As the debt crisis in Europe continues to unravel, a better understanding of what really caused the crisis and how it should be resolved is starting to emerge. Analysts initially focused on the similarities between Portugal, Ireland, Italy, Greece and Spain -- lumping them together under the unflattering "PIIGS" acronym. Yet as events have unfolded, it has become increasingly clear that each country has a very different set of problems. Nowhere has this been more evident than in Greece.
This weekend, Greek voters have a unique opportunity to show that the cradle of democracy has come of age. Many now agree that the Greek problem is idiosyncratic, yet it has been treated as an "ordinary" case of macro-economic imbalance. Expenditures vastly exceeding fiscal receipts and an inefficient public administration are rightly seen as the kernel of the problem, and Greece has been pushed to restore fiscal balance.
But there is much more to the Greek crisis than this. The true underlying issues are a crumbling public administration and a political system where a few beneficiaries distort economic flows in the country, stifling development and depleting state resources.
The True Tragedy
While such structural problems have been noted for a while, their magnitude seems to have been underestimated. The true Greek tragedy is that a country that could potentially be on a solid growth trajectory is instead facing chaos because of the way the public sector (and its associated political system) interferes with the use of public resources. The press has been part and parcel of this corrupt system, impeding the understanding that would help resolve the issue. More consequentially, it has proved convenient for the stakeholders in the crisis -- in particular the European Union -- to avoid confronting the real nature of the problem. Doing so would require the sort of far-sighted action and pragmatic leadership that is -- perhaps understandably -- lacking from politicians concerned with re-election and administrative units vying for relative power.
As a result, kicking the can down the road has become the de facto solution, in the hope that things get better. The EU and the IMF have been treating a cancer with patches and aspirin. They have been busy addressing symptoms of the sickness, without daring to address the underlying cause. The EU task force, for one, has neither the skills nor the mandate to engage in the massive change management needed. So for all its short-term risks, it's time the Greek electorate addressed the problem head-on, confronting the state-induced sclerosis and sending a message to populist politicians from the left and the right alike.
The problem in Greece is three-fold. First, the public sector has proven to be a woeful manager of its own resources. The Greek public administration lacks accountability as well as a stable backbone of senior civil servants. It relies on formalistic rules to guide every step of the operation of public administration, as opposed to focusing on how it can substantively serve its purpose. These personnel issues, along with poor information and management systems (or data of any sort), mean that the public output related to expenditure is disappointing.
Serious problems exist at the top of the structure. The political system is highly influential and self-serving; its beneficiaries are able to carve out excessively compensated positions within the broad public sector, which means diverting funds from where the need exists. One such need, not surprisingly, is the growing number of Greeks living below the poverty line, as well as increasing criminality. Finally, an extremely important problem in Greece is tax avoidance -- Greece has only 30 percent of its GDP as tax receipts; the EU average is 37 percent. The inability to tax fairly has hit not only public finances, but has also created a sense of unease and social discomfort with taxation, especially under conditions of duress.
Second, the interface between the private and the public sector has seriously skewed the productive tissue in Greece. The Greek state has been a purchaser of services for construction, armaments, technology, and more mundane goods and services. Side-payments are often inherent to such procurement, as the scandal with PASOK's former strong man Akis Tsochatzopoulos, now behind bars, showed. Exposed to a corrupt system, many Greeks have shown initiative, adaptability and drive, but, sadly, this has further increased the incidence of corruption. Entrepreneurial drive and corruption have created a vicious circle which is amplified by the political system, but one which is not desired by most Greeks.
Third, the state distorts the functioning of the private sector. "Closed" or regulated professions which have given birth to local monopolies; a loose competition policy which does not really promote competition; and most importantly, a bewildering set of regulations, all deter entrepreneurial activity and private investment. Capricious taxation and unpredictable authorities add to the problem of a malfunctioning justice system, with long delays and inefficient procedures. All of this means that reduced Greek labour costs have yet to translate into reduced prices and productive investment has all but stopped.
