Greece Must Go Back To Fundamentals: Economist

The Greek economy needs to “go back to the fundamentals” to achieve the economic changes needed, according to a leading Greek economist.

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“This is the only chance we have right now,” Michael Haliassos, Chair in Macro-economics and Finance at Goethe University Frankfurt, told CNBC Tuesday.

“It’s impossible to undo what’s happened in the past 30 years in the space of six months or a year,” he said.

Haliassos was one of 20 leading Greek economists who last week signed an open letter calling for deep structural reform of the Greek economy in order to avoid the "frightening economic and social consequences" of bankruptcy. The strongly-worded letter called for liberalization in the labor markets, privatizations and public debt reduction and harsher penalties for corruption and tax evasion.

"Rampant corruption has to be dealt with if Greece is to join modern European nations, attract foreign investment and avoid international economic isolation, regressing to being a poor third world country," the letter read.

“It will take a long time, but the reform will give the right signal to the markets and also to the people that we can get out of this crisis,” Haliassos said.

The streets of Athens were set to fill up with protestors from Greek unions on Tuesday, as part of a planned two-day strike to protest against austerity proposals demanded by the International Monetary Fund (IMF) and European Central Bank (ECB) as the price for more financial aid. The Greek parliament will vote on a raft of new measures this week, which include cutting public spending and raising taxes.

“The worst thing that could happen to Greece right now is getting out of the crisis only with handouts and miss the opportunity to undergo these reforms,” said Haliassos. “This is an opportunity to organise the economy better and make the public sector much slimmer.”

Greece is unlikely to be able to attract investment via low corporation tax, as Ireland - which has also had to be bailed out by the IMF - has, according to Haliassos.

“I’m a little bit pessimistic as to the potential for major tax cuts right now in the middle of this crisis,” he said. “There are much bigger issues for Greece than the corporation tax rate.”