Umbrella union: 10 myths about Greece and the crisis

Animated illustration by Manos Symeonakis

There is a wonderful short documentary doing the rounds on the Internet at the moment courtesy of The New York Times. Directed by Errol Morris, the film focuses on the presence of the so-called “Umbrella Man” at the assassination of US President John F. Kennedy. With the help of private detective and former philosophy professor Josiah Thompson, Morris paints the picture of the apparently sinister presence of a man holding a black umbrella on a sunny day in Dallas exactly at the point where Kennedy was shot.

However, Thompson goes on to point out that the Umbrella Man eventually came forward and explained that he was holding the umbrella as a protest against the appeasement policy of JFK’s father, Joseph P. Kennedy, when he was US ambassador to Britain before the Second World War. The umbrella was a visual reference to the British prime minister at the time, Neville Chamberlain, who also carried one.

“If you put any event under a microscope, you will find a whole dimension of completely weird, incredible things going on,” says Thompson, adding that the Umbrella Man episode is a “cautionary tale.” “If you have any fact which you think is really sinister; forget it man, because you can never think up all the non-sinister, perfectly valid explanations for that fact,” he says.

As incongruous as the two events are, perhaps there is a lesson that we can take from the story of the maligned Umbrella Man going into this week’s momentous European Union leaders’ summit. One of the main reasons that we have arrived at the point where the future of the euro and the EU itself is hanging in the balance is that too many decision-makers within the Union and the eurozone have spent the last two years chasing shadows, or men with umbrellas if you will, rather than addressing the real issues.

For much too long, this crisis — which Europe now unanimously admits is a systemic one — was approached as if it was a symptom of the failure of one country: Greece. Rather than treat Greece as the weakest link in a chain that would be tested to its limits, the eurozone chose to view it as the font of all Europe’s woes. The fact that a more comprehensive strategy to tackle the euro’s weakness is now being sought is tantamount to an admission that the wrong strategy was adopted.

The blinkered view that persisted over the past couple of years was built on certain myths that went largely unchallenged and became established in public discourse, much to the damage of both Greece and the eurozone. These myths have since given rise to other tales that threaten to undermine any possibility of recovery, even at this late stage. For this reason, perhaps now would be a good time to address some of the misnomers and misconceptions of the past months.

1. Greece should never have joined the euro — it used false statistics.

People often make the mistake of lumping these two issues together when there is clear distinction between the two. There is a valid economic argument that Greece, and several other countries, should not have joined the euro when they did. In Greece’s cases, it had achieved only a superficial convergence based on public debt and deficit figures but the negative underlying economic factors should have meant that the Greek organ was rejected in this currency transplant.

The structural problems that Greece never addressed, such as its decrepit public administration and weak production base, meant that it was at a disadvantage from the start and would have had to undergo a remarkable transformation — one which was never attempted by the country’s timid politicians — to achieve a sound footing within the eurozone. Instead, Greece ended up producing only one euro of its own wealth for every three that it imported over the last decade.

However, this issue is totally removed from that of forged statistics. It has become a throwaway line for commentators and journalists to write that Greece fibbed its way into the euro. This misconception is largely driven by the decision of the New Democracy government that came to power in March 2004 to conduct an audit of public finances that led to Greece’s budget deficit figure being revised upward, above the 3 percent of gross domestic product limit for euro-area members. However, the deficit increase was largely down to the conservative administration changing the way military expenditure was recorded. Rather than record the spending when the procurements were delivered, it attributed them to the date when the orders were made. This exposed a weakness in the way that the eurozone treated statistics. By failing to agree on a uniform system for all, it allowed statistics to be open to political manipulation in several member states, not just Greece. It is an issue that the European Commission has only addressed over the last few months. As Dimitris Kontogiannis revealed in Kathimerini English Edition recently, the EU now uses the delivery method to record procurements, which means Greece’s deficit when it joined the European Monetary Union in 1999 met the 3 percent target.

According to the Commission’s database, several other countries’ deficits, including France and Spain, were over 3 percent. Some will argue that this is irrelevant now and in a sense it is. But the regular rehashing of this myth has contributed to the impression among commentators, as well as average Europeans, that Greece has to answer for an original sin even though this offense was never committed. Establishing the truth has to be the first step to rebuilding trust.

2. Greece wasted years of European Union subsidies.

It is true that Greece has not made the best use of the cohesion funds it has received since joining the EU. The money should have helped invigorate the Greek economy so it could compete and create jobs. Instead, too much of the money was frittered away on useless schemes, such as agricultural subsidies — although Greece was not alone in doing this.

However, that’s not to say the money was completely wasted, nor that the structural aid packages were as large as some people like to believe. During its 30-year membership of the EU, Greece has received the equivalent of 78 billion euros in Union funding. Beyond that, the European Investment Bank has also helped finance key projects such as the construction of Athens International Airport and the city’s metro system. They are just a couple of schemes where EU money has helped improve Greece’s infrastructure substantially since the 1980s. Although still far from ideal, it should not be forgotten that because of its geography, Greece has to build and maintain an unusually extensive infrastructure — such as island ports and airports — for a small country.

Also, it’s worth bearing in mind that before the advent of the euro, the structural funds were a way for Greece to bring in foreign currency, which it then used to buy imported goods — mostly from Europe. Equally, one should note that many of the companies involved in Greece’s major infrastructure projects over the last decade were European. In other words, much of the money that was provided to Greece ended back in European pockets.

3. Greeks spent their money unwisely and ran up huge debts.

In the fog of crisis, people often confuse public and private debt. In Greece’s case, accusing its citizens of being irresponsible with their money over the last few years is perhaps one of the most unfair accusations you can make. While it’s true that the cheap credit which became available during the last decade fueled an unsustainable consumer boom, it inflicted damage on the Greek economy rather than on anyone else’s. The rise in demand for imported products strangled local production and meant that far too much money was flowing out of the country. However, it did not lead to Greeks as individuals owing inordinate amounts to others.

