Why Reform Will Fail in Greece

04/14/2015 06:29 pm ET | Updated Jun 14, 2015
ASSOCIATED PRESS

This week, the new leftist Greek government is locked in heated negotiations to keep its economy solvent. On the other side of the bargaining table are the European Commission, the European Central Bank and the International Monetary Fund (a.k.a. the Troika). The clock is ticking as Greece's foreign reserves dwindle; last week, Athens barely made good on a €460 million loan payment it owed the IMF.

Any deal that is reached will conform to the requirements of the agreement inked last month with the institutions upon whose financing Greece now depends. Though even if Athens can secure a new round of funding in exchange for further reforms, it is unclear whether the government will actually be able to implement those reforms. In another three months, the same officials in Germany and elsewhere will be asking the Greek government to demonstrate progress toward substantive reform in tax administration, welfare and government corruption. Without real results, Europe will again be faced with a crisis. All the same issues that made a Greek exit from the eurozone remain dangerously possible.

If past experience is any indication, Greece will have serious difficulties successfully completing these reforms, even with a new government. Since 2009, Greek voters have elected six parties of different political ideologies to reform and lead the country out of depression -- PASOK from 2009 to 2011, New Democracy, PASOK, and Democratic Left co-governed from 2012 to 2015, Syriza and Independent Greeks from 2015 to present. This highly dynamic electoral situation may indicate a well functioning democracy, but it also creates a volatile environment that makes it tough for any government to complete real reforms.

"All the same issues that made a Greek exit from the eurozone remain dangerously possible."

Part of the reason Greeks have been consistently casting about for new governing parties is that the country's disappointing recent leaders have been unable to live up to campaign promises. In 2009, for instance, George Papandreou won the election with his populist phrase, "The money exists," suggesting that shrewd oversight and not painful cuts was needed to solve Greek financial problems.

Soon after his election, though, Papandreou reached an agreement with the Troika to rescue his financially broken country by implementing significant belt-tightening. Likewise, Antonis Samaras and Alexis Tsipras won the 2012 and the 2015 elections, respectively, by promising Greeks that there would be no new agreements and no more austerity measures. Shortly after these elections, however, new deals were reached with the Troika for additional aid in exchange for deeper austerity.

While domestic and international observers prefer to lay blame for Greece's ongoing economic plight at the feet of failed leaders, Greek officials are not solely responsible for failing to implement reforms. Greek culture and deeply embedded ideas about the role of the state are also important factors. Every time the government attempts to limit tax evasion and increase revenues, Greeks demonstrate strong antipathy towards paying their fair share. Many resist the notion that they should pay more taxes than before or even that they should pay taxes at all. A long history of ineffectual government has reinforced cynicism about civic community obligations. And this cynicism, in turn, starves the public sector of resources needed to deliver services that could prove it worthy of public investment.

"Greek officials are not solely responsible for failing to implement reforms."

In order for any of these reforms to take root, the government needs to inculcate a stronger sense of civic responsibility. It needs to effectively explain the value of paying taxes from a community standpoint in addition to highlighting the human toll that will be paid if these reforms fail. Greeks must understand that taxes are the price of a modern, functioning civilization. When tax evasion is reduced and revenues increase, the government is able to pay its obligations on time, provide services to the needy, compensate state employees and avoid new fiscal austerity measures. But unless the Greek mentality on taxes is fundamentally "reprogrammed," no reform will ever work.

One way to "reprogram" the Greek mentality is decentralization. Today, most public spending is administered from Athens. The national government collects all the taxes and then distributes them among the provinces, municipalities and villages. This type of administration requires a well-functioning bureaucracy, and the Greek version is far from up to the task. Every time revenue treks to and from Athens, some amount is skimmed off the top. Sometimes this is petty corruption but often it is simply financial leakage that comes from inefficiencies. As a result, the centrality of the Greek financing system erodes public trust and creates a low-accountability environment where monitoring how public resources are spent is very difficult.

Greece should instead give more power to local governments to levy their own taxes and operate their own budgets. This way, people will experience the local impact their taxes create and see how local resources are spent. Decentralization can build a culture of respect for government and increase faith in basic institutions.

A new deal between Greece and the Troika is important because it buys Greece time and gives the new government an opportunity to deliver on its promises. But the goals it establishes will be nothing new. Five years into Greece's fiscal emergency, the Troika is justifiably skeptical. Its leaders have heard these commitments before. Only the harder and less glamorous work of reforming the Greek mentality and public perceptions around government can pave the way forward.

For Syriza, this will be its most important test.

Greek Elections 2015