Greece faces an uphill task for its economic recovery: A Yale University professor notes that every proposed austerity or cost-cutting measure in Greece has led to public protests.John Kolesidis / Reuters
The Greek debt restructuring has sent markets soaring and lifted a giant weight off the country's back.
But as the cheers fade, a big question remains: how will Greece expand its troubled economy?
Banks and other private creditors of the Aegean nation agreed to take huge losses, or "haircuts," on their holdings of Greek debt as part of a plan to save the country from a debt spiral.
Greece's national debt has been growing so rapidly that it has been projected to reach 190 per cent of gross domestic product (GDP) within a couple of years.
The plan advanced by European leaders early Thursday morning would see that fall to 120 per cent by 2020.
But getting to that point will require turning around an economy that is in a deep recession – likely an even tougher task than not cutting its debilitating debt load.
For Greek politicians, it is a thorny issue. The country's economy and labour force are full of inefficiencies. Tax evasion is rampant. And it has developed a culture in which government employees are accustomed to job security – the public sector represents about 40 per cent of the economy – and each new proposal for cutting public spending sends Greeks into the streets to protest or riot.
Yet from outside the country's borders, Greece experts say the entire economy needs an overhaul.
"Piecemeal changes in Greece will never work," said Thanasis Stengos, an economics professor at the University of Guelph and a member of a group of economists who dub themselves Greek Economists for Reform. "It has to be a big shock."
For the new bailout to work, there must be a "real restructuring of resources in Greece so that [the economy]can start growing again," Mr. Stengos said. He advocates a slew of changes, including expanding the tax base and encouraging productivity.
Mr. Stengos isn't alone. Costas Meghir, an economics professor at Yale University, said the entire Greek economy is in disarray, partly because of arcane rules and bureaucracy.
It's practically illegal for Greeks to work overtime; companies can't fire more than 2 per cent of their work force during economic downturns; and some industries are wildly overregulated. Pharmacies, for instance, operate with government-mandated 15-per-cent profit margins.
The judicial system is even more troublesome. Court cases can take years, and that discourages people from starting businesses.
"It's unacceptable that if you swindle me, I can't take you to court because it will take me two to three years to get anywhere," Mr. Meghir said.
"You cannot have a modern economy without enforceability of contracts."
Yet many Greeks don't understand just how inefficient their country is. And many do not buy the need for more government cuts to tame a deficit estimated to be about 8.5 per cent of economic output this year.
"If this haircut helps us return to our debt levels just before the economy imploded, then what was the purpose of the austerity measures that we have all endured this past year?" asked Maria Vrettou, a first-year college student in Athens.
"Why, then, did my mother, a civil servant of over 20 years, lose the benefits she worked for?"
Others have lost hope. "What's the point" of restructuring, asked Vassilis Theodorou, a 57 year-old state-paid teacher. "We've already gone bust. We're doomed."
The economists, on the other hand, don't think all is lost. They believe meaningful reform is possible – it just won't be easy.
As part of that, Greece must cut its red tape. Tourism comprises 16 per cent of the country's economy, but few people want to build new hotels because permits can take years to approve, Mr. Meghir said. Greek workers are relatively skilled and easily trained, but companies have had few incentives to shell out cash for new factories or manufacturing plants because the approval process was so slow.
Greece must also loosen the rules on their labour market. Even in good times, it took educated applicants two years to find a meaningful job, he added.
To the government's credit, some reforms have been passed. But Mr. Meghir said these headlines can be misleading. "It looks as if they've done the difficult bit like passing it through parliament," he said, but that's the easy part. Implementing the new laws "is a perennial problem in Greece."