Just Like Sisyphus, Greeks Are Forever Pushing That Boulder Up the Hill

After only one year in power, Greece's Prime Minister Antonis Samaras is once again in the hot seat and struggling -- now more than ever before -- to keep his government from crumbling. He has been left with only a three-vote majority in Parliament after the Democratic Left, his smallest of two coalition partners, quit in opposition to last week's decision to shut down State Broadcaster ERT.

To make up for this loss and in order to delay (for as long as possible) once again early elections, Samaras agreed to reshuffle the cabinet and give up several main ministries to Pasok MPs. The question remains: will this new coalition party of New Democracy and Pasok save the day and lead the country out of the crisis?

Nothing is certain.

The only thing certain in Greece at the moment is that millions of middle-class Greeks are being forced to push the boulder of burden up a very steep slope of more than nine consecutive waves of austerity. This is much like the ancient Greek myth of King Sisyphus who spent eternity rolling a huge stone up a hill only to have it roll back down again forcing him to start all over again.

The average Greek -- a modern-day Sisyphus of sorts -- is struggling to survive in a country going through the deepest recession since the end of World War Two.

Broken promises, wrong prescriptions, bad diagnostics

The Troika "promise" was that Greece would get to growth after its first year of austerity. This never happened... The time-table got adjusted and growth was expected for 2012's first quarter. This one was missed also. Much like in the myth about King Sisyphus, Greece's beleaguered Government -- even though it has been concentrating in meeting the fiscal targets -- has been pushing the austerity boulder up the hill quarter, after quarter, after quarter, only to watch it come crashing back down again... But it seems no one learns. Today, the Greeks have once again been promised growth in the first quarter of 2014.

Personally, I am not surprised by the fact that Greeks have become even more cynical. They have spent the past three years watching their wages and pensions vanish -- some reduced by nearly 60 percent. All the while, government has been exceptionally creative at increasing all sorts of tax rates and implementing all sorts of new levies and duties -- at least eight types of tax changes (up and down) in the short span of three years.

But has anything paid off? We're still uncertain.

Greece is not significantly more competitive nor more productive than it was before the onset of the economic crisis. Prices continue to be inflated; the tax administration continues to operate in the old inefficient manner, household disposable income is dramatically reduced, social unrest has resulted in the rise of extremist parties such as Golden Dawn (rating 3d in the opinion polls). Suicide rates has increased 40 percent since the start of the economic crisis.

The Greek crisis is a solvency one, and not an accounting crisis. Yet, it was misdiagnosed and the wrong remedy was stubbornly applied. Nine waves of harsh austerity, a judiciary system that becomes weaker and less responsive, a government structure that is more and more ineffective, 65 percent youth unemployment, 27 percent overall unemployment. Poverty grows, and I notice an alarming new problem, development aid dependence!

Greece's solvency crisis is caused by its deep bureaucratic (administrative) deficiencies. They suffocate public and private activity and lead to broken systems that further promote insecurity among leaders and a Government paralyzed by the processes. This situation keeps feeding clientelistic politics interweaved with the growth of vested interests.

So far, the "reforms" have touched mainly the disposable income and not the administrative costs. The lack of predictability in doing business, and this despite the Government's call for foreign investment, is only getting worse. Tax rates are unpredictable. Judiciary is marred by bottlenecks. Administrative costs in the labor market are still a huge burden -- close to 50 percent of net salaries. Licensing is no easy feat. There is no simple approach to securing property rights and land rights are conflicting including those of state-owned properties. The government's focus is to meet fiscal targets of the Troika bailout loan, and less to systematically improve the business environment because this takes time.

What is more, the austerity measures imposed by the loan are so difficult to achieve that there is no time left to apply the structural reforms.

This problematic (to say the least) situation is further exacerbated by the lack of experience and knowledge of the Troika on HOW to bring about simplification, structural reforms, change of rules that will improve productivity and competitiveness. The Troika team is organized by macro and fiscal experts from the International Monetary Fund and bureaucrats from the European Union not by institutional economists.

What is more, it is rather easy for Greeks to escape difficult reforms when similar administrative burdens are shared on average by all the other eurozone countries that are guided by the same legal tradition. And there are no real showcases of simplification.

One example is the opening of the closed professions -- a subject dear to my heart as I was one of the initiators of such deregulation back in the 1990s at the World Bank. This is a super sensitive subject and requires a very special handling for it to be successful. It does not require abrupt, top-down authoritarian actions because, reformers know, they do not work. Some "closed" professions for many decades have enjoyed a superior and unchallenged level of protection in continental Europe.

Sacrifices without a plan and eroded trust

The question now is how much longer can the average Greek carry on like this? Maybe not for too long. It appears that as the crisis touches the remaining members of the Euro Zone the Troika may ease the measures in Greece. But even this may not be a responsible response to the situation. The Greeks are now poorer, but hanging on and keeping on sacrificing in the hopes they will one day enjoy the fruits of a new productive economy.

Greece's leadership appears to be more concerned about securing more time in office than anything else (not so much different from other European leaderships.) In the 3d year of the crisis there is still no clear path to recovery.

The abrupt shutting down of the National Broadcaster ERT, for example, revealed that planning is missing. ERT was shut to save money and meet the Troika's target of 2,000-plus layoffs from the public sector. Yet, no alternative was put in place, but a vague promise of some new agency to be created in an undefined future. I fear that as experience shows in the absence of a clear reform path clientalism prevails.

In such an environment, Trust among the citizens and the State is being further eroded. The precise element that desperately needs mending, is actually breaking down even more.

Will this new two-party -- New Democracy and Pasok -- coalition government manage to re-establish this much-needed trust?

I'm not convinced, although I really do hope so.

Simplicity, consistency, leadership

What Greece needs to solve the economic crisis is to adopt simplicity, consistency, and leadership. Simplicity in the definition of rules, their application and their enforcement, is an essential ingredient. This is manifested in the way of doing business, public sector management and land registries. Consistency in policymaking is just as important.

There is only one solution: modify the Troika's recipe and focus on the country's productive capacity. We need to remember that, the longer it takes to do and such modifications the more difficult the task. After all, austerity measures have served to keep focusing on the wrong issues (fiscal mainly) and not on the rebuilding of rules on how to do business.

Austerity is not a cure to the solvency crisis. It cannot and should not be considered a sustainable way out. What Greece and the rest of Europe need right now are leaders who can lead, instead of leaders trying to sugarcoat the issues in hopes of averting opposition from the people -- an entire nation of people becoming more and more disenfranchised, and devastated.

But unless drastic changes are made in reforming the State, and its processes to manage the private activity I fear that Europe will "go back to ground zero" starting with Greece (the canary in the coalmine). This is why the country needs to simplify, and provide full transparency of administrative processes. I can only hope that the newly created two-party cabinet is ready to make the transformation so as not to turn Greece into an aid-dependent state.

Fingers crossed!