Politics

What Greece needs is good governance not a referendum

When historians write their accounts of the Greek economic crisis in the early 21st century, they will identify the evening of Friday 26 June as a key moment. Caught between the Scylla of the demands of Greece's creditors for further belt-tightening, and the Charybdis of Greece's austerity-weary voters, prime minister Alexis Tsipras turned the ship of state around and steered right back to shore. Instead of taking a decision, Tsipras announced a snap referendum.

The move caused fury in Brussels and brought swift consequences. Jean-Claude Juncker, the president of the European Commission, used notably undiplomatic language, saying he felt "betrayed" by the Greeks' "egotism". After the breakdown of the talks, the European Central Bank said it would not extend emergency credit to Greek banks. They remain shut until 6 July. Until then customers can only withdraw €60 a day. Capital controls have been introduced, and a Greek exit from the euro looks more likely than ever.

Greek voters will go to the polls on Sunday 5 July to decide if the country should accept the bailout measures, which call for further austerity, or reject them. The government has urged Greeks to vote "No". The European Commission has called for a "Yes" vote. The plebiscite is seen by many as a vote on whether to stay in the eurozone. But whichever way the vote goes, it will not solve Greece's deep-rooted structural problems.

The referendum is not about the broad, strategic package of reforms that Greece needs to stay in the euro, says Mujtaba Rahman, eurozone practice head at the Eurasia Group. Greek politicians think that European politics mimic their own back-room deals in smoke-filled rooms, which is a mistake with potentially dangerous consequences. "The referendum is a negative move, in the sense that it pushes Greece closer to Grexit. These are uncharted waters. Tsipras and Syriza seem to believe that Angela Merkel can pick up the telephone, call Mario Draghi at the European Central Bank and he will keep funding Greek banks. But Europe does not work like that. Europe is a body of law."

Greece needs good governance more than a referendum, says Denis Macshane, a British former Europe minister, and author of Brexit: How Britain will leave Europe. "The referendum will solve nothing. Greece needs a new beginning to modernise its economy, its local and national administration and Greeks should pay their taxes. Alexis Tsipras is no different from previous prime ministers. He rails against Europe but he won't support any reforms that threaten his own political base."

Fixing Greece will be a long-term project. Much of the economy, like Greek politics, is run on a patronage basis. The court system is slow and unwieldy. Many professions are almost closed off to newcomers. Entrepreneurs are tangled in a web of bureaucracy. Corruption is widespread. Greece scored the lowest on the Organisation for Economic Cooperation and Development's Better Life index.

The three crucial areas are pensions reform, liberalising the labour market and further privatisations, say analysts. In April Greek officials proposed a series of reforms, but even these included reinstating the 13th-month pension for low-income pensioners.

Without real and profound change in Greece's dysfunctional state, it is almost irrelevant whether the country reaches a short-term deal with its creditors or not, say analysts. "Greece cannot perform economically well in the long-term without major structural reforms. These need to address the size and quality of public administration and the fight against corruption," says Vivien Pertusot, of the French Institute of International Relations, a Brussels think tank.

Ideally, the impetus for reform needs to come from inside Greece, says Pertusot. "It's one thing to impose these reforms on yourself, quite another to have them imposed from outside, which makes it difficult for a government to own the reforms. It is possible to prioritise improving the quality of public administration, and decreasing its size, but it will take years to see concrete progress."

Long-entrenched vested interests will likely prove an obstacle to change, says Pertusot, and government will still need to function while reforms are enacted. "To revamp an entire system without smashing it is a complicated and delicate task. It requires the right leaders at the right time, willing and able to fight against an established system." For now at least, Greece sorely lacks these.

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