By Michael G. Jacobides, Harvard Business review

It is easy to see Greece as a clash between “austerity” and “progressive economics,” with the Germans (and Finns and Dutch, alongside various international public servants and economists) on one side, and Keynesians and progressives on the other as Paul Krugman’s recent CNN interview suggests

This has certainly been the picture painted by Syriza, the left-wing political party of Greek Prime Minister Alexis Tsipras, and by many friends of Greece and progressive economists.

The reality, though, is more complicated. To be sure, excessive austerity is bad macroeconomic policy. But the issue at stake isn’t just austerity.  The issue is that Greek “resistance”—not just Syriza’s, but also that of the previous government—takes the form of protecting rent-seekers. This is where the July 2012 memorandum of understanding between Greece and the Troika (the International Monetary Fund, European Central Bank, and the European Commission) failed miserably; the previous government, much like Syriza, wanted to preserve the status quo.

Greece’s main economic problem is structural and an exit from the Eurozone will not solve it. Besides the short-term costs of such a move, history shows us that Greece has never managed to benefit from currency devaluations. What’s more, the recent McKinsey study on Greek competitiveness shows that the country’s biggest challenge has been a lack of investment.

Exit from the Euro would only increase that capital scarcity, as the foreign exchange uncertainties would need to be factored in. For a country that isn’t export-oriented, and whose major industry, tourism, relies on stability, having its own currency is not much of a solution to economic woes.  The lack of investment, along with red tape, byzantine regulations, and corruption make it fiendishly difficult for new businesses to grow.  This, more than anything else, explains why Greece been unable to benefit from lower wage costs in developing its economy.

The problem is compounded by the fact that many groups have strong motivations for preserving the status quo.  From taxi and lorry drivers to lawyers to pharmacists to milk producers, regulations protect incumbents and forestall the introduction of new business models.  On the social front, some groups enjoy truly outrageous benefits, even as others suffer. Take the case of pensions: the average pensioner under 55 is getting 46% more than the average pensioner over 70.

The previous PASOK and ND governments resolutely failed to address these evolutionary, structural problems, which create “haves” and “have-nots”; sets of incumbents (usually connected to the government) and outsiders. Justice can hardly be served when court proceedings take over seven years on average to reach a conclusion. And it all revolves around a statist model, with politicians creating influence zones.

It isn’t only the branded pundits who are neglecting these issues. Over the last few years, focused fiscal consolidation also failed to fix these  underlying problems. The 2012 memorandum of understanding was supposed to address them, but Greek governments had neither the capacity nor the will to change. Yet if we want to understand and fix the Greek crisis, we must look at its structural causes, not just its symptoms.

Many reports have portrayed the Syriza government as the defenders of social justice and Greek national pride. On the latter, they have indeed done a terrific job—albeit at a heavy economic cost. But on social justice the claim is more than questionable. For all the party’s talk of “social justice” and “solidarity,” only €200 million has been granted to cope with Greece’s human crisis, and it has still not been fully disbursed. Meanwhile, the retirement fund for pensioners of DEO, the state electricity company, continues to receive an annual state subsidy to the tune of €600 million—at a time when most pensions are being slashed. Syriza, which is close to DEI unionists, even instituted a canteen subsidy a few weeks after taking office. Not only is there a lack of will; there’s a critical lack of skill. In the recent government reshuffle, a former comedian with no policy experience was made Minister of State for Pensions. He is a vociferous member of ANEL, Syriza’s far right-populist partner.

As for all Syriza’s pre-election noise about “oligarchs”, nothing has happened beyond a few nice headlines. And it’s interesting to note that although the party had threatened to check the licenses of the rich “entrepreneurs” who own the key media, they shelved the pledge a few weeks into their administration—after which media coverage of the party became broadly supportive (at least until the crisis peaked).  Business as usual?

