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Some sort of semi-coherent collage of notes on the Greek situation (1)

by talos Fri May 14th, 2010 at 02:44:38 AM EST

What follows is a biased account of the Greek crisis as it unfolds. It is a palimpsest of rewritings, and write-overs, as not managing to finish it week after week, I had to continuously modify and update it as time went on. Please forgive any discontinuities or inconsistencies that might remain!

I write this diary in anger. This is of course not simply a Greek crisis, it is a European crisis, part of the global crash of 08. The way the economy was managed over the past two decades has partly led to this debacle, but its intensity and its destructiveness are due to circumstances outside of provincial Greek mismanagement and chaos. That said let the story begin:

A few weeks ago a new wave of measures was announced by the Greek government, after consultation with the real government of the country, the IMF. They were gripping measures in the way that Great Cthulhu's tentacles are gripping as you face the unnameable void on your way to perdition... [More inside]

front-paged by afew


These measures included (but are not limited to, as they are unfolded in a damned hurry through bills that are voted in parliament before anybody has a chance to say anything really bad about them):

  • New cuts in wages in the public sector, including the substitution of the, already a couple of months ago reduced, 13th and 14th salary (these are salaries not bonuses, it is just the way the annual wages were distributed in the year) with a flat sum of 1000 Euro (pre income -tax, pre-payroll tax) in total. In all public servants have lost on average something like 20-30% of their salary.
  • Analogous cuts for all (private and public sector) pensioners. The 13-14th pension is replaced, again, with a flat sum of 800 euros total. That a third of all pensioners won't be hurt much, if at all, by this reduction, is a measure of the "generosity" of the Greek pension system pre-crisis
  • A new tax on pensions over 1400 euros/month
  • Annulment of the meagre "solidarity bonus" for the poorest of the poor
  • Reduction of public investment programs by 500 million euros in total
  • Reduction of local gvt spending through restructuring of the country's administrative structure - a proposal that might have been useful, were it researched before implementation. As it stands we will have a sweeping administrative reform with a few months worth of preparation and planning and pretty much zero input from the local governments, just to produce savings on government spending on time.
  • The main VAT rate will jump to 23%, from 21% since this past March and 19% at the start of the year. The low rate, for basic goods and services is increased to 5,5% from 5%
  • Extra taxes on fuel, the third tax hike of the sort, leading to something close to 1,6 Euro per litre of gas at the pump (a measure I wouldn't be complaining about if it weren't for the fact that public transport fare hikes have started and, it is rumoured, are being generalized across the country [update: a first victory! They were taken back after protests!]). This has knock-on effects on the price of almost everything.
  • Reduction and spreading in time of dismissal compensation costs for the private sector
  • Doubling of the legal monthly limits to lay-offs for large companies
  • Lowering the legal minimum wage (it is now at 740 Χ 14 = 10360 gross, something like 8700 Euros/year mixed) for young people and the long-term unemployed to 550 X 14 Euros gross (in the context of something much like the "First Employment Contract")
  • Increasing the average retirement age to 63 from 61 currently
  • Also in the works (not announced now, but pending): allowing peripheral labour negotiations to admit a minimum wage lower than the national collective agreement minimum (which will make it token or at best a benchmark) and a new "training" contract, that will allow young people to work for 350-500 Euros per month.

One might expect that these are the sort of measures that will plunge Greece into a vicious circle of never ending recession, and they'd probably be right...

The idea is that if these measures don't work in reducing the deficit, harsher measures will follow.  These measures theoretically at least are not affected by the latest round of discussions that led to the trillion euro package. It seems that Greece is condemned to reach near-third world status. Already first trimester stats point to a 2,3% reduction in GDP, 12% unemployment. This is going to be the largest peace-time deterioration of living standards for most of the population in living memory. This is happening, mind you, in a society in which, according to research [in Greek], by 2007, 1 in 3 people were living on less than 470 Euros a month and 1 in 5 children were living under the poverty line.

The reaction of the affected workforce is far from accepting and compliant: and it was angry: I have described here the sort of anger and passion that the big general strike demo showed. Its violence became, for a moment, too extreme for its own good. Three workers asphyxiated to death after hooded youths, of the sort that pose as some version of anarchist in their own minds, burned the bank building they were working in. This had a chilling effect on the demos. Things are relatively quiet now. A new general strike has been called for May 20th, where public anger will be gauged again. In the meanwhile, three socialist MPs refused to back the measures and were expelled from the party in what was surely record-breaking time. The Conservatives, have dressed themselves up as the party to stand up against the IMF (so the Communists and the Left won't have a monopoly on public fury they claimed) - they too dismissed a leading cadre of theirs (Dora Bakoyianni) when she voted for the IMF package. The chances of this political system being left standing by the time anything resembling a recovery emerges are slim indeeed, despite its phenomenal resilience in the face of incompetence and corruption....

Stop the world, I want to get off

Greece has become a  critical nodal point of the unfolding Crisis, possibly a taste of things to come on a wider scale - if one takes van Rompuy's  vague complaints about "populism" and coming "unpopular measures" as the threat it seems to be. As Rick Wolff notes: "What is happening in Greece parallels developments everywhere; only details and timing vary".

A few weeks ago, a never-ending series of negotiations within the EU and the Eurozone, a marathon in which at every turn of the way a new promise of stopping the collapse supposedly was waiting, resulted in an ever increasing and increasingly unsustainable rate for Greek government bonds: The final "support mechanism" involved the IMF, which, it turned out was the least demanding of the partners. As ET readers know, the offer included 2/3 of total loans from EU members at a rate of over 5%, a rate that, again, was way over anything plausibly achievable without at least a partial default somewhere down the line. Cynical observers here, noted that this sort of "bail out" was just enough to postpone a Greek default for as long as it will take for German and other eurozone member banks to get rid of the massive amount of Greek government paper they own. Michael Hudson is making a similar case regarding the bigger package:

Let's call the "Greek bailout" what it is: a TARP for German and other European bankers and global currency speculators. The money is being provided by other governments (mainly the German Treasury, cutting back its domestic spending) into a kind of escrow account for the Greek government to pay foreign bondholders who bought up these securities at plunging prices over the past few weeks. They will make a killing, as will buyers of hundreds of billions of dollars of credit-default swaps on the Greek government bonds, speculators in euro-swaps and other casino-capitalist gamblers. (Parties on the losing side of these swaps now will need to be bailed out as well, and so on ad infinitum.)

This windfall is to be paid by taxpayers - ultimately those of Greece (in effect labor, because the wealthy have been untaxed) - to reimburse Euro-governments, the IMF and even the U.S. Treasury for its commitment to predatory finance. The payment to bondholders is to be used as an excuse to slash Greek public services, pensions and other government spending. It will be a model for other countries to impose similar economic austerity as governments run up budget deficits in the face of falling tax collections from the financial sector being enriched by the translation of junk economics into international policy. So the bankers for their part will have little trouble meeting their bonus forecasts this year. And by the time the whole system collapses, they will have spent the money on hard assets of their own

Apparently "other countries" are already imposing "similar economic austerity"...

The pain of suffering people who take you for a fool

As if living with under the constant threat to one's livelyhood isn't enough, one has to bear foolish moralizing on the work ethic and complete and ignorant bullshit about the country one is living in. I'm especially sick, tired and a hair's breadth away from full scale violence against my laptop or my TV, already of two things:

  1. Outside Greece: the whole "narrative" of how "Greece" did this, how "Greeks" should shoulder that, how "Greece" was pampered, didn't work hard enough, how Greeks have lived comfortably off Germany's handouts and how unit labor costs have been too high. Greece is not a person. It doesn't have personality flaws. Greeks are not a homogeneous mass. There are vast differences in living standards. The money borrowed went to a sizeable minority, and among that minority will emerge the real winners of the Greek debacle.

