Jan Pieter Krahnen, Professor of Finance at Goethe University Frankfurt and Director of the Research Center SAFE and the Center for Financial Studies, calls for the EU countries to fundamentally reorganize the negotiation strategy with Greece: “It is contrary to the democratic conception that an elected party has to follow a reform agenda set by an outside party,” he writes in a policy paper about the Greek crisis. The enforcement of specific measures from outside has been hopeless from the beginning. Reforms that are considered as hostile conditions would never be supported by the Greek population which would be necessary for each reform to be successful. Even if the Greek government would agree to some of the demands, it is not clear whether it will actually implement the measures to the extent agreed upon. “An effective reform agenda can only be designed by the elected government. Foreign experts might be able to support the government in designing the agenda – but only if they are explicitly asked and invited.”
In his policy paper, Krahnen formulates three theses: “’Hands off!’ The Greeks have to design their reform agenda on their own.” – “’Solidarity!’ During the restructuring phase a basic level of economic security is required.” and: “’Forward!’ The euro area is also in need of an effective reform agenda”
“Greece needs a basic level of economic security“
Krahnen demands that the euro area countries have to guarantee that there will be no abrupt standstill of the Greek economy during the restructuring phase but a “slow decline”. A number of factors would be necessary for this:
- a considerable restructuring of the Greek national debts
- an explicit deposit guarantee for Greek savers up to € 100,000 with assistance from the European Stability Mechanism (ESM)
- targeted humanitarian EU aid programs, especially to support the health system
- appropriate programs to support job opportunities for Greeks who are willing to temporarily work abroad and who could support their home country with transfer payments.
All factors put together could act as a kind of basic security for Greek reform politics that will take effect with delay.
“The euro area is also in need of an effective reform agenda”
Krahnen also demands that the necessary political consequences have to be drawn from the Greek crisis. The inner dynamics of debt, the excesses of which we are currently observing in Greece, can only be resolved with a political union and, embedded in it, a fiscal union if there is no goodwill. It is essential not only to implement individual measures but to put together a comprehensive package, which combines elements of a partial international joint liability scheme with elements of a partial national abandonment of sovereignty.
Krahnen asks policy makers and the professional public involved to take the initiative and, with the help of a community of supranational and non-party researchers and intellectuals, to develop a trustworthy and realistic concept that drafts the next big step towards a political union of Europe. It is clear that this will be no “walk in the park”. But here, the members of the euro area could prove that they are actually in the position to draw the necessary and courageous conclusions from the current difficult situation of the monetary union.
Download: "Three Theses on the Greek Crisis"