In fact, Greece has one of the lowest ratios of household debt to disposable income in the European Union. In 2009, it stood at 40 percent. Compare this, for example, to 122 percent in the UK, 130 percent in Spain and an eye-watering 240 percent in the Netherlands and it’s clear to see that those who are indignant at Greeks’ purported spending habits are misguided.

4. Greeks don’t work hard enough.

Comments over the last two years about Greeks’ work ethic, or lack thereof, have often been laced with cultural or genetic exceptionalism. The argument is often based on the theory that Greeks work too little, are always slinking off for a siesta and take long holidays. This is usually illustrated by a colourful anecdote about an idiosyncratic taverna owner on an island or a chain-smoking civil servant.
This is about as fair as basing your judgment of British or Dutch culture on the behavior of those countries’ teenagers in Malia or Hersonissos. There is no reason to form such stereotypes as there is ample statistical evidence to provide a clear picture of how hard Greeks work. Eurostat figures consistently show that Greeks work the longest hours in the eurozone. The latest figures show that Greeks worked an average of 40.9 hours per week in 2010. The eurozone average was 36.6. Even the usually privileged civil servants are now working 40-hour weeks after their working days were extended by 30 minutes this summer. Figures compiled by the Organization for Economic Cooperation and Development (OECD) also show that Greek productivity kept pace and in some cases exceeded other eurozone countries, including Germany, during the last decade.

However, what statistics cannot show is how much of an obstacle Greeks who do not work effectively can be to the rest. Numbers, for instance, are not able to illustrate how much time a Greek business owner or employee has to invest in processing paperwork because of his country’s arcane public administration in comparison to a eurozone peer that does not suffer such a drain on his or her resources. Greece’s problem is not one of its people being lazy but one of finding a way for those who do put in the hours to be efficient.

5. Greeks retire in their 50s.

Until last year, Greeks could earn a full pension if they completed 35 full years of work. However, for them to retire in their 50s, they would have had to complete 37 years. There were some exceptions to this in the public sector and the military. Similar rules on early retirement exist in other European countries. Nevertheless, the average retirement age in Greece is not in the 50s. According to figures compiled by Eurostat, last year it was 61.4. In Germany it was 62.

However, Greece’s pension laws were overhauled early last year so that by next year Greeks will retire at 65 and will earn retirement payments that are based on the average of the salaries they earned throughout their career rather than on their final wage. These are stricter pension rules than those in other EU countries, such as Britain, where public servants went on strike last week to protest about a planned scheme very similar to the Greek one.

6. Tax evasion is widespread in Greece.

Greece has a considerable problem with collecting taxes but it is inaccurate to suggest that a sizable percentage of the population is involved in serious avoidance. According to the Finance Ministry, some 900,000 people owe the state an estimated 41.1 billion euros in outstanding taxes. However, a mere 5 percent of tax dodgers owe 85 percent of the outstanding amount. Just 14,700 individuals, companies or organizations owe 37 billion euros, according to the ministry. Each of these owes more than 150,000 euros.

Serious tax evasion in Greece is the business of a relatively small number of people and enterprises that have taken advantage of an indifferent state sector. That’s not to say that smaller-scale avoidance by companies — the Social Insurance Foundation (IKA) estimates that 10 percent of firms don’t pay social security contributions — is not a problem. But when about half of the working population is employed in jobs where their income is taxed at source, thereby ensuring they cannot avoid paying their dues, it is unfair to tar the whole country with the same brush.

One last factor to take into account when discussing tax evasion in Greece is the structure of its economy: Unlike most eurozone countries, more than half of Greeks are either self-employed or work in small companies of less than nine people. In Germany, for instance, this figure is less than 20 percent. This is significant because anywhere in the world you go, there is a direct correlation between this type of employment and the black economy because it becomes more difficult for authorities to check disparate tax records. A graph of OECD data shows that there is a steady rise in the size of undeclared revenues and earnings, the more self-employed professionals and small companies a country has.

In the last few months, Greece has made slow but positive steps toward addressing the problem of tax evasion. Authorities are now employing an electronic system that allows them to crosscheck data and root out dodgers.

7. Greece spent too much money on its public sector.

The key phrase here is “too much” because nobody can really define what that is. Following a request by the government, academics carried out a study on Greece’s public sector in the 1990s with the aim of providing an assessment of what the country needed from its civil service. Their findings were never published or adopted. The impression has remained, though, that Greece employs too many civil servants and spends too much on services.

In terms of personnel, the process to reduce numbers has begun. It has been slow but some 150,000 contract workers and retirees have left the public sector and more than 30,000 civil servants will be placed in a labor reserve scheme over the next few months. Undoubtedly, more people will lose their public sector jobs in the years to come as in its current economic state Greece can certainly not pay their wages.

However, when compared to other European Union countries, Greece’s public expenditure is hardly as extravagant as is often made out. The 2011 Index of Economic Freedom compiled by the Heritage Foundation and The Wall Street Journal indicates that Greece’s government expenditure is 46.8 percent of GDP. It’s high but still below countries such as the UK, Austria, Denmark and France, where it reaches 52.8 percent.

However, these figures don’t show what taxpayers get in return for the apparently average amounts that are spent on the public sector. This is where the real problem lies: Greeks are getting far too little bang for their public expenditure buck. Too much of the money has been wasted on fulfilling political favors — either through the handing out of cushy public sector jobs or juicy public contracts — rather than being invested in areas such as education, infrastructure and incentives for business that would provide the country with growth, jobs and a sturdy platform for the future.

In what is a double whammy for Greeks, the waste of money means that they do not enjoy the benefits of a social security system that would normally be associated with a country that purportedly spends heavily on its public sector. Social spending in Greece is actually several percentage points lower than in countries like Germany and Italy. One of the results of this is that the growing number of Greeks losing their jobs have little of the support that citizens in other eurozone countries can expect. In most cases, they will get a monthly unemployment benefit of 500 euros for a year and then be left to their own devices.

