The re-election of prime minister Alexis Tsipras does not mean the country’s troubles are at an end, warns Joseph Mariathasan

The situation in Greece has been overshadowed by the refugee crisis with which Europe is still struggling to get to grips. But the re-election of prime minister Alexis Tsipras does not mean the country’s troubles are at an end. Greece faces short-term problems that have been well publicised but also longer-term existential problems that the new government needs to address.

Before the Great Famine in Ireland during the 1840s, its population was more than 6.5m. By the 1920s, it had reduced to 3m. In addition to the loss of 1m or so due to the famine, the rest was lost to emigration.

Greece’s population of 11m or so may not be facing as dramatic a crisis as the Irish Famine, but it faces a similar challenge in a declining population. Perhaps more tragically, the future of any country lies in its youth, and the danger for Greece, with a youth unemployment rate hovering around 50%, is that its most valuable exports may be its educated young people.

For small countries within the EU, losing their most productive young workers to emigration is not a pleasant prospect. Moreover, it is the best and the brightest of the working population who are likely to emigrate first, leaving the country to age rapidly, with a declining population to boot. Greece’s financial troubles are also likely to have persuaded many of the young adults to delay having children and others to decide on smaller families. The consequences for the economy longer term will be yet another drag on potential GDP growth.

The new government has indicated that it intends to prioritise the small and medium-sized enterprises and that will be of critical importance. In a recent article, John Calamos, chief executive at Calamos Investments, pointed out that the vast majority of all businesses in Greece were small enterprises, and that more than 35% of civilian employees were self employed, far higher than the euro area as a whole.

Not only is the economy heavily dependent on SMEs, they are also likely to be the best way forward to retain the best and the brightest within the Greek economy. It is also certainly in the EU’s interest to encourage the development of the private sector in Greece.

But how should that be done is the question. The private sector in Greece is faced with a small number of major Greek banks with balance sheets destroyed by non-performing loans, which would need to be written off and the banks recapitalised before any new lending can hope to occur. At least on the political front, the extreme anti-capitalists and hard left Marxists within the pre-election Syriza coalition left to form their own party, Popular Unity, which proved so unpopular it failed to win enough votes to enter Parliament.

Stimulating the private sector will be key to regenerating Greece’s economy in the short term but also arguably to creating the right environment for the country to develop into a flourishing member of Western Europe in the longer term. But starting any business is still difficult, taking years to get licenses and approvals.

Yet Greece does have the potential to recover. It could look, perhaps, towards its diaspora, particularly in the US and Australia, where Melbourne is reputedly the third largest Greek city after Athens and Thessalonica, for investment. What it needs, perhaps, is a visionary strategy that gives confidence to the diaspora that it makes sense to invest.

Whilst Greece may not be able to emulate Silicon Valley, or even London’s Old Street tech hub, ideas such as combining technical research institutes with high-tech parks may provide a stimulus for investment. Can the diaspora work with the EU to encourage the development of such entities? As a Greek friend tells me, out of nostalgia, perhaps, they all dream to somehow go back and re-establish the roots with the old country: “The wealthier ones want to launch large-scale investments that eventually can leave a legacy behind. Other people want to do lesser things but of equally high emotional significance. My cousin in California, after 50 years in the US, has been spending tons of money for the past five years to fix a ruined house in the village, which he probably will visit 4-5 times in the next 30 years.”

But my Greek friend also warns that, whatever the diaspora does, they must limit their interaction with the government to a minimum and maximise their interaction to the EU and its institutions. His view is that it is very fortunate that Greece is both a member of the EU and the euro-zone because legislation in all member states has to follow directives that progressively streamline them with the European norm and relieve private initiatives from the tight grip of the central governments.

In other words, he says, as long as you have a good accountant to keep clean books, pay your taxes and the NI contributions for your employees, you are as good to do business in Greece as a business man does in Germany. But, he adds, if you seek synergies with the state, such as co-financing of ventures, then you should be very patient and, as they say, “iron-headed”.

Joseph Mariathasan is a contributing editor at IPE