To tackle the Greek problem, the underlying causes, as opposed to the symptoms alone, need to be treated. Unless Greek voters have the courage to grasp the uncomfortable nettle of political reform, they are likely to receive more of the same.
Fresh Greece elections loom after unity pact fails
TEXT-Fitch:Re-run elections would be critical for Greece, Eurozone
The public sector woefully manages its resources
"the interface between the private and the public sector has seriously skewed the productive tissue in Greece. "
The state distorts the functioning of the private sector
Let me clarify the 3 problems:
Government doesn't work
Government involvement in commerce leads to corruption
Government "regulation" inhibits innovation, leads to government sponsored cartels and an unholy alliance between big government and busines
Those problems Jacobides writes of exist in most western democracies.
What he doesn't write:
Greece has borrowed all it can, spent it, and aren't finding anyone who'll lend them money
They continue to engage in deficit spending, making things worse.
Thanks to Greek politicians, Greek citizens are now debt slaves to government and they don't like it
Greek citizens, and politicians who've promised "solutions" exist, are denying the reality that you can't continually live beyond your means.
Many liberals continue to deny that last reality. They will learn, but the austerity they will eventually encounter, will be much worse than if they accepted reality, and deal with it sooner rather than later. And Ben Franklin wrote, "a stitch in time saves nine" and it's time Greece starts stitching (plugging the spending gap by cutting spending) now; otherwise, they'll pay much more later and for a very long time.
No wonder they are going bankrupt.
I can't wait for Greece to withdraw from the RW E.U., and cause all you 1%'ers to take a hit in your stock portfolios.
Tax Collection Violence in Italy: Mail Bombs in Rome, Police Clashes in Naples, Molotov Cocktails in Livorno
Violent protests against the hated Equitalia, the Italian tax collection agency, are making headlines in several cities in the past few days. In Rome mail bombings have been ongoing since December. Via Google Translate, this time in Italian, please consider a trio of articles.
MILAN - Equitalia once again in the crosshairs. After the envelope with gunpowder delivered Friday to the see of Rome, in Via Giuseppe Grezar, last night, two Molotov cocktails were thrown against the door of the agency's headquarters in Livorno. This is the latest in a long series of parcel bombs and suspicious envelopes arrived in recent months in various offices of the Italian society of recovery.
THE FIRST PACKS-BOMB - The first package bomb delivered to Equitalia comes in via Millevoi, in Rome, December 9 last year. The bomb explodes in the hands of the director general, Mark Cockaigne, that is wounded in the hand and eye. On 12 December a large firecracker exploded outside the headquarters of the agency Equitalia in Naples. The explosion causes damage of the lower part of the gate valve iron input current Southern.
Government living beyond their tax receipts will eventually lead to calls for higher taxes, making citizens debt slaves to government. And riots are to be expected in such situations. After all, we don't support slavery do we? Slavery got it's start in the US, by people living beyond their means, finding themselves in debt, and in indentured servitude to pay off their debt. This time, politicians are doing it to us. Greece and Rome are just ahead of us.
http://www.globalresearch.ca/index.php?context=va&aid=30403
One example of Greeks in Greece thinking related to the efforts to curb polution. A law was passed to take half the cars off the roads so that odd numbered registered vehicles drove 3 days a week and evens the other three and then on Sundays anyone could drive. The Greeks reacted by buying more cars so that families could have both an odd and an even numbered licence plate.
Being part of a community means you sacrifice something for the betterment of the whole. I don't see it happening in Greece. The corruption mentioned in the article shows that greed or personal selfishness was more important than getting a service or product to be used by the whole community at the lowest price. My impression of Greece is that any one with get up and go, got up and went. ie migrated. There have been some very fine Greek people who have worked hard and contributed to Australia's prosperity.
I agree that it is likely that each of the PIIGS countries will have different reasons for why their economies have failed. Perhaps those with personal experience of the national characters of the other countries can contribute.
am from oz too
fanned