8. Greece has failed to implement the terms of its EU-IMF loan agreement (memorandum).

Greece has failed to meet the targets it agreed with the EU and the International Monetary Fund when it signed the 110-billion-euro loan agreement in May 2010. Undoubtedly, part of this is down to delays by the government and holdups in the judicial system and wider public administration. The liberalization of closed professions and the downsizing of the public sector are just two such examples.

The derelict state of the public administration, however, should have been clear to all. If a country’s civil servants are largely untrained and not monitored, if key departments lack know how, if its legal system is tied up in knots and its ministries are at war with each other due to allegiances to political parties rather than the public, then what hope can there be of achieving any meaningful change. A new OECD report suggests just as much and the EU Task Force that began work in Greece aims to provide expertise that will help improve the situation. That’s why there had to be greater emphasis in Greece’s bailout on uprooting this system rather than on getting public finances on track.

Furthermore, the targets that Greece was set were based on certain forecasts about the way the economy would evolve in the ensuing months. These predictions, as well as the troika’s understanding of how the crisis would develop, proved to be fundamentally wrong. Greece, for instance, is set to miss its deficit target for this year by about 1 percent of GDP, but on the flip side, the Greek economy had been projected to contract by 3.8 percent, whereas it will actually by shrink by about 5.5 percent. This also highlights the fact that Greece’s drastic austerity program — the likes of which has not been seen in Europe for several decades — does not appear to be having the desired effect. In fact, it seems to be worsening Greece’s recession.

Nevertheless, having entered into an agreement, Greece and its government must shoulder most of the blame for the program not working so far. This does not absolve the EU and the IMF — particularly the latter as it has experience of applying such programs in other countries — of their responsibility. The program devised for Greece has simply not been fit for purpose. Greece has consistently been told over the last two years that it’s a unique case, yet the EU-IMF program appears to be largely a mish-mash of measures that have been applied in other countries and which do not account for the particularities of the Greek case. Surely, if it were a unique case, it would require a unique program.

9. European taxpayers’ money is being wasted on the Greek bailout.

The language attached to the 110-billion-euro Greek package (bailout, aid, financial assistance, for example) often gives the impression that bundles of euro banknotes are arriving in Athens from other parts of the eurozone in cardboard boxes stamped with a red cross and that this cash is never to be returned. The reality is somewhat different. Greece’s eurozone partners are lending this money, not gifting it.

An agreement struck earlier this year means that this money is being lent at a reasonable rate of about 3.5 percent and that the maturity of the loans has been extended to 10 years. Based on a rudimentary calculation involving all the disbursements for the first year being added together and charged at a rate of 3.5 percent, France and Germany earned about 300 million euros each in interest over the 12 months. An extra 300 million euros flowing into the public coffers of France or Germany may not make a huge difference to either of those two countries but these are sizable sums for Greece. The total interest for the first year of loans stands at about 1.3 billion euros.

Furthermore, it is estimated that only about a fifth of the money that Greece receives goes toward covering public spending commitments such as salaries and pensions. Some analysts calculate that at last 60 percent of the bailout money leaves Greece in the form of loan repayments.

In other words, those contributing to the bailouts are making a profit on their investment and the majority of their money is being returned to European banks that have in the past bought Greek bonds.

10. A return to the drachma would be the best solution to the crisis.

A number of economists and commentators have pointed to a Greek exit of the euro as being the most effective way of tackling the crisis. Some of them have put forward a convincing argument about how Greece could regain competitiveness if it is freed of its euro shackles. Certainly, it is now evident that the drachma was overvalued when Greece joined the single currency and that this damaged the country’s competitiveness. However, Greece did not help itself by failing to reform its public administration and push for a more dynamic economy in the years before and after it adopted the euro.

The danger that most foreign analysts fail to identify in the eventuality of Greece returning to the drachma is that the political impetus for carrying out these reforms will also disappear. A euro exit would be the kiss of life for the current discredited political system and its cronies. In charge of the printing press and monetary policy once again, yesterday’s men will find a way to cling on to power and run the country according to their personal designs rather than in the interest of its people.

Beyond that, there are serious economic consequences to leaving the euro — such as a potential collapse of the banking sector and housing market, substantial depreciation of the new drachma and difficulty in importing vital supplies. These are sometimes easy for foreign observers to play down as they do not have to consider what effect all this will have on their day-to-day lives. Greeks, however, should be in no doubt that — economic theory aside — a return to the drachma will be ugly.

A cautionary tale

None of this is to say that there aren’t problems in Greece. There are plenty of them. They used to be small but years of social indifference and political timidity meant that they grew deep roots. Even at this late and urgent stage, there are elements of the political and economic system that want to cling on to the status quo at all costs and avoid the structural changes that would give the country a chance of moving forward and creating an economy that was not heavily reliant on cheap credit from abroad, imports and consumer spending.

To tackle these problems, you must be clear about what they are. Unfortunately, much of the debate over the last two years has focused on anecdotes, extreme examples, stereotypes and exceptions to the rule. It has emphasized the worst rather than identifying the best so it could serve as an example.

Why bring all this up now? Because for much of the past two years, too many decision makers in the eurozone have been sucked in by the Greek myths. It has provided politicians, European bureaucrats, economists, bankers and even citizens a curtain to hide behind. The easy response to the crisis was to dismiss it as a problem generated by Greece and the other PIIGS.

For two years — and despite the fact the euro was hurtling toward disaster — the focus was on austerity, price stability, markets and bond yields. Too little attention was paid to the inherent structural weaknesses of the euro, such as the large current account deficits being run up by the countries on the periphery or the lack of institutions to manage the single currency. European politicians shied away from seriously discussing the recapitalisation of European banks and the creation of new tools such as Eurobonds or revamping the role of the European Central Bank.

It is only now that the crisis has come knocking at the door of many more countries in the form of rising yields and general investor concern that the decision makers are focusing their minds on the actual causes and potential consequences of the crisis.

