No. 236A

THE GREEKS KEEN TO RESURRECT A FAILED STATE

STONE the crows! It looks like the Greeks have got another bailout, with four months more loans to cover yet more talks on what the country can pay back. [i] Which will not be much – the economy is 25 per cent smaller than it was in 2008, government debt is 175 per cent of GDP and official unemployment is 26 per cent, with 80 per cent of the jobless being out of work for a year or more. [ii]

Nor will the country be easily able to pay more back in the future, with the new Greek government as good as its campaign promise to reduce EU imposed austerity. Privatisations are cancelled, curbs on union power are ended, labour-market reforms reversed, pension increases promised, public servants re-hired and the minimum wage increased. [iii] According to Prime Minister Alexis Tsipras the new terms abolish the previous Greek government’s commitment to public service job cuts and pension reductions and for increased consumption tax on food and medicine.[iv]

This makes political sense – five years into depression is hardly the time to demand more austerity.

Except that unless the Greek’s restructure government spending the country will never be able to pay its bills and if it defaults now not even generous, or rather guilty, Germans will loan them any more money.

But this isn’t the core of the crisis – neither the market economy nor the welfare state is to blame for the crisis. Greece was just really badly governed, with interest groups plundering the state and leaving the poor to rot.

Greece’s problem was never what it spent on social welfare it was the way it was, or more realistically wasn’t, targeted, the way the public sector worked, or didn’t, and the way people evaded tax.

The OECD reports that at the start of the GFC public servants enjoyed a 20 per cent wage differential, with “clientelism” deciding who got jobs declining but still common. And the bureaucrats have kept busy since the crunch, issuing 2200 new tax regulations in the last two new years – and this while the economy is shrinking. [v]

But what was, and will likely remain worse, is the targeting or lack of it, of social programmes. Until recently only half the recipients of family allowance were in the bottom 30 per cent of the population. Pensions were rorted, with an estimated 2 per cent of GDP being lost to benefit fraud. And 30 per cent of the tax base was not collected due to evasion by generally self-employed upper income earners.[vi]

And then there was the rent-seeking and ticket clipping. “Many small, well-organised groups – ranging from notaries public, lawyers, and truckers to less well-known cases such as loaders and unloaders in ports and public markets as well as trade unionists in publicly owned enterprises – earn significant rents, and therefore have a strong motive to maintain the status quo and oppose any reforms that could lead to the removal of these rents. …These groups exhaust most of their available time and power to defend their privileges of a comfortable income that does not require them to work. They promote legislation that will favour them and constantly seek new opportunities that could increase their rents.” [vii]

Until last year a 1.3 per cent stamp duty on property taxes went towards funding judges and lawyers pensions and six per cent of what people pay for pharmaceuticals went to support doctors in retirement. [viii]

In essence, before the GFC Greece was a caste based kleptocracy where public and professional union members preyed on the poor. “The Greek social protection system does not curb income inequalities and poverty,” Margarita Katsimi and colleagues wrote in 2012, calling the young unemployed, all long-term jobless, women trying to return to work after having children and migrants “outsiders”

“Labour market institutions do not reduce the various types of income inequality either,” they write. “None of the categories of ‘outsiders’ noted above are represented in Greece’s unions which mostly defend the interests of civil servants or the employees of SOEs and the larger private businesses.” [ix]

And these are problems that existed before the GFC and it seem outlast it if the beneficiaries of the old order get to protect their public sector caste kleptocracy.


 

Stephen4 @hotkey.net.au

For policy writing and editing call me 0417 469 093


 

ENDNOTES

[i] Liz Alderman and James Kanter, “Eurozone officials reach accord with Greece to extend bailout,” New York Times, February 20

[ii] “The agony of Greece,” The Economist, February 16

[iii] Helena Smith, “Alexis Tsipiras begins rolling back Greek austerity policies,” The Guardian, January 29 “Hitting the ground running backwards, The Economist, February 14

[iv] ABC News, “Greece PM says Eurozone deal cancels past austerity but real difficulties ahead,” ABC News February 22, @ http://goo.gl/RGV1ta recovered on February 22

[v] Liz Alderman, “Greek bureaucracy, not just austerity, is an economic drag,” New York Times, February 17

[vi] Vassiliki Koutsogeorgopoulou et al Fairly sharing the social impact of the crisis in Greece, OECD Economics Working Paper 1106, Jan 9 2014 @ http://goo.gl/H2qBfU recovered on February 22

[vii] Michael Mitsopolous and Theodore Pelagidis, “Vikings in Greece: kleptocratic interest groups in a closed, rent-seeking economy,” Cato Journal 29 (3) September 2009 399-416 @ http://goo.gl/NbZ3gn recovered on February 22

[viii] Pavlos Eleftheriadis, “A Greek tragedy,” Australian Financial Review,” November 28 2014

[ix] Margarita Katsimis et al, Growing inequalities and their impacts in Greece, GINI Research 2012 @ http://goo.gl/IQbPTM recovered on February 22

'2012