On tax evasion, despite clear evidence of malfeasance, and nearly 450,000 identified possible tax evasion cases, there have been no new concrete measures whatsoever. Syriza did change the makeup of the panels who evaluate corrupt officials, though: rather than judges, they now feature local union reps. And they did away with the rule that state officials found guilty of corruption could no longer work—now, those convicted can stay at their unit during the five- or six-year appeal process.

The record on economic policy-making is equally disappointing. Although former finance minister Yanis Varoufakis made eloquent appeals about the need to rethink macro, he said very little about changing how the economy is run. In his first four months in office, he put his signature to 403 documents, 245 of which were approvals for travel for himself and his appointees.   In a country slipping from 1.8% growth in late 2014 to a 2.5% contraction today, there was no one in the finance ministry actually making policy.

Greece’s continued failure to fix its economy is an important part of the Greek crisis.  But the Greek government is not the only guilty party and there is some truth to the claims that the debt crisis that Greece is currently enduring is in part the responsibility of its EU partners.

Many in the press fingered excessive and ill-judged lending by Greek banks as a prime cause of the crisis. In fact, Greek banks were some of the soundest institutions in Europe before Greece went into the crisis and Greeks didn’t borrow much. Their total debt (private and corporate) was between a half and a third of that in the UK and the US. It was sovereign debt that was off kilter. And amidst all today’s calls for debt forgiveness, people seem to forget that Greece did enjoy the biggest write-off in global economic history, when the 2012 bailout saw Greek-issued private debt cut by over 50%.

But the 2012 haircut only covered debt held by private creditors (including banks, insurance companies, and pension funds). By 2012, that was less than half the Greek debt—so Greece got a write-off on 50% of its 50%, or just 25% of the total. The IMF, ECB, and EU own the rest. So what about that debt?

Here’s where it gets interesting. Back in 2010, before the haircut, when Greece ran out of money, all of its debt was private and issued under Greek law. At the time, everyone knew that Greece was going to have to be forgiven some of its debt but the then president of the European Bank, Jean-Claude Trichet, would not entertain the idea. Why? Because French and German banks had gorged on Greek debt, and a haircut would mean that they, and the whole EU banking sector, would collapse. So he forced Greece to pretend that its solvency problem was a liquidity problem, and pushed it to substitute official debt for private debt. Effectively, between 2010 and 2012, Greece borrowed from the IMF, ECB, and EU in order to pay the banks that should have assumed the losses. At the same time, he forced Greek banks and pension funds to keep rolling over debt. This is why Greek banks got into trouble – it was not because of too much lending.

What happened was that the EU and taxpayers got dodgy Greek debt to help EU (but non-Greek) banks and hedge funds, which duly made a killing. Then, when Greece eventually got the debt forgiveness in 2012, its official debt to public institutions was excluded.   This is the real scandal of the Greek crisis — not the profligacy of Greek individuals, corporates, or banks.   The bottom line is that the Greek people are paying a heavy price today both for their government’s failure to restructure in 2010 and for their government’s bailout of French and German banks.

And what about that price?   All in all, the current deal is really tough in terms of the fiscal targets; it’s punitive, focused on tax hikes rather than cutting expenditures, and probably makes little macroeconomic sense. Of course, there should be a medium-term program on debt relief – after all, we Greeks do deserve a payback for bailing out all those big German and French banks five years ago.

Yet we have to deal with political reality as it is and on balance the structural changes that the deal calls for represent a once-in-a-lifetime opportunity. They are reforms that no government in Greece, including Syriza, has attempted, for fear of upsetting powerful vested interests.   By forcing the government to remove institutional barriers to competition and innovation the deal will create a sound basis for economic growth and development.  If (and that’s a huge if) the politics work out, confidence returns, and people invest again, things could get back on track; the alternative may be a failed state.  So, let’s keep a cool head, and not throw the baby out with the bathwater.  There’s just too much at stake—for Greece, for the Eurozone, and for the European project more broadly.

Michael G. Jacobides holds the Sir Donald Gordon Chair for Entrepreneurship and Innovation at the London Business School.