  2. The repeating mantra inside Greece through 90% of the media, that "we lived beyond our means for so long - it's Our fault" - coming usually from the type of folks who have large Swiss Bank accounts, island villas and Porsche Cayennes and directed to the type of folks that are already unable to sustain their consumer or housing debts and are going bankrupt. Not everyone has been living "beyond their means". In fact most, by any reasonable definition haven't. Most of those that publicly lament this profligate living, however, have.

I can't and do not watch the news on Greek TV, or Greek media. This is surely a taste of things to come, a necessity for what is going to be practically a state of siege, but it is unnerving: the uniformity, the orwellian double-think, the optimistic and can-do attitudes and buzzwords with which the Greek media (and especially the TV channels) "cover" the crisis. Greek TV is a paragon of the corrupt system that led Greece to disaster. Anyone outside the "responsible" line are either not shown on TV, or shown just to be made an example of, to show how despicable these horrid leftists are. And its all their fault anyway for catering to the damn unions. Etc.

I can't take it anymore: a taste of Greek reality

Having worked in Greece, in the private sector, for 11 years now, and being pretty much what most people mean by "middle class" around here, let me give you some perspective on how things look from the real inside, not the fictional country manufactured specifically to spite and anger Bild and Torygraph readers. Let me forewarn you that in these 11 years I have seen in the people I know and work with - hardly at the bottom of the income ladder on average - and around my living environment disposable incomes drop, real unemployment rising, the number of garbage scavengers decidedly increase, crime rates soar and privare debt sky-rocket. I know of very few people (and remember I'm at the middle, possibly on the uppish side overall) that have markedly improved their financial situation during this past decade of "high growth". The ones that did, had money in the family and took advantage of that. Few borrowed themselves into a reasonably continuous life-style. One peaked and crashed in the space of a few years. But that's it. For an economy that was growing at  between 3 and 5% annually  for 12 years, one would have thought that the blessings of prosperity would be clearer and more widespread. This was supposed to be an expansion...

So let me take you on a tour of economic reality from where I stand:

1. A System of Corruption.
One thing most people are right about is the extent of corruption in Greece. A corollary to that is the huge extent of the Black Economy. What is less known is the extent to which corruption is embedded in the Greek economy, not as some sort of parasite but as an integral part of the workings. At all levels corruption serves as a lubricant for a rusty machine that by design requires it to function. There are hierarchies of involvement in this at all levels of society, a pyramid scheme of complicity in which the lower rungs (when they actually have a choice) are bribed pennies in order to assent to an ascending ferocity of feasting on public money (their money). This is a scheme of social legitimation of corruption through its apparent democratization. It starts from not issuing receipts and having two prices for services (i.e. plumbers: 100 Euro with a receit, 70 without), to doctors demanding extra money for surgery in public hospitals, to bribing public hospital boards to not operate or not buy expensive diagnostic machines so as to increase demand for access to private diagnostic centers, to public employees receiving a percentage of the supply costs in order to select the "right" supplier, to paying prefecture employees to turn a blind eye to, often vast, construction or planning illegalities (such as building villas in burnt forest areas) or simply to hurry-up procedures that are intensionally delayed so that one is forced to bribe the official to finish up various procedures (i.e. permits for connecting new buildings to the power grid) in a reasonable time frame. The list goes on ad infinitum. The many faces of Greek corruption would require terrabytes of just to list and years to document...

However this circus of corruption is not really open to anyone. People at the bottom, those with the lowest access to the bureaucracy and the oligarchy, as well as anyone that refuses to comply with this system, are screwed. Not participating in it is seen as either weakness or stupidity. And they end up footing an impossibly large part of the tax bill...

A recent article in the WSJ reports on the economic consequences of this system of corruption, stating that a recent Brookings study:

"...which examines the correlation between corruption indicators and fiscal deficits across 40 developed or nearly developed economies, highlights how corruption has hurt public finances in parts of Europe, especially in Greece and Italy, and to a lesser extent in Spain and Portugal.

Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year. If Greece's public sector were as clean and transparent as Sweden's or the Netherlands', the country might have posted budget surpluses over the past decade, the study implies.

"If Greece had better control of corruption--not to Swedish standards, but even at Spain's level--it would have had a smaller budget deficit by 4% of gross domestic product," on average over the past five years, says Daniel Kaufmann, senior fellow at Brookings and the study's author.

The numbers are IMHO, if anything, on the conservative side. A recent story in the Greek daily Eleftherotypia (in Greek), described how the Greek government lost 10 billion (Billion with a b) euros in taxes due, over three years, thanks to a scam involving a ring of revenue service inspectors in various offices around the country and "VIP businessmen" who conspired to "reinspect" taxes imposed on large companies to annulment. This is unlikely to be an isolated case. This story was reported in the center-leftiest of the mainstream papers, Eleftherotypia, and buried by most mainstream media, including of course the public and private TV stations. This is not incidental. The media has been functioning as an enabler of large scale corruption since time imemmorial but with increased efficiency after 1989, when government monopoly on the airwaves ceased. Which is another tale of corruption and stupidity...

2. Media and "entanglement"
Greek private TV stations are all broadcasting without a license. They are legally in some sort of temporary status 15 for years now, and the public airwaves are in fact being given away, traded and used not on some sort of rational basis but on the basis of use and power. The media landscape in Greece is owned in a very large part by people who happen to be public contractors. Their media outlets are as much, if not more, instruments of political pressure and intervention than typical journalism. They were the prerequisite for the domination of a class of corrupting oligarchs and the corrupt bureaucratic-contractor elites that surround them, over the past 20 years.

The TV product they produce, besides covering for the media bosses-contractors, is what I call part of a cultural far-right, in a sense that possibly the Italian ETers might recognize. They pumped up LAOS (the xenophobic far-right part) to parliamentary size and are pushing it to respectability for its patriotic stance alongside the socialists (their only parliamentary allies in the IMF vote), they pushed and are still pushing the anti-immigrant scare, they reproduce social stereotypes, they are covertly misogynous: the whole package. They led the attack against the Coalition of the Radical Left (SYRIZA) after December 08, for refusing the blanket condemnation of the kids that rose against rampant police brutality and indeed, it now seems, for what was to follow! They are now attacking the Communist Party (KKE) for leading workers protests and thus "damaging the economy". At the same time they are attacking parliament and parliamentarians while rooting for some sort of unelected "technocrat government" to help out with this mess, and push measures that might require partially rescinding articles of the constitution.

[In part 2: Economic stats, unrich Greece, where the money went, social ills, myth busting and what next?]

Display:
Two comments:

I have spent a lot of time comparing Greece to the rest of European countries in the Eurostat records.

From looking quite closely, it was apparent that the tax evasion story was a bit overblown. I don't know where the tax revenue is coming from, maybe corporate taxes, but Greece was averaging 9.7k per capita in taxes, which was on the high side. maybe Greece has high tax rates, so that evasion of what should have been paid but wasn't rises as a %. Nonetheless, a lot of tax revenue was collected.

Based on the averages of salary and pension, numbers of gov't workers, number of pensioners, I had a very hard time getting to the %s of pension/gov't worker salary that was reported to Eurostat and also mentioned in the IMF report. I couldn't even make it to 50% of gov't expenditure. But yet, Greece was showing 75% going to pensioners/gov't workers, which is by far an outlier.

After thinking about this, I concluded that a lot of the corruption happens in the relationship between patrons in gov't and their cohort, that a lot of money is siphoned from the political hires in homage to the bosses who hire them. It's the only way to account for 75% of 125 billion euros going to gov't workers and pensioners in a country of 11 billion people.

Some news sources have noticed: http://www.reuters.com/article/idUSTRE64A2J520100511

I also saw that investigators had uncovered a bill for 26 million to pave the parking lot outside of parliament. Apparently, the approval for that expenditure was rescinded recently, and the parking lot was indeed paved. For 26k euros. When you couple this sort of behavior with arms purchases, Olympics, etc., one wonders how Greece is not in even greater debt.

I do think Greece is going to have an orderly restructuring in 1 to 2 years from now, and that the debt will be reduced in negotiations with creditors.

But those negotiations will only take place after the IMF has proof that the austerity measures have taken hold.

