Greece and the troika, dancing in the dark

IMFmics_350Finance Minister Yannis Stournaras felt compelled last week to call into a TV news show to deny rumors about imminent property tax hikes for Greeks. He argued there had been a lot of “scaremongering” by the media and politicians relating to the creation of a new property tax, which would unify several levies on real estate that currently exist.

Tax has become an increasingly sensitive issue in Greece. As wages shrink and jobs disappear, nobody is looking forward to the prospect of paying more into public coffers. But anxiety has been spurred by the voting of a new tax bill in January, which increased income and corporate tax and scrapped the tax-free threshold with the aim of raising 2.3 billion euros.

Furthermore, a recent international study by KPMG showed that Greeks pay the second-highest effective income tax and social security contributions at 46.5 percent of their income. Given this burden and the slow progress on ensuring that a sizable minority does not consistently get away without paying its share, it is no surprise that the issue of tax raises hackles in Greece each time it enters the public debate.

While Greeks worry about the practical problems of how tax bills will be paid, analysts have struck up a theoretical debate about whether taxation can play a role in Greece overcoming the crisis. In a recent editorial titled “Greek Tax Insanity”, The Wall Street Journal wondered whether Greece was conducting an experiment to see if it could “tax itself into oblivion.” Bloomberg columnist Josh Barro rebuffed the WSJ’s proposal for a flat tax in Greece as a “really stupid idea”.

Their musings, though, are academic, just as taxpayers’ cries are in vain. Essentially, Greece doesn’t decide its tax and revenues policy. The troika does. While Athens is, to a certain extent, free to choose who it taxes, it doesn’t decide how much to tax them.

Stournaras explained last month that less than a quarter of the 13 billion euros in new savings Greece has to produce this year and next will be derived from extra tax revenues because the troika has reservations about how effectively they can be collected. Stournaras told NET TV that the troika would have preferred all 13 billion euros to be coming from spending cuts because Greece’s lenders find them easier to implement and monitor than tax hikes.

Stournaras’s comment is a reminder of the interdependence between Greece and the troika. One side’s weakness is the other side’s discomfort. In this complex tango for four (Greece, the International Monetary Fund, the European Commission and the European Central Bank), missteps and mistakes have been abundant. There has rarely been harmony or fluidity in the partnership. One side leads at a breakneck speed, while the other is caught between dragging its feet and rushing to keep up. It should not be forgotten that in this dance, which will end either in exhaustion or salvation, the one who leads carries a hefty burden of responsibility when things go awry.

“What technical analysis and the history of crisis management tells us is that you’re better of doing it strong and hard at the beginning in order to enjoy the benefits of the process,” IMF Managing Director Christine Lagarde told the BBC last month by way of defending the dramatic fiscal consolidation that has taken place in Greece since 2010.

Her analysis, though, seems to be in contrast with the findings of a working paper published a few days earlier by the IMF’s chief economist, Olivier Blanchard, and colleague Daniel Leigh. Titled “Growth Forecast Errors and Fiscal Multipliers”, the paper sets out how the Fund made incorrect forecasts about the impact that a rapid fiscal consolidation would have on certain economies, such as Greece’s.

The document is an amplification of the admissions that Blanchard made in the IMF’s World Economic Outlook in October, when he accepted that the Fund had been way off the mark in assessing the recessionary effect austerity would have. Until Blanchard and Leigh carried out their research, the IMF assumed the fiscal multiplier of spending cuts and tax hikes was around 0.5 percent of gross domestic product – in other words, austerity measures equivalent to 1 percent of GDP would produce a 0.5 percent decline in economic activity. The two economists, however, discovered that the real fiscal multiplier was between 0.9 and 1.7 percent of GDP.

In the January paper, Blanchard and Leigh rely on 105 observations rather than the 26 cases they examined for their October findings. “Our results suggest that actual fiscal multipliers have been larger than forecasters assumed,” they write.

Blanchard and Leigh admit that it is futile to try and apply one multiplier to all situations and suggest that it is better to err on the side of caution. “It seems safe for the time being, when thinking about fiscal consolidation, to assume higher multipliers than before the crisis,” they say.

Ever slow on the uptake, politicians in Greece have only just begun tuning in to Blanchard’s message. But even so, they have crossed their wires and interpreted the IMF’s statement as some kind of blanket admission that austerity has failed. This is not Blanchard and Leigh’s intention, nor is it what Greece should be taking away from their research.

Doubts about the accuracy of macroeconomic forecasting are nothing new. In fact, the European Commission published a paper recently admitting that many of its predictions for the 2004-11 period were wide of the mark.