So, as EU leaders gather in Brussels for make-or-break talks on what needs to be done next, the Greek case should serve as a “cautionary tale,” much in the way that “The Umbrella Man” did. There were lots of explanations for how the crisis struck and why it gripped Greece first but eurozone leaders chose to ignore them. Instead they focused on a bit-part player in this whole episode. They made the mistake of believing the myths.

Nick Malkoutzis

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43 responses to “Umbrella union: 10 myths about Greece and the crisis

  1. Well, I have to say, I got a bit bored with all the statistics, particularly, when I read 900,000 ppl owe outstanding taxes whisch total 41 Billion. Not sure what that evaluates to owed per capita….as I’m not quite sure how a Billion is defined, but it seems an unreal figure. So my opinion is that I applaud you for all your hard work in producing this document, but paper never refused ink

  2. There’s a well know phenomenon. Decide you need someone to blame someone, anybody. Once they’re in the blame cross-hairs, you must, to justify actually pulling the trigger, heap on better and better arguments for why you’ve selected this particular target. Greece is now well coated in blame velcro. Your arguments make much sense. In fact they are altogether too reasonable. To shift the blame you’ll have to find someone, some people, another country to whom people can attach it. Europe has a dark and shameful history of finding scapegoats for hard times.

  3. well done on adding some much needed balance to the debate. The real problem for Greece is its political class and institutions. The degree of cynicism exhibited by the two main parties in ‘supporting’ the Papademos government is staggering. These people are not fit for purpose, particularly the irresponsible and incompetent Samaras. Does anyone really believe that he’ll be a better PM than Papandreou? Does anyone really believe that Greek politicians will be able to handle a future coalition govt? On the other hand, I saw a poll on Sky TV this morning that showed 30% of the people asked in favour of ND. That seems a triumph of hope over judgement, but even if ND achieved that in an election, it wouldn’t have an overall majority.

  4. Dear Nick, Very much enjoy reading this post and the storm it provoked when posted on FB. Will come back later to specific points, but as a former US Embassy Athens Economic Officer now resident here, my main observation is that this piece lets the Big Fat Greek Publik Sektor (BFGPS) and its supporters in many Greek political parties off the hook far too easily on almost every count. More later…..

    • Thanks Alec. I believe I’ve underlined that the root of Greece’s problem lies in its public sector and the warped relationship Greece’s politicians have with it – although there’s clearly much more to the crisis than that. But bear in mind this is a piece designed to tackle some of the misconceptions or exaggerations rather than to focus on the problems themselves. I’ve made reference to them to show that I am not living on another planet but I have tackled them in more detail in other pieces in the past and I’m sure I will do so in the future.

  5. Thank you Niko for this ,I wish this pieece can be distributed to many closed minded american news sites and comman meeting places.coming from a greek back ground, I defend greece and yes put blame on our politician,for ripping out the hearts of greeks with all thier monies and running to swizerland, the superpowers in europe are slowly draining greece of it’s power and it’s ;land, ,not to many people no that greece is rich in oil and gold and that the pipeline from suadi arabia rhas to pass through greece to reach “germany ,france , and england,we need to stand together as greeks ,and not let greed take the lead front and center as it always did in greek history letting other kings and queens rule greece .let greece rule greece not the germans or the chinese or the saudis..it broke my heart when I heard there was a mosque build in the center of Athens , as I remember the war of 1821 was fought to keep the muslim s out ,
    I am proud to say I’am greek orthodox, when asked
    ,

  6. Nikos Patiniotakis

    Really enjoyed reading the article. As a Greek living abroad is easy to come across the stereotypes generated the past 2 years. I also think that these myths fuel a self fulfiled prophecy of failure, people cling on the myths and eventually the myths drive the decisions to make the right moves to ensure failure.

    • Thanks for the positive comments Nikos. I agree with you 100 percent. While Greece has lots of serious problems, it has made a huge mistake to allow steretypes to go unchallenged for so long. A line has to be drawn between valid criticism and prejudiced posturing. If you don’t do it, the reputation of Greece and Greeks will be damaged so badly that it will take much longer to rebuild it than it will to solve the debt problem.

  7. Pingback: Les 10 mythes de la Grèce et de la crise

  8. Pingback: Umbrella union: 10 myths about Greece and the crisis « skopelosnews

  9. This was most interesting and informative reading. Still, I continue to be amazed how much effort is being put into the analysis/explanation/justification of the past when there are so many more pressing tasks to shape Greece’s future which would deserve analysis/discussion/implementation. The analysis of the 10 Euro-years and 30 EU-years is relevant only to the point that it shows the processes which got Greece into trouble, so that one correct this by reversing those processes.

    I have been waiting for 2 years now, and I am still waiting, that Greece comes up with a long-term macro-economic development plan for the next 2 or 3 decades for the Greek economy. A plan how to “build a modern and prosperous Greece: a Greece characterised by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos” (EU Task Force).

    The classic IMF-medicine (austerity, economic reforms) works only, if it ever does work, in economies which have enough of a self-healing capacity. If my home country Austria got into economic trouble (the public sector actually is in great trouble but we have the luxury of air cover from PIIGS-countries who occupy the front pages…), IMF-medicine would probably work quite rapidly: the public-sector, however wasteful, does function but it needs to be improved; the welfare state does function but it needs to be reduced; the economy does function but it needs to be liberalized more; etc. etc. Again, this is where IMF-medicine can indeed work successfully.

    I don’t think that the Greek state/economy has that self-healing capacity yet (if they ever had it). Thus, to simply make reforms and wait until they play out is unlikely to be sufficient. Instead, this will have to be a “managed process”, the basis of which is a long-term macro-economic development plan.

    You can write another dozen articles on why certain myths about Greece are not supported by facts. It won’t do any good because the perception is already there that the myths are facts. My Greek wife is getting depressed when she hears/reads what perception the Northeners have about Greece and Greeks because her roots are in that part of Greek society which does not fit the myths described in your article. That part of Greek society (which, I would guess, is still the majority; albeit a very silent majority) which deserves all the support which the rest of Europe can come up with.