Even if all goes smoothly in this negotiation and Greece's debt is reduced to say 80% debt to GDP, I don't think it will matter much if there is a pan-European economic policy that keeps those austerity measures in place for the next half century. Isn't that what is implied in all of this? You have to have wage deflation so that the private firms make enough profits to create a surplus that allows you to compete against other austere and devalued Europeans, a surplus that the banks can squander at the casino gambling table?

Even though I would be a bit more optimistic than most about the Greek economy turning around rather soon, I would not be optimistic at ALL if I were a Greek worker. The future of the Greek business world may be brighter if the public goes through with the austerity measures in the next year, but if you stay in the eurozone under the new dictats coming from the Bundesbank, I think it's implied that the austerity measures are more or less permanent for the foreseeable future. And it's not because of Greek debt. It's about the concern shown by many financial heads over the competitiveness of the economy.

by Upstate NY on Thu May 13th, 2010 at 11:36:41 PM EST
Even if all goes smoothly in this negotiation and Greece's debt is reduced to say 80% debt to GDP, I don't think it will matter much if there is a pan-European economic policy that keeps those austerity measures in place for the next half century. Isn't that what is implied in all of this? You have to have wage deflation so that the private firms make enough profits to create a surplus that allows you to compete against other austere and devalued Europeans, a surplus that the banks can squander at the casino gambling table?

Even though I would be a bit more optimistic than most about the Greek economy turning around rather soon, I would not be optimistic at ALL if I were a Greek worker. The future of the Greek business world may be brighter if the public goes through with the austerity measures in the next year, but if you stay in the eurozone under the new dictats coming from the Bundesbank, I think it's implied that the austerity measures are more or less permanent for the foreseeable future. And it's not because of Greek debt. It's about the concern shown by many financial heads over the competitiveness of the economy.

And they call this preserving the European social model? Who are we Europeans competing with? Each other in yet another race to the bottom (the story of the past 10 years was not only of a business bubble, but of a tax race to the bottom to attract said business) as we collectively lose out to China by allowing our domestic businesses to outsource employment?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Fri May 14th, 2010 at 04:20:51 AM EST
[ Parent ]
Leave it to the Germans to engineer a more efficient race to the bottom.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 14th, 2010 at 07:44:49 AM EST
[ Parent ]
to be fair, it's a bit more complex than that.  You are correct, especially from a worker's perspective.  But we (i can say we, i suppose, as a german taxpayer), we also do the heavy lifting.

And there is the small beginnings of a move to put risk back onto the bondholders etc.  Please remember that financial institutions control many governments, not just in Germany.

We're all in this together.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Fri May 14th, 2010 at 10:05:33 AM EST
[ Parent ]
From looking quite closely, it was apparent that the tax evasion story was a bit overblown. I don't know where the tax revenue is coming from, maybe corporate taxes, but Greece was averaging 9.7k per capita in taxes, which was on the high side

I'm not sure about the absolute number, but on a per capita basis, Greece has the lowest tax revenue as a % of GDP of all EU15 members and quite a few EU27 members. This is due to both large tax evasion and a low and diminishing corporate tax and a skewed tax structure. Note too that (I can't find the stats right now, but take my word for it!) indirect taxes are not so lagging as per the EU (although VAT theft is an issue as well).

I'm not sure about the numbers regarding pensions and public sector wages either. The numbers I've seen are at 9% of GDP and that is close to 35% of public expenditures, 45% if you only count primary expenditures which I think some do, but never mention... anything beyond that requires statistical alchemy AFAICS. The numbers don't add up otherwise. This is the budget for 2009 (in greek!).

As for working in Greece: the pay and the conditions used to be horrible. Now they will be intolerable. I expect (and I am seeing already) a huge exodus of young, talented and highly trained people...

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Fri May 14th, 2010 at 04:58:36 AM EST
[ Parent ]
superb diary, thanks Talos. Looking forward to pt 2!

Italy will probably look like this within a year or two, barring a miracle...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri May 14th, 2010 at 06:22:16 AM EST
[ Parent ]
Indeed. Structurally, I don't quite understand how it is that Italy hasn't been targeted by the wolf pack yet (it is in a much worse position than Spain, in many respects)

Best guess : it's because il padrone is one of the meanest m*****ing wolves in the pack.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Sat May 15th, 2010 at 01:22:30 PM EST
[ Parent ]
I've been very interested in the stats, but I'm about to give up since the OECD/Heritage Foundation numbers differ from what is on the Eurostat pages.

Eurostat has gov't worker pay at 29.5 billion, or 33% of the budget. The IMF says gov't worker pay and pensions is 75%. And yet the OECD numbers diverge.

http://epp.eurostat.ec.europa.eu/portal/page/portal/product_details/publication?p_product_code=KS-EK -10-001

by Upstate NY on Fri May 14th, 2010 at 08:26:46 AM EST
[ Parent ]
I think what is happening is that the oecd table includes social contributions as budgetary  revenue and social benefits as budgetary costs - while the Greek government tables exclude the costs and the benefits from their calculations in the main table - possibly because government has no direct control of these revenues, and theoretically simply "guarranties" most of the social benefit costs. The IMF then counts all social benefits as part of the wage bill, which is quite a trick IMHO. Hah, talking about cooking up numbers...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri May 14th, 2010 at 08:53:43 AM EST
[ Parent ]
Maybe I just don't know who handles it, but it shouldn't be this difficult to find reporting on Greek finances.

Do the EU and/or national laws not require governments to produce CAFRs or other audited financial statements for the public?

You shouldn't need to go digging through Eurostat or the OECD to find out how much they're spending on this or that.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 14th, 2010 at 09:21:19 AM EST
[ Parent ]
Well, Talos provided the Greek figures.

The problem isn't that the figures aren't readily available, it's that they differ.

Right on the page for Eurostat statistics you'll find a Eurostat report dated January 10, 2010 that explains the Greek statistic situation. The short of it: Greece gave bad predictive statistics each year, and then Eurostat conducted a methodological review (each year) that gave the actual statistics.

by Upstate NY on Fri May 14th, 2010 at 10:06:20 AM EST
[ Parent ]
11 million people. Sigh.
by Upstate NY on Thu May 13th, 2010 at 11:38:09 PM EST
public anger will be gaged again

I assume you mean gauged but it could be gagged. Hence, no edit from me.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Fri May 14th, 2010 at 04:12:43 AM EST
Ah thanks! Got that!

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri May 14th, 2010 at 04:25:08 AM EST
[ Parent ]
Don't take the destruction of Greek society personally ... plenty more countries will follow, even the egocentric US.  Just a matter of time.

My allegiance to the human species ends at the California border.
by THE Twank (yatta blah blah @ blah.com) on Fri May 14th, 2010 at 06:06:21 AM EST
Claiming a situation of emergency - check!

Running through an economic program that impoverishes most of the population - check!

Doing so without anyone having time to read it (including the parliamentarians) - check!

Landing blow upon blow - check!

Actually depressing the economy and using that as an argument for further "reform" - check!

Yes, it is shock-doctrine.

Continuing the list, if these bums are voted out, the new ones will be treated to seminars on how anything but keeping the result of the reforms.

Hopefully the protests and strikes can affect things, and hopefully that in turn will not be thwarted by military forces.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Fri May 14th, 2010 at 06:07:46 AM EST
So much for our wonderful democracies.  It all comes down to who controls "military force" in the end, i.e. are you willing to get bloody to survive.

My allegiance to the human species ends at the California border.
by THE Twank (yatta blah blah @ blah.com) on Fri May 14th, 2010 at 06:13:31 AM EST
[ Parent ]
This time administered by our friendly European Union.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:15:43 AM EST
[ Parent ]
I'm finding it hard to figure how the EU can help, in a positive sense, as most of the problems you list are inherent in the Greek polity/economy.  I appreciate your resentment at popular media continually referring to Greece and Greeks as if they were some kind of homogeneous community, but Greek inequality, inequity, corruption, inefficiency and lack of transparent and honest business and political transactions are ultimately Greek issues.  After all it is Greece as a nation which is a member of the EU, and Greek citizens are only EU citizens in a very secondary sense - even after Lisbon.

