The mix of austerity policies imposed by the International Monetary Fund, the European Central Bank and the European Commission and implemented by the Greek governments for the past five years led to unprecedented misery and anger. The unjust and unfair across-the-board spending cuts and the enormous tax hikes to pay off massive debts targeted the symptoms and not the root causes of the crisis. The backlash brought a coalition government of radical left and populist right. A government like this, which is Euro-sceptic and anti-reform, will not solve Greece's problems.
Greece cannot recover without opening up its economy, modernizing its welfare system and eliminating corruption and inefficiency.
Greece is wrecked not just by debt but by the institutional flaws with its economy. Debt relief and other such measures would be beneficial, but Greece can only overcome its crisis by implementing crucial structural reforms.
Greece’s economy is not free and competitive. Powerful cartels are shielded with barriers to entry by newcomers and foreign investors. There are still numerous closed shops and professions. Public sector unions are overprotected in comparison with private sector employees. Policies to improve competitiveness and to carefully deregulate or privatize segments of the economy can invigorate it.
The administrative and the bureaucratic costs for investing, starting a business or transfer real estate are still unreasonably high. Overregulation is stifling economic activity. The tax system is inefficient and grossly complex. The justice system is extremely slow in enforcing contracts or resolving bankruptcies. Corruption is widespread and socially tolerated. Any reform of this antiquated legal system which is inimical to economic growth will be invaluable.
The welfare system is the European Union's most inefficient in eradicating poverty and now it is also insolvent. The result is low-quality services and rising inequality. Any reform that is going to transform this system into a true safety net would be more than welcome.
The broken social security system resembles a ticking bomb in an aging society with less than 50 percent employment and unbalanced retirement funds. A sweeping reform could prevent the looming explosion.
The brain drain in Greece is a national emergency. The new government should raise public investment in research and development to create the infrastructure for innovation and entrepreneurship.
Unfortunately the new government has an agenda of welfare populism, suspicious to any kind of market-reforms and protective of vested interests. This is a recipe for a disaster.