    As long as surveys show Greece as the most corrupt country in the EU; as the least attractive place for doing business in the EU; as one of the wealthiest upper classes of all societies (offshore) — every effort to correct myths with facts is a waste of energy and effort.

    Like with data on a computer: one cannot really erase the data; one can only overwrite them with new data. The past is spilled milk; period. Deliver a better future and people will forget the past (and, instead, admire what is happening now).

    This is where a long-term macro-economic development plan comes in. There is probably a fat chance that the Greek government will ever come up with such a plan. But there are so many capable Greeks who are not in government who could take the initiative. Such a plan cannot be developed outside Greece and imposed on Greece. Instead, it must appear to be initiated and “owned” by the Greek government and, eventually, be the Greek people. Who actually comes up with the best ideas is irrelevant but it is the Greek government and the Greek people who have to make themselves their “owners”.

    Any plan starts with an analysis/definition of one’s competitive advantages (and how one will leverage-up on them) and one’s competitive disadvantages (and how one will work around them). The plan leads to overall objectives with specific action plans and time lines. That is the compass for the future. One always knows how much one is progressing and if one deviates from the plan, the compass will show it and one can take corrective action.

    There may be several such plans under consideration already. I have to date only seen 2 documents which could serve as a basis for such a plan: the “Greece 10 years ahead” report published by the Athens office of McKinsey and the 1st Report of the EU Task Force (a great Task Force with the unfortunate optical mistake that its head is a German, and a German whose first name is “Horst”…).

    Why can’t the Greek Prime Minister charge one of his ministries to come up with a long-term macro-economic development plan for the Greek economy? The ministry doesn’t need to be smart. All it needs to do is to marshall the resources of others (like McKinsey or the EU Task Force; but above all the resources of Greek brainpower!) and call the final product “their own idea”.

    My final point is this: I have been involved during my career in innumerable financial restructuring negotiations with borrowers who had gotten into dire financial straits (including 2 countries on the verge of default). Whenever the borrower came up with a solid turn-around plan which no thinking person could object to, the lenders played ball. If Greece came up with such a solid, long-term macro-economic development plan which no thinking person could object to, then I would like to see that banker and/or politician (including Angela Merkel) who has the nerve to stand up and say: “No, we will not support a credible plan to ‘build a modern and prosperous Greece: a Greece characterised by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos’”.

    Nobody will stand up; be sure of that!

    • Klaus, of course you are right on the issue of Greece having to help itself. The inability of its political leaders to create their own credible plan and get ahead of the game is causing huge damage. The country’s progressive forces have to come together to reconceive Greece and give the country purpose and direction. Looking at the landscape now, I’m not sure where that will come from. There are plenty of knowlegable and talented people out there but the political system and its vested interests have so far formed a closed club that does not let them in. We have seen over the last few months how the old guard has sought to cling on to power at all costs – even the economic collapse of the country. I hope that the next few months will see the beginning of the transformation. Without it – as you say – there is no hope.
      However, I would challenge you on the issue of not seeking to correct misconceptions about Greece. Maybe its a losing battle but one worth fighting. First of all, I do not think that it’s a case of “either or” – you can both seek to battle prejudices while advocating that Greece changes its ways. My fear is that if we don’t do all we can to challenge some of the lies and exaggerations about Greece and the crisis, then generations to come will carry an unfair burden. It will be more difficult to turn around Greece’s image than it will be to overcome its economic problems.
      Rest assured that I will continue to highlight what I believe is wrong in Greece and how the country should move forward but I will not give up the effort to achieve fair treatment for the decent, honest and progressive people in this country who are being victimised unfairly.
      Keep the interesting comments coming!

  10. I cannot write of the whys and wherefores of this debate as I have always believed in my instincts which have never been wrong in 65 years. My instincts are that Greece has been raped like Ireland . The same is now happening to Poland. Greece has something the totalitarians want or they wouldn’t be so interested in it. It maybe its precious metals, its natural gas, or its tourist industry or simply the 11 million more to feed off by increasing their taxes. Such is the nature of parasites and psychopaths who are incapable of creating anything but misery for others. . When the UK and USA have completed their police state plans and have numerous concentration camps full of artists , musicians, writers ,and anyone remotely intelligent ( all branded as terrorists), Greece will still have all its natural beauty that draws people to it. That’s when Greece will be the envy of Europe. My only concern will be if we have to entertain these parasites when they choose to visit on their vacations. That’s if they manage to keep Monsanto out .

  11. It is important to give some credit to the Greeks even on point 10, the consequences of leaving the Euro. Greeks themselves understood that entering the European Union, and then adopting the Euro, would provide some external accountability to their political class, and to themselves. That is an admirable and a humble position to take about one’s country (although I wish it had been unnecessary, and that Greece had NOT adopted the Euro). However, would that that accountability had been a reality when the false accounting practices were being practiced ten years ago or more, and not only now, when the cost of facing reality will be so much higher. One last point – I would maintain that future economists will conclude that local currencies, rather than supranational or even national ones, provide a more hospitable climate to actual, non-subsidized, sustainable local economic development. As a Greek I wish us well with the reforms, but I also hope that a day comes when we shall leave the Euro entirely – not to return to the drachma, but to graduate to a dozen or more local currencies throughout Greece. In the past we have simply put too many of our cultural, economic, and infrastructural eggs in one basket labeled “Athens,” and much of the countryside is depopulated. Let us hope, in fact, that the European Union will someday become the umbrella under which dozens of bypassed places throughout Europe will gain local currencies and genuine local economic diversification. Thank you for your fine article, and Good Luck to you.

    • Timothy’s is the most interesting and original of comments, but for those holding to conventional solutions (‘holding on to nurse for fear of finding something worse’) will seem bizarre. We live much of the time in a village in Corfu. It feels anything but isolated, because something is working out here that might be part of the future.