It is also understandable that German citizens (say) should be reluctant to underwrite "Greek Bail-outs" in the absence of structural reforms of the issues you list.

Where I am in agreement with you - and in radical disagreement with the MSM - is in my analysis of what those reforms should be.  As you and others have noted, further austerity measures can result in ever increasing deflation and thus make the problem even worse. The solution, as far as I can see, has to be on the productivity side, and here the main barriers to progress are the things you mention: Corruption, Oligarchal control of the economy/polity, tax evasion, poor allocation of resources, under-investment in real productive assets etc.

Thus what Greece really needs is a social revolution - a radical modernisation of the productive base of the economy, a widening of the ownership of those means of production, an innovative approach to economic and social organisation, and an elimination of corruption, tax evasion, mis-allocation of public resources etc.

EU legislation on workers rights, human/political rights, transparency of contract allocation etc. can all help, but they still have to be implemented by Greeks.  Hence the social revolution - the overthrow of the old corrupt oligarchy.  We have had a similar - but apparently lesser - problem here in Ireland.  At least we do have a relatively vibrant and modern industrial/service industry/knowledge economy base.  The corruption was largely in the banking/building industry and related sectors.  Some regularity reforms are being carried out and I doubt the financial/building sector will ever be allowed to run amok again.

But the bottom line is that these are still largely problems for US to resolve.  The EU is at best a helpful external reference point and enabler - (and a bailer out on a short term basis).  I would personally favour greater fiscal/economic integration across the EU if only as a means of imposing higher standards across the board - particularly for health care, workers rights, capital controls, education, building standards, banking regulation, auditing of public accounts, energy policy and provision, environment and climate change etc.  But current EU Treaties don't take you very far in that direction, and expect Nationalists in other EU countries to resist all further integration - and not just in the UK, but perhaps increasingly Germany as well.

So whatever Merkel says about this being an existential crisis requiring greater EU integration, expect progress to be slow.  Most of the problems will have to be resolved by the Irish/Greeks/PIIGS themselves.  Don't borrow from international markets if you don't want them to rule your country...seems to be the long term lesson.  But that means you have to get rid of the corrupt elites who benefit from the global financial games in the first place.  What you say about patrons bribing their peons into complicity happens at the highest levels as well.  There really is no substitute for integrity and accountability at all personal and systemic levels.  An advancing polity/economy cannot progress without it.

 

Frank's Home Page and Diary Index

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri May 14th, 2010 at 06:55:01 AM EST
I doubt the financial/building sector will ever be allowed to run amok again.

"It will be different from now on."

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri May 14th, 2010 at 11:52:48 PM EST
[ Parent ]
It is also understandable that German citizens (say) should be reluctant to underwrite "Greek Bail-outs" in the absence of structural reforms of the issues you list.

...

So whatever Merkel says about this being an existential crisis requiring greater EU integration, expect progress to be slow.  Most of the problems will have to be resolved by the Irish/Greeks/PIIGS themselves.  Don't borrow from international markets if you don't want them to rule your country...seems to be the long term lesson.

Maybe Greece should have simply defaulted on its debt and taken the German banks down with it. That would have focused the mind of the German public on who is really being bailed out.

Now, this is clearly an existential crisis for the EU because the EU is after all predicated on a single international market for Goods, Services, Capital and Labour. Greece cannot insulate itself from the international markets without quitting the EU because it cannot institute capital controls between itself and the rest of the EU, as well as the EU being fully on board with the WTO's demand for removing barriers to capital flows between the EU and the rest of the world.


By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:19:52 AM EST
[ Parent ]
And if Greece did default on its debt Merkel might now be taking about bailing out any German banks threatened by that default, but I can't see it making Merkel any keener on bailing out Greece itself.  Quite the opposite - I suspect Greece would then be excluded from any bail-out.

All you say is true but it's what we signed up for when we joined the EU and signed various Treaties.  If Greece does want to leave, the Lisbon Treaty, for the first time, provides a mechanism for doing so.  It appears to be generally accepted that Greece was accepted into the Euro based on falsified figures.  You reap what you sow...  A less inclusive Union might be talking about expelling Greece for so doing and endangering the currency Union as a whole.

There is a case for Greece leaving the Euro to enable a devaluation although I don't see how that addresses all the problems talos enumerates.  Indeed it might perpetuate them by remove the pressure on the Oligarchy.  It seems that it is Greece's oligrachy and systemic corruption that is its root problem and not membership of the EU/Euro which are probably more part of the solution than the problem longer term.

Frank's Home Page and Diary Index

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 15th, 2010 at 01:41:46 PM EST
[ Parent ]
There's nothing in the treaties that prevents Greece defaulting on its debt and staying in the Euro.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 01:47:15 PM EST
[ Parent ]
But Greece would still need to run substantial deficits to avoid a depression. Would that be possible after default and without help from a friendly central bank?
by generic on Sat May 15th, 2010 at 02:05:26 PM EST
[ Parent ]
Sovereign deficits? Certainly.

Current account deficits? Less certain, but still not entirely unlikely.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 02:08:21 PM EST
[ Parent ]
If Greece stays in the Euro with all the limitations it implies? I wouldn't be so sure about sovereign deficits.
by generic on Sat May 15th, 2010 at 02:17:45 PM EST
[ Parent ]
If push comes to shove, Greece can issue Greenbacks.

Then the deficit chickenhawks would have to either back down or move for expulsion. And the chickenhawks have a blocking minority, but they don't have a qualified majority.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 02:22:50 PM EST
[ Parent ]
What is the mechanism for expulsion? I don't think there is one.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 06:06:07 PM EST
[ Parent ]
Then the deficit chickenhawks will need to make one.

Doesn't matter, though, they still won't have a working majority.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 06:07:19 PM EST
[ Parent ]
Well you may expel them, but how do you actually stop Greece from using it?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun May 16th, 2010 at 10:21:40 AM EST
[ Parent ]
Stop them from issuing Greenbacks?

You can't.

If the threat of expulsion from the relevant communities is not sufficient (and if the local population accepts the Greenbacks as payment for services rendered), the only way to stop them is sending in the gunboats.

But of course, if they are forcibly ejected from the €-zone, they would have no particular reason to issue Greenbacks instead of just printing their own money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 01:45:47 PM EST
[ Parent ]
What is to prevent e.g. Iceland declaring that the Euro is now its national currency?

Frank's Home Page and Diary Index
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 16th, 2010 at 09:38:01 AM EST
[ Parent ]
Nothing.

But they can't print €-notes or mint €-coins without permission from the Bundesbank.

Well, actually they can, but the official EU stance would be that they were counterfeiting.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 01:47:58 PM EST
[ Parent ]
I think Greece's 120% debt-to-GDP ratio would corresponds to the need to pay about 7% GDP in interest, and roll over about 25% of GDP in principal.

So, a default would free up about 30% of GDP in government expenses. Though, in terms of reducing deficit, only the interest payments would count.

So I'm not sure Greece couldn't make do just with the tax revenue. Plus, they could issue some sort of IOUs redeemable in payment of state taxes as a form of currency.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 06:04:15 PM EST
[ Parent ]
I didn't say there was, but there is also nothing in the Treaties to require other countries to bail Greece out or to continue lending to Greece.

Frank's Home Page and Diary Index
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 15th, 2010 at 02:38:15 PM EST
[ Parent ]
There is an assumption that the European Model has a component of solidarity. Without solidarity I suspect the EU is not something most people would want to be a part of.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 06:05:13 PM EST
[ Parent ]
yep, but the basis of solidarity has to be honesty, transparency, accountability, trust, reciprocity and mutuality.  I recognise that we are talking about unequal relationships in many cases, but why should German taxpayers bail out Greek Oligarchs any more than the EU tolerate/support the emergence of a military Junta in a member state?  

