Greece must go back to basics

Regardless of the outcome of the vote, the EU needs to find a solution for Greece’s debt

Greek voters decide in Sunday's referendum on an economic reform package put forth by Greece's creditors. Milos Bicanski / Getty Images

The numbers are staggering. At least €60 billion (Dh245bn) needed to cover basic finances between June 2015 to the end of 2018. A debt ratio of 177 per cent of GDP, even before the effects of currency controls are factored in. Annual debt of $5bn owed to the European Financial Stability Facility until the year 2050. The situation is unsustainable unless a large portion of Greece’s debt is wiped out, as the International Monetary Fund acknowledged last week.

Greece’s growing list of debt woes is compounded by doomsday predictions as the country’s finances fall further down the rabbit’s hole of missed payments and lacklustre GDP growth. Debt forgiveness, or at least significant debt restructuring, appears to be one of the only paths out of this crisis.

Unlike previous economic crises in South Korea and Indonesia in the late 1990s, Greece’s economy is not sufficiently export-orientated. The country’s export industry is limited and thus can’t sell its way out of this dire situation by collecting foreign exchange. While Greece continues to have a strong tourism industry, that could change if the economic crisis transformed into an unstable political environment.

The Greek tourism industry actually doesn’t affect large areas of the economy as tourists tend to focus on specific islands and small neighbourhoods within Athens. There must be a middle path that satisfies all players in this drama: debt restructure.

Just as banks negotiate with individual customers in similar debt traps, creditors could lengthen the repayment time for some of Greece’s key debts. While such a move might sound simple, the only way out of this crisis is to go back to basics. Haggling over limited short term incentives to help Greece and its creditors is not going to solve this problem.

The current Greek government came to power on a specific mandate to push back austerity measures. These Greek leaders, however, are going to have to be more flexible if the country is to have any hope of emerging from the debt trap. At this point in the tragedy, Europe and Greece have to go back to basics and suspend egos.