      • Thanks to all of you for the very interesting discussion that has emerged. Some excellent points have been raised. One that I think we can all agree is that as long as Greece does not replace the cogs that drive its economic machinery – in other words, the public administration that serves as the basis of the day-to-day functioning of the country – then we will continue to run just to stand still. How that happens, though, is less clear. Klaus is right that we can’t wait for the political class to drive the change. It will have to come from indicvidual citizens and social groups. Of course, the media has a role to play as well. However, there has to be an evolution on the political scene as well. Only if we attack this problem from all sides can there be hope of achieving something positive.

  12. Dear Nick, on the issue of changing misconceptions: I spent the years 1980-83 in Chile as Country Manager of one of the largest American banks (including the management of our local bank there). I witnessed a most remarkable economic turn-around from a corrupt, communist, planned economy into a market-driven economy (in fact, the “Chicago Boys”, in their academic perfection, aimed at a totally free market economy and failed at the first try; their successors repaired that). There was enormous enthusiasm in the entire society about the future of the country (mind you: what the Chicago Boys did or could do in Chile would never work in a democracy). To me, Chile was God’s country. At the same time, my parents forwarded me articles of Austrian media describing Chile as the most brutal dictatorship where people lived in fear and anxiety. When I advised the Chicago Boys that they should do some “international marketing” to improve Chile’s image abroad, they responded: “Look, of all the coups in Latin America, the Chilean coup was the only one which deposed the first democratically elected Marxist as President. With that, we have no chance of ever correcting with campaigns the image built up abroad about Chile. We can only deliver results and once the results are there, the image will improve”. And they were right!

    On the issue of who should give Greece purpose and direction: well, don’t wait for the government! But how about starting with yourself and with your newspaper? Organize a “Brainstorming Day about the New Greece”. Invite the consulting firms which are represented in Athens; the Greek think tanks (of which I understand there are more than one); university professors (including some from abroad); fellow journalists; whoever else seems capable. I mean, McKinsey – for one – would come up within a few days with hundreds of PowerPoint slides with a “”Road Map towards a New Greece”. I don’t want to do marketing for McKinsey and I am sure there are many Greeks who could do the same.

    The objective of that “Brainstorming Day” would have to be to come up with a plan for how the preparation of a long-term macro-economic development plan for the Greek economy can be organized. If the government doesn’t catch on, leave it alone. Make sure that such a plan gets worked out and, once it is complete, the government won’t be able to ignore it.

    A positive momentum needs to be gotten under way! Having just spent 3 months in Greece, I got sick and tired of hearing day-in/day-out all the bad news and all the analyses why things will even get worse and why there is no hope for the future. No wonder that suicide rates are going up (as I read somewhere).

    You may consider me an illusionist but I firmly believe the following: Greece could within less than one generation become the “economic tiger” of the Eastern Mediterranean! Why? Because she has so much catch-up potential. Because it is so obvious what is wrong with the country (public administration, etc.) that one can quickly begin with repairs. And because the country, in my opinion, has never even made an attempt in recent history to utilize its potential.

    When I talk like that to my Greek friends, “experienced Greeks”, they smile and tell me that I should come back to reality. By that, they mean that nothing will ever change in Greece. Maybe yes, maybe no. But you will never know for sure I you never give it a try.

    • As someone who gave refuge in UK to middle class Chilean refugees – certainly not communists – in the 1970s, I can assure Klaus, a true believer in single solutions to ‘wicked’ problems, that he is misguided if he thinks the reputation of post-Allende Chile was exaggerated. There was a film called ‘Missing’ in which Jack Lemmon (playing the role of Kastner?) goes from the US to Chile to find his missing son, refusing to believe the stories spread about the Pinochet regime. He’s made tragically aware of what was really going on. I’m not saying Allende had the answers. A thriving economy requires a robust balance between private and public sectors – one that is awry in Greece. The public sector needs radical reconstruction, but not by the ‘Chicago boys’ who’ve left such trails of self-righteous destruction in their wake. Look rather to Germany for the interdependence of private-public needed. Entrepreneurs thrive where there is reliable justice, education, health, transport and planning. The latter need root and branch reform in Greece, but the answer is not to put such public goods in the hands of asset-stripping privateers.

  13. Nikos Patiniotakis

    Seeing the discussion moving to a debate on the solution is clearly a good sign. Also the fact that an article for breaking down myths sparkled this good discussion is another good point. On the comment made by Klaus about the paradigm of Chile, I don t agree that a solution Chicago boys style can work everywhere. The theory that the market founds a balance on each own and all the players in it act based on rational has been proven weak more than once. In the same time there is the example of Keynes after the Great depresion who with his theory of a public sector that invests in the economy provided a solution back then. Maybe this is the case of Greece. A public sector not working doesn t mean ban the public sector but rather fix it and put it to work for the benefit of productive powers in the economy. I agree that any plan for recovery should start from a restructuring model of the system, I also firmly believe that any recover plan demands a strong administration that is capable of managing the by default limited resources wise and to the correct direction. But apart from the technocratic part there is also an emotional twist in it, people need to feel part of the plan need to feel that they are peers to a vision and their sacrifices are for a cause, clearly a totalitarian regime cannot obtain that. And also long standing myths either.

    • Ooops, I knew that I shouldn’t have brought Chile into the game. I certainly didn’t bring her into the game as an example for type of government and/or economic policy but only as an example that one cannot beat national prejudices, be they justified or not, with factual argumentation. One can only “overwrite” them with new facts. And I truly hope that Greece will soon write new facts so that the myths of the past become irrelevant.