We are working through many issues regarding true democracy, transparency, accountability etc. in many member states.  Tolerating it in one member state does the other members states no favours whatsoever.

In that sense the EU IS going through an existential crisis.  The many areas of agreement and solidarity encoded in present Treaties have proved inadequate to deal with the Global banking/financial/economic/political crisis and the absence of sufficient fiscal integration and mutual oversight has proved key in this instance.  

Other issues that perhaps need to be tackled on an EU wide basis include media monopolies/oligopolies, banking regulation, financial transaction taxes (Tobin Tax) etc.  Even Merkel has recognised that existing Treaties are inadequate, but is it feasible to propose a new Treaty so soon after Lisbon?  Expect national oligopies/bourgeoisies to go ape-shit, and not just in the UK.
 

Frank's Home Page and Diary Index

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 16th, 2010 at 05:35:31 AM EST
[ Parent ]
You forget mental capture by ignorant economists.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 06:28:43 AM EST
[ Parent ]
yep, but the basis of solidarity has to be honesty, transparency, accountability, trust, reciprocity and mutuality.

And if the demands currently placed on Greece were about any or all of those things, nobody here would be complaining.

But they're not, so we are.

I recognise that we are talking about unequal relationships in many cases, but why should German taxpayers bail out Greek Oligarchs

What's happening right now is that the Greek taxpayers' children are bailing out the German oligarchs.

The "Greek bailout" is mostly a bailout of German banks, and the Greek taxpayers (and the Greek poor, through lack of public services) are going to pay for it (it's a loan, not a gift). A Greek default would be a bailout of the Greek (ordinary citizen and oligarch alike) at the expense of the German oligarchs.

Me, I fail to see the problem with fucking over some oligarchs - hence my acceptance of a default scenario.

(Similarly, capital controls is a way to prevent the Greek oligarchs from absconding from the country - they helped make the mess; they can damn well stick around for the cleanup.)

More generally, Greece will default unless either
(1) Germany stops depressing domestic demand in the service of a mercantilist inflation policy
(2) the EU establishes redistribution programmes that counteract the German mercantilism (which would effectively turn the German mercantilist policy into subsidy by the German taxpayer to the German export industries)
(3) Greece imposes capital controls to bring its trade into balance.

The cash flows being what they are, there is no question about that fact. The only question is how much the Greek people are going to suffer first.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 06:29:42 AM EST
[ Parent ]
the EU establishes redistribution programmes that counteract the German mercantilism (which would effectively turn the German mercantilist policy into subsidy by the German taxpayer to the German export industries)

You mean the German taxpayer hasn't been already subsidizing the German export industries?

Let's look at German economic policy under both Schröder and Merkel:

  • stagnant real wages in Germany - check!
  • unconstitutional reduction of the German social safety net - check!
  • running deficits during the growth part of the business cycle - check!
  • increasing public debt even when above the 60% GDP threshold - check!
all this while running a substantial trade surplus - which is only possible with supply-side tax cuts to "stimulate" growth, which was stagnant precisely because of the suppression of internal demand. Let's also recall how in 2005 Germany lobbied to relax the enforcement of the Growth and Stability Pact which it was violating. Let's also remember how Germany kept its borders closed to new EU member states labour on the grounds that their economic growth was sluggish, while at the same time going on a capital shopping spree in the new entrants, siphoning business profits off from the periphery into Germany.

So the German oligarch have already been bleeding the German people dry for at least a decade. Meanwhile, the German banks lent money to the peripheral economies so they could buy German products. In 2009 the German government has been busy bailing out the German banks.

It is impossible - unless you're a Serious Person - to take any pronouncements coming out of Germany seriously.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 06:48:42 AM EST
[ Parent ]
You mean the German taxpayer hasn't been already subsidizing the German export industries?

Yes. The German worker has. But the German taxpayer hasn't. Taxpayers include (in theory) the employers.

At the moment, the subsidy schemes are from workers to employers and from net importers to net exporters. A redistribution system that evened out the current account imbalances would add a redistribution scheme from taxpayers to export businesses on top of those.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 16th, 2010 at 07:45:55 AM EST
[ Parent ]
Paying taxes is for little people.

And politicians no longer address themselves to workers but to taxpayers...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 07:50:20 AM EST
[ Parent ]
The basis of solidarity doesn't matter. What matters is that conservatism is correlated with a perception of belonging to a smaller "we" which is the subject and object of solidarity.

Oligarchs are extremely narrow-minded and selfish. Conservatives such as Merkel somewhat less so.

The EU is doomed by lack of solidarity in the face of any crisis (let alone one of the magnitude we're facing) as long as the EPP is the dominant political force, as it is currently.

Market worship has both been a cause of the crisis and a factor in making it worse.

There is also a moralistic undercurrent to all this, that somehow pain is virtuous. How Christian (Democrat).

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 06:38:48 AM EST
[ Parent ]
How much distaste do German leaders and German banks really have for Greek oligarchy?

The Greek debt problem is not new.

It has been there for a while.

In the interim, Greece and Germany traded favors. Greece received political support and Germany received huge orders from Greek on armaments and other projects.

Were Germany actually concerned about corruption and oligarchy in Greece, one place to begin nipping the Greeks in the bud would be: stop bribing them to buy your stuff.

This doesn't mean that Germans are to blame for Greek corruption, but the Germans certainly should not act surprised.

When you look at the banking crisis continentwide, a lot of dirty behavior seems to be tolerated by these leaders.

by Upstate NY on Sun May 16th, 2010 at 09:44:26 AM EST
[ Parent ]
membership of the EU/Euro which are probably more part of the solution than the problem longer term

Over the next 10 years the BundesbankEU is going to cause a depression through Hooverite macro policy.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 01:51:04 PM EST
[ Parent ]
Depends entirely on what you define as the problem. What causes the crisis is the policy straitjacket and the perception that there is a crisis. Everything else is incidental.
If the financial markets suddenly decided that Austria or the Netherlands could be squeezed they too would have a funding crisis.
by generic on Sat May 15th, 2010 at 02:02:19 PM EST
[ Parent ]
Trichet is on the record claiming that the problem is not one of speculative attack but of "market failure".
Jean-Claude Trichet vergleicht die Situation der Euro-Staaten zum Ende vergangener Woche mit der Zeit kurz nach dem Ausbruch der Finanzkrise: "Die Märkte funktionierten nicht mehr, es war fast wie nach der Lehman-Pleite im September 2008."
Again either Trichet or Spiegel date the start of the financial crisis to Lehman's failure in September 2008, instead of July 2007. It boggles the mind that everyone has forgotten how liquidity completely dried up in the interbank money market for most of the month of August of 2007.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 02:07:11 PM EST
[ Parent ]
Which countries are most vulnerable to a market run?

There are two considerations: Debt to GDP ratio and country size. Here's a picture of the Eurozone:

The diagonal lines are at 75%, 60% and 50% Debt-to-GDP ratio. 75% and 50% are the 1st and 3rd quartiles of the Eurozone, and 60% is the well-known Growth and Stability (suicide) Pact threshold.

Smaller countries are most vulnerable to a market run because it take less capital at risk to manipulate their debt market. Countries with a higher Debt-to-GDP ratio are also most vulnerable because the threat of default can be talked up more credibly.

It looks to me like Belgium and Portugal are next after Greece. Italy is an attractive target, but too large. Austria, the Netherlands and Ireland would be a second tier, of which Ireland has already capitulated and both bailed out their financial sector and engaged in "model" fiscal austerity.

Maybe looking at deficit would make Spain look more vulnerable, but on Debt and GDP, it is only a 3rd tier prey for the wolfpack.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:19:07 PM EST
[ Parent ]
Eh. We all know perfectly well that the economic indicators have nothing to do with it, nevermind the economic reality.

There are three conditions that must be met to qualify as a target:

  • You must be big enough to be worth going after - so Malta and Cypern are probably safe.

  • You must not be big enough to suffer from imperial phantom limb pain - that might make you cut the banksters off at the knees, and we can't have that.

