On July 27, Greece had its credit rating cut to CC "junk" status by credit rating company Standard & Poor’s, with the added caution of a "negative outlook" for the troubled country. S&P has concluded that despite the €109 billion ($157 billion) aid package agreed to by European finance ministers the week before—Greece’s second such bailout—the country is already in "selective default," with a full default on its debt still possible.
If a complete Greek debt default were to happen, it would have disastrous consequences in Europe. We urgently need measures that will help restore confidence in Greece and stimulate growth in its ailing economy. Getting Greece back on track will be important encouragement for other debt-ridden countries in Europe that are on their own paths to recovery. Ultimately, decisive action in Greece will ensure long-term economic competitiveness for the entire European Union.
No one disputes that Greece badly needs reform. The country’s debt is expected to rise to about 160 percent of GDP soon. It has high unemployment and an inert economy. The austerity measures imposed by the EU and IMF are sure to stifle any near-term growth. Given Greece’s dire economic position, aid-based solutions will be a necessary part of any recovery, but they are not the only measures. What Greece needs most for the long term is investment in the cornerstones of a strong economy: innovation and good governance.
RESEARCH AND EDUCATION
Innovation is the key to growth for businesses and, on a larger scale, national economies. The ability to generate new ideas and transform them into successful businesses is what separates strong economies from the weak. Greece needs to invest in the drivers of innovation: education, research, and a culture that enables growth.
Given the budget cuts necessitated by Greece’s new austerity, education and research will likely see further belt tightening unless they are given explicit priority and aid is earmarked specifically for them. Universities and academic research centers should get more investment immediately for scholarships and infrastructure; such a move would signal Greece’s commitment to being competitive in the long run. The country has already embarked on investments in energy, waste management, and tourism. Subsidies for companies that invest in areas such as biotechnology, green technology, software, and mobile technology (to name a few) would also help.
One of the best examples of the role of innovation as a driver for economic competitiveness and jobs is the U.S. National Defense Education Act in 1958, signed into law by President Dwight Eisenhower. It channeled $1 billion into science and technology education and innovation over the following four years. Doctoral programs expanded at U.S. universities, and many more scientists and engineers were minted. The immense growth and leadership of the U.S. technological sector in the following decades can be traced to that impetus.
WHERE DOES THE AID MONEY GO?
As well as innovation, Greece needs transparency and impartial rule of law if the recent bailout is to succeed. People need to know where aid money is going if confidence in the country is to be restored. Already there is suspicion among other European countries that some Greek leaders may be pretending to fix their country with EU money but actually want to keep alive the old system of political patronage. Many Greek public entities, such as the country’s railways and telecommunications, are supposed to be privatized in the near future. A fully open and transparent process is necessary for privatization to succeed and to convince European tax payers and private banks that their aid is well spent.
Greek leaders should heed the example of transparency set by the U.S. in the American Recovery & Reinvestment Act in 2009. The U.S. Congress allocated $787 billion to reinvigorate the economy. The Act also said it would provide "unprecedented levels of accountability and transparency in government spending." Today, it is indeed possible to track online where that money went and how many jobs were created as a consequence in a particular region.
Information technology can enhance public administration by providing real-time insight into financial transactions and related outcomes, helping to manage internal risks, improving control over funds, enforcing standards and rules, and streamlining automated processes. IT systems offer countries the tools not only to make fiscally responsible policy for future generations, but also to improve the ability of policymakers to provide good public services and make well-informed decisions.
According to the latest annual Global Information Technology Report from the World Economic Forum, Greece ranks No. 64 out of 138 countries in IT. When you look at government use of IT, the score is even worse: Greece is No. 109. Other countries have realized the value of innovation through IT and software investments, and it is now time for Greece to do so as well.
Although technology is not the panacea for all economic woes, it has the ability to streamline processes, detect fraud, and ensure fairness while boosting efficiency, transparency, and accountability—things that Greece and other troubled states worldwide clearly need. Most importantly, IT can offer predictive analysis that gives officials insight into what’s likely to happen over the next couple months.
Finally, some of the EU bailout money should go to encouraging entrepreneurship and ensuring the availability of credit for small and midsize businesses in Greece. Greek banks will definitely tighten lending standards and access to credit in these tough economic times. Credit should be made available to those who need it to spur innovation and growth. This will restore confidence in the system—and there is no economic stimulus like confidence.
In Greek mythology, King Sisyphus of Corinth was punished by the gods by having to roll an immense boulder up a hill, only to have the boulder roll back down again. Sisyphus was condemned to repeat the frustrating process for eternity. After multiple bailouts and financial interventions, reforming the Greek economy may start to seem a Sisyphean task. A reformed Greece won’t happen overnight. But a focus on innovation, growth, and transparency while reforming the economy and imposing austerity will ensure that Greece reemerges as a competitive economy within the decade.