    • Apologies to Klaus K for my stridency on his Chicago boys solution. It’s good to be discussing ways forward. Isn’t this situation made more distinctive in that the devaluation option of Latin-America (tough tho’ that was) isn’t available to a Eurozone economy and reversion to the drachma brings down more than Greece – or even Europe. The spectre of Lehmann Bros or the sub-prime implosion. I had speculated the future might lie in the survival and even growth of small scale regional and bounded economies becoming more sustainable, so I found this story of the impact of the crisis in the Zagorochoria troubling.
      http://www.americaabroad.org/radio/programs/documentaries/?prog=europe_in_crisis&seg=field_report_from_greece
      I maintain vigorous hope for a revival of sustainable communities – clusters of villages and smaller provincial towns; a global trend to be observed if sought in India, Australia, Canada and much of Europe including Greece.
 To survive and even thrive in villages it is neither possible nor feasible to revert to the past whose grinding conditions so many sought to escape; nor is it possible in some straightforward way to revert the attitudes and values of a globally urbanised world to villages. The ideas, techniques and values essential for survival and success in these small linked communities have not yet been assimilated or in some cases even invented. The new ideas and practices exist but only in certain places unique to particular critical clusters of people. Every small community is different and unique and there is so simple generic set of guidelines on how to make villages or clusters of villages work for their inhabitants. The ideas are out there – hardly realised, evolving, their originality, difficult, even impossible, to distinguish amid the suffocating noise of present crises and current understandings of the world.

  14. Hello again, the debate has moved a bit off track but I agree with most of Klaus’ initial comments, which were exactly focused on the key issues. You might say an ex-banker and an ex-US Embassy economist would have been programmmed the same way, so agreement is automatic. So be it. For my money, and yes I have to pay Greek taxes now that I am in the private sector here and own property, the real question is something Nick M’s article lightly touched on – who in this country has the courage to admit the entire public sector has to be torn down and rebuilt on a smaller scale into a value-adding institution that Greece can afford? Why are the bulk of the local comentators trying to shift the blame to the undeniable weaknesses of Eurozone institutional structures (many predicted to fail at inception) when the indisputable issue for Greece is cutting costs to achieve fiscal consolidation, getting public services here to deliver, and rebuilding the capacity to capitalize on Greece’s competitive advantages?

    • Regarding the public sector, look over the 1st Report of the EU Task Force and you will be surprised (I certainly was!) how many “repair-projects” they are already working on. My gut reaction after reading this was “gee, if they keep working at this as outlined here, there might indeed be light at the end of the tunnel”.

      Regarding the long-term macro-economic development plan which I keep mentioning over and over again, I had posted an “off-the-top-of-my-head” version of immediate action steps a few months ago. Here is the link: http://klauskastner.blogspot.com/2011/09/endgame-for-greece.html (apologies to Simon: Chile is briefly mentioned at the end…).

      And then there is the McKinsey Report which is worth reading. I mean, they do suggest how 500.000 new jobs (plus 50 BN EUR new GDP) could be created over the next 10 years. 100 projects are listed. My (cute) suggestion to the Greek government: first, read the report! Secondly, take the first 10 projects for 2012 and create 50.000 new jobs next year. And thirdly, if you don’t do that, explain why not!

      And then there is the Greek brainpower of which I read so much all over (except nothing about economic plans). I once wrote this appeal to Greek power: http://klauskastner.blogspot.com/2011/11/appeal-to-greek-brainpower.html.

      Other than that, I look forward to the “Brainstorming Day for the New Greece” which Malkoutzis/Ekathimerini are organizing. After that, I will buy Greek bonds at steep discounts and wait for them to return to 100% as the world realizes that there will soon be a New Greece!!!

  15. Only is cases of severe post-conflict reconstruction have such reforms been feasible.

    • Hello Simon, Not sure I get your point, if it was meant in reply to me, about the public sector reforms Greece needs only being feasible in other post-conflict situations. Do you mean to say that the deep program of structural reform as prescribed by the Troika is impossible in Greece?

      • As someone involved in the modernisation of local government over thirty plus years (Institute of Local Government Studies, Birmingham Uni) I have a sense of the depth and time scale of change in the sector with which I’m familiar. If you take the Civil Service, Sir Humphrey as an obstacle to change has nothing on his Greek counterpart – with 400 years of obfuscatory resistance to the Ottoman in his mental DNA. Rapid public sector reconstruction narratives are rare. Only catastrophe including literal destruction (as in post-war Germany) can substitute for the time span of the reform required. The normal narrative often involves the military. After the ‘stone years’, that will be not be retold in Greece. If it did it would, like the Spanish Civil War, draw in great numbers from the rest of Europe to resist autocracy, not to mention the Greeks themselves (diaspora and in the Republic) for whom the junta was so shaming. My policy were I a strategic actor amid this crisis is endurance, patience, delay and, yes, a degree of obfuscation. After the collapse of the Greek city states, people could no longer rely on the demos and the sense of collective identity it conferred (I know – woman and slaves were never included), so we saw a host of individualistic philosophical guides emerging, stoicism, cynicism, apathy – Zeno, Diogenes, Epictetus. These ways of thought and the behaviour that went with them are more positive than our modern understanding of such terms. They entail eschewal of materialism, withdrawal from the market, closer connection to nature. There is no one answer to the current situation; rather many answers, in many places and much inventiveness. At national level the austerity programme, which is not just about Greece, will have to work itself through all Europe. I believe Papandreou understood this when he sought a referendum.

  16. Lenthy but interesting reading about Greece and the crisis.

  17. Greece should be freed to do it on her own, just like so many other EU countries do!

  18. This book by Prof John Stewart, Modernising British Local Government was written in 1993 but hit would not have been translated into Greek had not some in Greece believed it contained helpful guidance on reform in Hellenic local government. Ατ the publisher Επίκεντρο…
    http://www.epikentro.gr/
    …search for
    John was my boss for near twenty years in Birmingham and he does not take the line that reform must come through privatisation. He is a firm believer in the need for a robust public sector to support an equally robust private sector. S

  19. Thanks Simon for the explanation. I have actually seen some post-conflict reconstruction having done a stint in Kosovo. So we agree the goal is difficult but I refuse to accept that some under-educated and relatively unproductive Greek civil servants can band together and block the entire reform process. Certainly they are trying their hardest. They can be de-funded and re-organized out of thousands of jobs, but that takes a lot of adminstrative work and political determination. I think the realization here in Greece that the country is essentially powerless vice its creditors until it begins generating primary budget surpluses (set for 2012) is a powerful incentive to cut costs. The main issue I see is the size of the public sector, still so massive that almost every Greek family has a stake in keeping some relatives employed there and thus blocking the program. Its co-optation, pure and simple.