  • You must be populated by brown people or Russians.

Any country that meets those three criteria is at risk of being attacked by the piranhas. Any country that does not is (probably) safe, unless they do something outrageously, Iceland-level stupid.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 07:40:49 PM EST
[ Parent ]
Thanks very much for this diary, talos.

The graph of Greek GDP, this quote --

"If Greece had better control of corruption--not to Swedish standards, but even at Spain's level--it would have had a smaller budget deficit by 4% of gross domestic product," on average over the past five years, says Daniel Kaufmann, senior fellow at Brookings and the study's author.

-- and your description of corruption in Greece convince me that this is most critical thing to fix in this crisis.  Maybe you will be discussing that in the next part of your diary.

Has Greece always been like this, at least since 1975?  Did joining the European Community in 1981 and then the euro zone in 2001 have any impact -- either for better or for worse -- on how business was conducted in Greece, the prevalence of the black market, income inequality, spending and borrowing habits, etc.?  Do you have any thoughts on how these behaviors and attitudes can be significantly diminished?

The point is not to be right, but to get to right.

by marco on Fri May 14th, 2010 at 09:42:25 AM EST
I know you asked Talos but reading anecdotal reports from the Greeks, even they have racialized and internalized the tax evasion and corruption issue. I know about the history of tax evasion and corruption (for instance, there's a mountainous region of Greece called the Agrafa which means, the Unwritten, and that literally refers to the fact to collect taxes because this huge swath of land was lawless, ungovernable and dangerous). So, going back to the Ottoman days, and a totally unfair tax policy of the Ottomans (based on ethnicity) the tax problem is supposedly ingrained. Couple that with split governments during the early part of the 20th century, wars, juntas, etc., and you don't have an actual market economy or polity established until 1981. Ironically, that's the start of the debt woes. Prior to that, Greece was at 25% debt to GDP for ages.

I don't buy this form of racialization that's been internalized even by Greeks. In the modern world, attitudes can change quickly, and they should have already in Greece. This isn't ingrained by any means (although I do allow that some of this is caused by the many mom-and-pop businesses and VAT, and that a proportion of the population in every country will play these games when in position to).

In order to get to the bottom of this tax evasion question, you'd have to look at the Greek tax code. I don't know much about it but Talos mentioned receipts. I've also read about other Greeks wanting to colelct receipts for taxis, so that they can enumerate on their tax all the taxes paid to VAT, which are then supposedly deductible.

For an American, this seems crazy. With a standard deduction, most Americans do not itemize, and we don't keep receipts either. So, for Greeks there may be an incentive to ask for a receipt from the cabbie, while in New York City, I jump out of the cab, slip a $10 to the cabbie, and off I go.

by Upstate NY on Fri May 14th, 2010 at 10:16:14 AM EST
[ Parent ]
I read somewhere that there was a check on swimming pools in gardens  around Athens (a taxable item, self-declared) and using google maps satellite pix, it was quickly ascertained that there were thousands of untaxed pools.

You can't be me, I'm taken
by Sven Triloqvist on Fri May 14th, 2010 at 10:34:44 AM EST
[ Parent ]
About the tax evasion question again, though, the per capita in Greece is higher than the USA's. As Talos said, it's lower than the eurozone. But, tax evasion is only a measure of the money that should have been paid but wasn't. If your tax rates are lower, you could have a low tax revenue per capita AND a very low rate of tax evasion at the same time.

So, I would tend to look at tax revenue per capita, as the important thing.

by Upstate NY on Fri May 14th, 2010 at 10:44:48 AM EST
[ Parent ]
This aerial/sat pictures to find out undeclared swimming pools meme has been popping up regularly as an urban legend in many countries (sunny ones mostly), such as the South of France. It may even be true...
by Bernard on Fri May 14th, 2010 at 12:12:55 PM EST
[ Parent ]
If you're running a business (even a one-person business, and I recall we've already remarked on the large number of these in Greece), you usually have a VAT account with the tax authorities. In your books, you have an account for VAT collected (paid to you by clients when paying bills) and another for VAT expended (on your investments and expenses).

At the end of the year (or other accounting period according to the type and size of business) the tax authorities may owe you a refund (if you have paid out more VAT than you have received), or, (more probably), you owe them the difference between the outgoing and the incoming.

Of course, just as you need invoices to back up your incoming VAT account, you need receipts for your expenses (to prove what VAT you've paid out). The taxi journeys would need to be necessary to your business, of course. Forgetting to get receipts would just automatically decrease your VAT expended account, with the result that you would pay more VAT than necessary.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 14th, 2010 at 10:45:03 AM EST
[ Parent ]
A lot of this (and a lot more actually) sort of thing (corruption - tax evasion, bribery, kickbacks, underground (non-taxed)economy, patronage, etc., etc.)goes on in Mexico and many other countries. I strongly suspect it is something that's very difficult to eliminate except via a long-term concerted effort that includes effective legislation, enforcement, education and cultural change.  A daunting task to say the least. I don't see how it can be accomplished. Much of this type of corruption is/has become socially acceptable so it's not really carefully hidden (no need to). Trying to eliminate it completely could result in more veiled forms available particularly to the rich and powerful corporations, a la the USA.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Fri May 14th, 2010 at 04:41:18 PM EST
[ Parent ]
... clean government movement to get to the point that we had reached by the 1950's - where corruption was of course not eliminated, but where it was not universally expected and tolerated.

Since then, we've been sliding back the other way, since its not something that maintains itself automatically.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri May 14th, 2010 at 05:15:47 PM EST
[ Parent ]
The good old days of Tammany Hall.
by Upstate NY on Sat May 15th, 2010 at 12:09:46 AM EST
[ Parent ]
An excellent example ... the demise of Tammany Hall in the 1960's was a victory by the clean government movement, though not as big as establishing a career civil service in the Federal government.

By the 1950's, Tammany Hall was notorious and seen as an aberration, but when it got its start in the 1790's, it was the norm ... just one political machine among many, looking out for the interests of its own as the other political machines looked out for the interests of their own, the urbanization of the pre-Civil War fraternal organizations that looked after civic affairs in many a small town and representative of the Jacksonian ideal of patronage politics.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat May 15th, 2010 at 01:06:58 PM EST
[ Parent ]
As someone living in another region with entrenched corruption (or perhaps it's the same region, from Italy through the Balkans to ex-Soviet areas?) I'm pessimistic on this front. talos writes that "circus of corruption is not really open to anyone", but it's still a majority. And a majority is a hypocrite about it: I could list all day the examples of acquaintances who all proudly employ their small tricks (behind the back of the state, employer, customers), and at the same time curse "politicians" who do the same kind of tricks "on the back of decent people". These attitudes have their root in the state-subject relationship of several preceding dictatorships [in my region, when the phenomenon is noted, usually only the last -- communist -- dictatorship is blamed...]. But people won't seize democracy, they continue with their small tricks and vote for big tricksters in elections.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat May 15th, 2010 at 06:10:56 AM EST
[ Parent ]
Also from the diary:

This is a scheme of social legitimation of corruption through its apparent democratization. It starts from not issuing receipts and having two prices for services (i.e. plumbers: 100 Euro with a receit, 70 without), to doctors demanding extra money for surgery in public hospitals, to bribing public hospital boards to not operate or not buy expensive diagnostic machines so as to increase demand for access to private diagnostic centers, to public employees receiving a percentage of the supply costs in order to select the "right" supplier, to paying prefecture employees to turn a blind eye to, often vast, construction or planning illegalities (such as building villas in burnt forest areas) or simply to hurry-up procedures that are intentionally delayed so that one is forced to bribe the official to finish up various procedures (i.e. permits for connecting new buildings to the power grid) in a reasonable time frame. The list goes on ad infinitum. The many faces of Greek corruption would require terrabytes of just to list and years to document...