“A significant deterioration of the accuracy of year-ahead projections is found, mainly due to larger forecast errors in the recession year 2009, which by all standards proved exceptional and unanticipated by forecasters,” write the paper’s authors, Laura Gonzalez Cabanillas and Alessio Terzi. They conclude that the Commission’s forecasts are slightly more accurate than the IMF’s but less so than the Organization for Economic Cooperation and Development (OECD).

Where the IMF’s “mea culpa” is much more useful is in highlighting the doubts that have been raised about the amount and pace of austerity that should be applied in order to rein in deficits and reduce debt, as well as what factors should be incorporated to calculate targets and to evaluate progress.

“Virtually all advanced economies face the challenge of fiscal adjustment in response to elevated government debt levels and future pressures on public finances from demographic change,” say Blanchard and Leigh. “The short-term effects of fiscal policy on economic activity are only one of the many factors that need to be considered in determining the appropriate pace of fiscal consolidation for any single country.”

In itself, this appears to challenge the “strong and hard at the beginning” theory put forward by Lagarde in her BBC interview. It should be noted that Lagarde herself raised doubts in October about front-loading adjustment programs at a time when many countries are going through fiscal consolidation in an adverse economic climate.

When one looks at the case of Greece in particular, the evidence supports the more cautious approach suggested by Blanchard and Leigh. The contrast between the troika’s forecasts for economic contraction in Greece (4 percent for 2010, 3.5 percent [revised] for 2011 and 2 percent [revised] for 2012) and the actual shrinkage (4.9 percent in 2010, 7.1 percent in 2011 and a likely 6.5 percent in 2012) makes a powerful case against “strong and hard” being applied as a golden rule.

In a paper published last month by the Center for Economic and Policy Research (CEPR), Mark Weisbrot and Helene Jorgensen examine the advice given by the IMF to the 27 European Union member states. The researchers find “a consistent pattern of policy recommendations, which indicates 1) a macroeconomic policy that focuses on reducing spending and shrinking the size of government, in many cases regardless of whether this is appropriate or necessary, or may even exacerbate an economic downturn; and 2) a focus on other policy issues that would tend to reduce social protections for broad sectors of the population, reduce labor’s share of national income, and possibly increase poverty, social exclusion, and economic and social inequality as a result.”

The message from Blanchard’s research and the CEPR report is that while mistakes are unavoidable, they need to be recognized quickly. While incorrect projections can be consigned to history with an admission of blunder followed by a correction, their consequences leave a lasting impact: Human error carries a human cost.

In Greece’s case, if the accuracy of forecasts is in doubt, surely so must the attainability of targets. Given that this year’s fiscal targets were agreed before the full extent of Blanchard’s research was known, isn’t there a case for revising the goals? In the wake of the admission over the fiscal multiplier, what is the troika’s reasoning behind still favoring a “strong and hard” approach that will see Greece implement some 9 billion euros’ worth of measures (approximately 5 percent of GDP) this year?

“I think it’s fair to say everyone was a bit too optimistic on forecasting Greece’s recovery,” IMF spokesman Gerry Rice said last week. “Why? I think… there were a number of reasons. These included the depth and the protracted nature of the European crisis itself, and the political crisis in Greece, which severely affected economic confidence, and delayed the implementation of reforms.

“When it became apparent that the underlying conditions were different to what had been assumed, we certainly moved as fast as we could to update our multiplier assumption.”

Rice’s explanation, though, simply raises more questions about why just the multiplier was adjusted and not the policy itself. The property tax that Stournaras defended this week seeks to raise 3.2 billion euros, six times what Greeks paid in 2009. Greece’s property market is in a state of gradual collapse, construction is on its last legs and consumption is plummeting. Under normal conditions, Stournaras would have rejected out of hand the idea of imposing this level of taxation. But Greece does not find itself in normal circumstances. The tax is not being imposed as part of a recovery plan, it is designed as a tool to help Greece meet the targets agreed with the troika.

A revised midterm fiscal plan submitted to Parliament on Friday sees Greece reducing its public deficit to just 3.2 percent of GDP this year, while producing a small primary surplus of 0.3 percent of GDP, while the economy is expected to shrink further to 183 billion euros. The immediate targets have been made more challenging and in its fifth full year of recession, the coalition government has a fiscal mountain to climb to achieve these goals.

