@evangelopoulos.gr
University e-mail: panevans@uop.gr