Ah, how familiar, unfortunately. Just recently:

  • An acquaintance of mine tried to get a drivers license for half a year. Right before the first exam, the instructor told him plainly that he should forget about passing without giving the instructor (him) his due. My acquaintance flat-out refused, and when he passed the theory exam without problems, it seemed the instructor was bluffing. However, then came the practice test. He failed three times. Even when there was another instructor in the car and no problems were noted during the test, the test result document noted failure. Finally my acquaintance asked the first instructor how much it would cost him, to which he replied, "you should have asked that the first time", then named the sum. (Which my acquaintance final paid, to my anger.)

  • For craftsmen in my town, the two prices for services mentioned by talos are a norm. In the past month a plumber was giving me bad looks for asking for a bill. And this month a carpenter wasn't troubled by me witnessing as he gave a neighbour a bill for a third or fourth of his services only.

I was (am?) a bit of an outsider to notice the language of corruption in earlier times. And I am still unsure about... doctors. In both the media and private discussions, everyone tells me that giving some money in a briefcase or expensive gifts to (public health service) doctors is endemic. But I have never witnessed it, and never paid or was asked to pay. On the other hand, I have been rarely treated by doctors with kindness...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat May 15th, 2010 at 06:36:44 AM EST
[ Parent ]
In Sweden, cash gifts are pretty much unheard of when it comes to driving licenses or doctors appointments. If it happens it would be someone buying a license despite failing the tests or buying a prescription for drugs despite not having the illness in question. Ie you do not pay for them doing their job, but for them to break the rules. And I would set the risk of getting reported for attempted bribe as higher then the chance of getting license/drugs.

On the other hand, cheating with taxes when it comes to contractors is fairly common, and one of the main arguments behind the maid deduction the current government introduced was to move black market cleaning to the white market.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat May 15th, 2010 at 03:56:17 PM EST
[ Parent ]
These attitudes have their root in the state-subject relationship of several preceding dictatorships [in my region, when the phenomenon is noted, usually only the last -- communist -- dictatorship is blamed...]

In Spain, nobody blames Franco for this. Or anyone for that matter. It's just a part of life.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:01:34 AM EST
[ Parent ]
Trying to eliminate it completely could result in more veiled forms available particularly to the rich and powerful corporations, a la the USA.

I suspect the drive to stamp out "corruption" basically makes illegal the kinds of patronage available to the poor or poorly connected, while leaving intact the political economy network of the well-connected. Old boys' networks, university alumni associations, and the like, are acceptable forms of what, when observed in other countries or in poorer social strata is called "corruption". Every so often, a member of the elite will be ritually punished for corruption as a way to hide the fact that corruption by another name is still rampant among the elite.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:09:23 AM EST
[ Parent ]
I mean, which part of corruption - tax evasion, bribery, kickbacks, underground (non-taxed)economy, patronage, etc., etc is not found in the USA?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:25:58 AM EST
[ Parent ]
Well, they all are. The point is that in the USA participants in corrupt activitiesgenerally have to be more discrete about it and the real opportunities for gain are pretty much restricted to those with some sort of power, economic or political. Those who "flaunt the law" stand a reasonable chance of being called out. I know some seemingly have the ability to get away with murder, but even the mighty eventually fall if they play the game too loosely and for too long.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Sat May 15th, 2010 at 01:24:11 PM EST
[ Parent ]
In the Middle East you pay bakshis to civil servants when they have made decisions that you find favourable. Which is, of course, corruption. In the West, you award "consultancies" to civil servants when they have made decisions that you find favourable. This is entirely legal, above-board and counted as part of the gross domestic product.

Snark aside, there is little doubt that society works better for (almost) everyone when you don't have to pay kickbacks to junior civil servants like police officers and doctors simply for doing their jobs. There is also little doubt that it does nothing to deter the corruption of senior civil servants, including politicians. It just makes it slightly more sophisticated.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 15th, 2010 at 07:38:37 AM EST
[ Parent ]
I think that is letting the rampant corruption of the US civil service off the hook. Yes, of course there are hypocrites who loudly condemn one form of corruption that they are not accustomed to and silently but ferociously defend the forms of corruption that they directly participate in ...

... however, although we will never "stamp out corruption" so long as its human beings in position of authority, it is possible to fight it. The problem is that it needs a political movement to drive the process to the point of institutionalizing it, and then the institutions have to be defended from being undermined on a piecemeal basis. While political movements come and go, and some are effective enough at their peak to get improved institutions established, the long boring task of defending against piecemeal undermining is not something that movements seem to be very good at.

I would say "this is similar to the history of financial system regulation and de-regulation", except in the US they are two facets of the same history, so the similarities are due to the common history.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat May 15th, 2010 at 01:14:25 PM EST
[ Parent ]
In the USA, they are getting rid of diversity admissions in the universities. Meanwhile, George Bush III graduates from Yale.
by Upstate NY on Sat May 15th, 2010 at 12:52:51 PM EST
[ Parent ]
Yes, I think much of what we call "corruption" in the US is likely illegal or quasi illegal in other countries also, but it's often no more than low level bribery just to get someone to do their job.  We "participate" all the time when we pay a Telmex worker to move a line rather than wait the prescribed six months, or pay a CFE employee to repair a trunk electrical connection rather than do without electricity for three days. We consider it money well spent given the circumstances, and we also understand that given the low salaries paid workers by the government it's almost a necessity for them to supplement their income this way.

The more insidious forms of corruption are when, for example, town mayors, senators or presidents regularly steal enough tax money through elaborate fraud schemes to enrich not only themselves but also their extended families and friends for generations.  This type of corruption we have in the USA also, but I would argue that violations of the public trust are not as pervasive or as profitable in the US as in some other countries, particularly at the federal level.  I have a sneaking suspicion that more goes on at the local and state levels due to the lack of oversight.  We had several technical employee in our county a year ago who managed to steal $9 million by manipulating computer records and contracts. They did get caught, but much of the money may have ended up in India and the County Executive and several others lost their jobs. I've just read this article about the matter and it pretty much corroborates what's been said about corruption and lack of oversight in our local government.  One could see it coming.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears

by Gringo (stargazing camel at aoldotcom) on Sat May 15th, 2010 at 10:56:55 PM EST
[ Parent ]
Corruption in Spain's local government is endemic.

Since you can read Spanish, you'll love this one. I'd say there is an even chance this woman could become Spain's prime minister within 6 years <shudder>.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 04:50:16 AM EST
[ Parent ]
Corruption in Spain's local government is endemic.

Since you can read Spanish, you'll love this one. I'd say there is an even chance this woman could become Spain's prime minister within 6 years <shudder>.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun May 16th, 2010 at 04:51:36 AM EST
[ Parent ]
....could become Spain's prime minister within 6 years

Computerized voice:

Erase the thought!  Erase the thought! Eeeee raze thaaat thddkgjkjsldkkdf

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Mon May 17th, 2010 at 05:20:15 PM EST
[ Parent ]
Ok a lot of comments. Some answers below, and some questions to all and anyone who might venture some answers.

@Migeru: The measures inflicted on Greece and the collective austerity imposed on Europe (talk about ruining a good idea...) are meant AFAICS to dismantle the European Social Model through Shock Therapy. I'm not a conspiracy nut usually, but I thing this is pushed by some players as a strategy. I think I mentioned it before, but the thing us that up until late January / early February this year, interest on debt was at 20-year historical lows as a percentage of GDP and tax revenues. The debt could have been serviced and rolled over at these levels quite comfortably.

@A Swedish Kind of Death: as for strikes and democracy, we're already in a very dodgy situation democracy-wise. Apart from the fact that the minister of finance is now in the position to ratify loans, modifications etc regarding the IMF measures, without the parliament's approval (in what the opposition unanimously called a parliamentary coup d' etat), the unprecedented wiretapping measures (cell and landline) these past few days that envelop all of down-town Athens on a pretext of "terrorist activity are not a good sign. And neither is the fact that "respectable journalists" are suggesting an "emergency government" that will suspend a few articles of the constitution, just to be on the safe side with the unions.