    • Don’t we have to start being more specific about which public servants in which services. I feel ill-informed. Are we talking of teachers and other education employees through to catering staff; social services (these care the two largest sectors in UK local gov so I mention them), or of engineers, planners, environmental health officers – just to mention local government. Or is the focus on central government services and all the employees of public transport, and in the health sector. What of the emergency services – police and fire. I’d like to begin to get my head around at least some of the detail of those who Greece needs fewer of and what is to be done with them by way of pointing them to different careers or very different ways of working in their present jobs. It’s that kind of detail that becomes so daunting when thinking about public service reform and reconstruction. The systems ‘dynamic conservatism’ is intense.

  20. All of this reminds me of my experience in Washington, D.C. in the late 1990’s. I would meet so many professional development experts with a million rational, linear, statistical, and, excuse me, Cartesian ideas about economic development in the Third World. But when you asked them where they would most like to live, if they could live anywhere, so many of them independently gave the same reply: Bolivia, almost the “least developed” place in the Western Hemisphere! Yet these “experts” never could bring themselves to see the contradiction in their own ways of looking at the world. Greece is like that – on paper, many problems; but in the living, so often a true paradise of human relating. I was raised in the United States, got my Greek citizenship later, and still live abroad. And I have to say that Greece is really first in the world in so many of the most important ways. The last thing she needs is to abandon all that in order to make a neater appearance on some abstract accounting. Does this give her a free pass to ignore reality? No – the zombie-money subsidies of the E.U. already have done a good enough job of that, anyway ;)

  21. re-timothy patitsas comment and my earlier post.

    As I said before, one’s instincts are more reliable than all the intellectual expert theorists put together. We are under a vicious and bloodthirsty attack , a tidal wave of fascism orchestrated by the Rothschild clan and their devotees. The 575 billion that Germany still owes Greece from World War Two is ignored. The Greek people have long memories unlike the British who have indoctrinated a new generation who are subservient to the state. When Blair called out ‘education, education, education’ in his electioneering, he knew he meant ‘indoctrination, indoctrination, indoctrination’. Academics played ball . Job security comes at a price, but Blair made 42 million so what does he care.The UK is now a soulless desert . It could never happen in Greece. Their environment is a constant reminder that ‘the best things in life are free’.
    Bankers and psychopaths will never get that so it’s a waste of time and energy attempting any discussion. In my world of music we used to call them ‘straights’, ‘stiffs” or from an earlier age ‘squares’. Some people are just born without an ability to love , whether it is beauty, music, or their fellow human beings. Their innate discomfort of this is what drives them to believe we are ‘useless eaters’ as Dr Henry Kissinger once called us.
    We are facing evil and we would do better by calling them out by name, one by one. Courage at my age comes easy and musicians never had the luxury of job security . We have always faced a world hell-bent on destroying all that is good in mankind. What is so disappointing is the feebleness of those in high profile positions who know the truth yet say and do nothing. No more will I wonder how the German people got swept along with Hitler’s or Marx’s bullshit. Thinking for yourself may well mean a death sentence but it is better to die on your feet than to live on your knees.

  22. Hello Simon, I wanted to get back to you re the BFGPS (Big Fat Greek Publik Sektor). That’s a term of art around here, I hoped to get stats for you but these are not so easy to come by. But the central issue is easy to explain….we are basically dealing with a personnel structure that is short on critical service providers and excessively heavy on administration. Where the jobs have been created over the years are “special advisers,” media people, secretaries, guards, general office clerks, general communications clerks, special-purpose secretaries, etc, you get the point. This is the issue, as well as a proliferation of small government-funded organizations each with its own secretarial and administrative staff. Americans would probably classify 25-40% of these structures as unbalanced, not sure how it would look from the UK. So the challenge is to get more doctors and nurses and provincial fire-fighters deployed and to lower the core administrative costs for the 760,000+ strong workforce. The root cause, as in many democracies, is a patronage-spoils system, here called “clientist” (pelatiako). The rule in the Greek political world before the bailout was “Get me 25+ votes (usually for Parliament) and if I win, I get you or your family member an unspecified public sector position.” So you can see the root of the never-ending job-creation machine which pretty much has every Greek family somehow connected (total labor force is 5.1 million). Greece’s public sector is not Europe’s largest, but its efficiency/output is very low by most standards….take teaching, a recent report I am recalling from memory noted that Greece has substantially lower educational results than Finland, and more than double the number of teachers per student. So the “Bang for the Euro” is very low, especially since all Greeks send their kids to special college preparatory sessions at night (frontisteria) sometimes staffed by their same public school teachers, although that is illegal. Finally, just wanted to note Greece has special needs – being partially an “archipelagic” nation. Due to the island structure, allowance has to be given for the need to run a larger public sector when it comes to health, education, transport and security – the islands need clinics, schools, etc but the ability to deliver them economically is not guaranteed. The question remains why most of the new jobs somehow get created in Athens or larger cities and are not distributed effectively…. Enough for now….

  23. Pingback: Umbrella union: 10 myths about Greece and the crisis « Proeconomia

  24. thank you for what seems to me -though i have so far only had the time to skim through your article- a most clear-headed and balanced analysis, worth many kilos of newspapers i’ve gone through during the past two years

    [incidentally, i'm delighted to have come across your writing]

  25. I tend to agree on the obfuscation scheme and the need for patience and endurance. (It comes natural to greeks, anyway). And when the time is right, I believe education, at all levels, would be a good tactical goal that could eventually turn into a strategic one: Investing in classical, byzantine and social studies would at once, be good for the moral and create a demand for world wide high quality tourism/pilgrimage. Greece could become an international center for every convention, forum, lecture or research pertaining to the above mentioned studies. Not to mention that it would enhance the quality of the diplomatic ground, in the likelihood of any disputes..
    A focused target solution that addresses many problems at once.

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