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The economic crisis in Greece is impacting not only Greek citizens, but global markets around the world. How did Greece get into its current economic mess? And what is its way out? IMD Professor Nikos Tsikriktsis of Greece offers his opinion in the following Q and A interview. What are the roots of the Greek problem? Professor Tsikriktsis: Simply put, it's like having a household that spends more than it earns. Greece, like many other countries both within and outside of Europe, has been doing this for years. Of course, this approach can work as long as you can cover the minimum payments of your loans. When Greece was enjoying economic growth and low interest rates, making these minimum payments was not such a big problem. However, in the last year or so, interest rates went through the roof and there was no longer economic growth. These two factors together made it impossible for the country to service its debt. The fact that Greece cannot make these minimum payments indicates yet another problem - a problem of cash flow. While other countries in Europe may have debt, they have been able to make their minimum payments because they do not have this same problem of cash flow. How does Greece move forward? Professor Tsikriktsis: In the short term, it was necessary for Greece to do what it did - to get money from somebody else. Unfortunately, there is not a magic short-term solution. Had the IMF and EU not intervened, Greece would have defaulted on its loans on May 19th. Their support will keep the country going for the next few years. However, this only buys time; it does not solve the problem. Long term, Greece has to do two things. First, it will need to address the issues within its taxation system to increase revenues from its own citizens. In Greece there are people who pay their taxes and others who intentionally fail to report all their income. It is unfair and creates social inequality. If you are an independent professional, it is easy to avoid taxes. For example, many independent professionals report 10,000-12,000 Euros of income a year while a state school teacher reports almost twice as much. Because the threshold at which you begin paying taxes is 12,000 Euros, reporting below this threshold allows you to avoid taxation. Athens competes with Moscow on which city has the largest number of Porsche Cayennes per capita. It demonstrates the inequalities in how people declare their taxes. Could restructuring of the tax system be done soon enough to make a difference in this crisis? I'm not sure. Perhaps a solution could be to seek expertise by involving private companies. It's a huge challenge. Second and even more difficult, Greece has to jumpstart its stagnant economy. This, however, needs structural changes, the opening-up of certain protected professions and also a smaller public sector. How do you assess the leadership of the government and of Prime Minister George Papandreou? Professor Tsikriktsis: Economically speaking, there was some delay putting the austerity measures forward. Socially speaking, this new government needed some time to convince the country that this is the best way to go about rebuilding the economy. I think Papandreou has done a very good job given the circumstances. However, it is not just about what Papandreou has done - it is also about what the EU has done. The new Greek government was not ready to deal with a problem of such proportions. On the other hand, EU was also not ready for this, and it took them a while to come up with a plan. From now on, the EU's response will be much faster because it has put forces into place allowing it to react more quickly. When the same thing happens in other countries, Europe should be able to respond more quickly and give straight signals to the markets. At the end of the day, it is the Euro that is at stake. As a Greek living in Lausanne and as an IMD Professor, how does the crisis in Greece affect your life? Professor Tsikriktsis: I joined IMD a year ago, but for the last three months in almost every program that I teach, I have been asked to discuss the economic issues in Greece rather than my areas of expertise. It has been quite challenging to explain all of this. Overall, I'm hopeful. The vast majority of Greeks have accepted that this is the way out. They have bought into the fact that they must sacrifice some of their income and lifestyle for the sake of their children. Ultimately, it comes down to that. On the other hand, the "Greek tragedy" would be if the country does not use this opportunity and ends up in the same position three to four years from now.
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