@ Frank Schnittger: These are pretty important points you make. I agree with:

Thus what Greece really needs is a social revolution - a radical modernisation of the productive base of the economy, a widening of the ownership of those means of production, an innovative approach to economic and social organisation, and an elimination of corruption, tax evasion, mis-allocation of public resources etc.

But, having given a few fights over the years for some of the things on the list, these are easier said than done. First of all, the young and active educated professionals that could lead this wave are on their way to emigrate, if they haven't done so already. This will not help at all. Secondly the powers that be would not hesitate to use force if push comes to shove. So you need dedicated "troops" - although desperate would do if there is a political platform that they can see as including their concerns - and third: it isn't moving that way with these measures: the agenda of the Greek Industrialists Union (a nest of reactionaries and corrupt elites if there is one), fought tooth and nail by whatever was left if the unions for years, is currently being implemented, lock, stock and barrel, creating even worse prospects for any improvement (apart from people taking to the streets that is)...

The EU and the ECB could help positively, if they wanted by changing the Euro rules, and allowing, say, states to borrow at bank rates of, what is it now? 1%? This could be conditional on transparency and efficiency improvements, of which there are plenty to be made. That would be real help. In fact the conditions imposed on the EU loan (and it remains a rather expensive loan not a "bail out" except for Greece's debtors) are worse than those on the IMF money in terms of rates and conditions and a boon to these elites, shedding worker costs and rights at an delirious pace.

Having said all that, your original point is a central one: it has to do with alternative political strategies that would allow some sort of non-dystopic future for the country. I plan to translate it and pass it on as food for thought over at my greek blog if you don't mind!

@melo: Since Ottoman times as Upstate NY, points out! However the past two governments were elected on an explicit mandate to change things, to clean up government. They didn't even try, of course, but still that's what they campaigned on, which probably matters as far as the electorate's intentions are concerned.

[wild political-historical speculation]I would personally venture to suggest that a large part of the mess is due to the fact that the Greek bourgoisie proper, as a class with a vision and a national strategy, the shipping magnates, never stuck around, they took their ships and money and sought more profitable havens, and were too cosmopolitan to bother with building a proper capitalist state. Again it is a wholly personal (and impossible to defend here) perspective, but I think that the origins of a large part of the merchant class, comprador and retail, never original and always risk averse, in the black marketeers of WWII and the fact that they were on the side that triumphed in the civil war that followed, created a certain economic mentality that persists to this day, and legitimized corruption as a survival strategy among the masses. Arguably, earlier political expressions of the local bourgoisie (such as Trikoupis at the turn of the 19th century and Venizelos in the 20s and 30s) were much more modernizing in attitude and ambition than what followed for most of the cold war years and persisted afterwards. That's only a small part of the story of course but its a long story :-)[/wild political-historical speculation]

@Sven Triloqvist: Yep it is a fact! (I was going to mention this in part 2 but hell): There were undeclared swimming pools, in the posh northernmost Athenian suburbs. Pools are considered now as what the tax office translates as "presumptions" - which means that if you own one you can't declare an income of less than the fixed income that the swimming pool (or the villa, or the yacht etc) is considered to prove you are earning (these are additive and IMHO not harsh enough)

@all What would you prescribe as "progressive" policy in the case of Greece now? How does the current turn towards pan-european austerity affect things in Greece if at all? Would a significant depreciation of the Euro help Greece and the South create trade surpluses and export themselves out of big deficits?

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Fri May 14th, 2010 at 06:13:17 PM EST
Oooops: @marco I meant, not @melo!

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Fri May 14th, 2010 at 06:45:09 PM EST
[ Parent ]
What would you prescribe as "progressive" policy in the case of Greece now?

  • Impose confiscatory capital controls to prevent asset stripping.

  • Strategic default on particularly odious debts. This includes all debt assumed in the course of bank bailouts.

  • Kill a bank or two; if the capital markets turn on the sovereign, the sovereign kills them - that's a good principle and it needs to be reasserted with some vigour.

  • A credible threat to leave the € if the inflation target is not raised for the core members to permit the periphery to engage in "internal devaluation" without having to push their economy into a deflationary spiral.

  • Inform all remaining creditors that the first and final duty of the Greek sovereign is towards the Greek people - there will be no dismantling of the Greek social model, so if the creditors want their money back, they can damn well help figure out a way to make that model work.

  • Tell the IMF to fuck off, and send a delegation to Moscow. Influence in the Aegean region has been a Russian geopolitical objective for the last three hundred years, so you have chips to bargain with if you play them right.

That's the foreign policy bit. As for how to deal with the entrenched corruption and regulatory capture... well, our own track record is less than spotless, to put it mildly. But we promise to let you know if we figure it out.

How does the current turn towards pan-european austerity affect things in Greece if at all?

It means that you're screwed.

Would a significant depreciation of the Euro help Greece and the South create trade surpluses and export themselves out of big deficits?

No. Your trade imbalance is with the core €-zone members, not with economies outside the €-zone.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 14th, 2010 at 07:07:44 PM EST
[ Parent ]
On the shippers, obviously they can float away to another port, so they are untaxable. And yet, there is a tonnage tax, and those shipping companies report gains on the Athens stock market. That being said, the shipping tycoons typically strip away the cash position for themselves and so, these companies yo-yo in the market.

However, it's my understanding that the shippers are in arivalry, and they have built conglomerates inside Greece, with media and especially banking.

by Upstate NY on Sat May 15th, 2010 at 12:20:59 AM EST
[ Parent ]

The rest of us, in solidarity with Greece:

No future
No future
No future for you

No future
No future
No future for me.



fairleft
by fairleft (fairleftatyahoodotcom) on Fri May 14th, 2010 at 06:39:25 PM EST
And so it goes:

US media demands Greek-style austerity for American workers
14 May 2010

http://wsws.org/articles/2010/may2010/pers-m14.shtml

fairleft

by fairleft (fairleftatyahoodotcom) on Fri May 14th, 2010 at 06:58:34 PM EST
[ Parent ]
According to Wikipedia, Greece has a very large defense budget, and was in 2004 the third largest customer in the global arms marketplace. Is this an accurate description? Is it proposed to change this in light of the current crisis?
by asdf on Fri May 14th, 2010 at 10:13:33 PM EST
They're going to need the military expenditure to keep the people quiet.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Sat May 15th, 2010 at 07:20:37 AM EST
[ Parent ]
Greece, the first country to conceive of democracy, now the first to lose it on live tv?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Sat May 15th, 2010 at 09:30:32 PM EST
[ Parent ]
I don't think anyone should be worried about this. There is no way a Greek leader would go to those lengths.
by Upstate NY on Sun May 16th, 2010 at 09:57:52 AM EST
[ Parent ]
then he better start spreading some seriously powerful soma around.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Mon May 17th, 2010 at 08:21:12 AM EST
[ Parent ]
The protests were much smaller than you'd expect.

The one thing sure to set off the entire country would be a heavy-hand.

If the gov't wants to commit suicide, then indeed they can take out the jackboots. it would be the end.

by Upstate NY on Mon May 17th, 2010 at 10:17:53 AM EST
[ Parent ]
There is no actual risk. You buy at a risk premium and then the IMF forces the actually not-sovereign state to extract the funds from the poor.
by rootless2 on Sun May 16th, 2010 at 10:44:15 AM EST
Your personal involvement brings it all close and clear, talos.

Just like some others, I find some of your corruption thoughts are a mirror of Spain:

This is a scheme of social legitimation of corruption through its apparent democratization.    

The middle age generation in Spain, who lived through the dictatorship, won't blink an eye when they hear that the price of a property is partially on the table and a big chunk of appreciation under the table.  Even young families seem to expect it that way.  

a large part of the merchant class,...  and the fact that they were on the side that triumphed in the civil war,.... created a certain economic mentality that persists to this day, and legitimized corruption as a survival strategy among the masses.

These old habits persist here also and requires cultural change by now, perhaps with public service campaigns about the effects of 'everyone cheating everyone'.  

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Mon May 17th, 2010 at 06:37:20 PM EST


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