As time has progressed and experts have been able to research the Greek case, these targets begin to look, in the worst case, arbitrary or, in the best case, based on a perfunctory calculation involving money and time: the money the troika is willing to lend and the time Greece has to pay it back. But this process doesn’t take place in a vacuum; there are political and social factors to consider apart from the macroeconomic. Given that Greece has a fragile coalition government, rampant unemployment and substantial social turmoil, it is baffling that the basic criteria of its consolidation program have not been adjusted. After all, the main aim of the program should be to nurse the economy back to recovery to ensure the interests of both lenders and borrower are served.

Speaking in Washington last month, Blanchard outlined that one way of providing relief for countries under a fiscal adjustment program could be to focus on cyclically adjusted data, which factors in the impact of recessions, rather than the nominal fiscal statistics. “We have recommended that countries shift from nominal targets to structural targets,” he said. “Or another way of saying we have suggested that the countries allow automatic stabilizers to work, accepting the fact that fiscal outcome will not be quite what was hoped for.”

Greece’s lenders don’t have to go far to see what impact this switch would have. On page 7 of the IMF’s latest review of the Greek program there is a graph showing that, according to cyclically adjusted data, Greece produced a general government primary balance last year. Basing the program on this method of calculation would ease the pressure on the Greek economy, government and people substantially.

However, as Blanchard acknowledged, it all comes back to the issue of how generous or patient lenders are prepared to be. “The slower you go, the more financing is needed, and there’s not infinite financing,” he said. “And so the financing constraint may force you to go faster than you would want. The results suggest that the pain of going fast may be fairly substantial.”

As Greece attempts to get the program and its economy back on track this year, the warning signs are there that things could go disastrously wrong if all sides persist with the formula that’s been in place since 2010. It was reported this week that state revenues for January were 7 percent below the target and 16 percent lower than last year, as consumption continued to plummet. Perhaps this was just a blip, perhaps improvements in tax collection will overcome this obstacle, but there is a real chance that the recession will leave Greece chasing its tail for another year

In the meantime, though, the question will remain: Is there anyone brave enough to flick the light switch or will the troika and Greece continue to dance in the dark?

Nick Malkoutzis

71 responses to “Greece and the troika, dancing in the dark

  1. Let me attempt to put into an equation for you.

    Stournaras = vlakas. Samaras = vlakas.

    Stournaras = Samaras = Papandreou = Venizelos = Karamanlis = vlakas.

    Tsipras = ilithios.

    Ilithios < Vlakas.

    Greece's problem = 100% political. = European impotency = Lack of leaderhip = lack of Greek government.

    P.S. Feel free to use this cheat sheet(skonaki in Greek) in interpreting all developments going forward.

  2. Pingback: Basic materials for the Greek Case | International Development and International Organizations

  3. So the economic forecasters (not only IMF) got it wrong: Greece’s economy has declined by more than twice, even three times their estimates. Looking at 26 cases taken into account is vastly different from the 105 later, in January, proposed. The Fiscal Multiplier does seem a bit of a misnomer; a divider more-like. Rather than austerity measures producing a ratio of one gain to a corresponding half decline it has all gone hugely in the other direction. The error seems to be in the realm of six times original forecast.

    Why exactly is this important? Greece, in order to get the economy up and moving in the right direction, MUST implement the reform measures as required by the Troika. Only then will confidence and investment return and the economy will recover.

    • And in what book of applied macroeconomics does it say that Greece “must implement” reforms?

      Who sold you this nonsense that “only then confidense and investment will return”?

      That’s the the problem with you fellows. You have no clue what you are talking about. Only monolithic opinions that are not worth the paper that they are written on.

      • And in what book of applied macroeconomics does it say that Greece “must implement” reforms?

        Who sold you this nonsense that “only then confidence and investment will return”?

        That’s the problem with you fellows. You have no clue what you are talking about. Only monolithic opinions that are not worth the paper that they are written on.

      • Do come down to earth, if possible.

      • Of course no one says Greece “must implement” reforms of the kind we talk about. There are always alternatives.

        For example, it can also continue a free fall, become insolvent, then have a coup d’etat and move to a military junta and get thrown out of EU. Then the military dictators will perhaps thieve a bit, perhaps not, but anyway the economy will be shambles. Then they leave and there will be economic growth again. That’s one way to do it, and perhaps some will think it’s better than austerity. I wouldn’t think so, though.

      • Have you heard of something called the OSI? Much better solution and without juntas and other sick terror fantasies. The mere fact that you present the current incompetence as the only solution available, speaks volumes of what type of propagandist you are.

      • Dean, there seems to be no way that you could respond to disagreement with you, except some sort of ad hominem.

        Greece doesn’t have to do austerity if it can find other ways to get money. You know, pay taxes and so on. But getting more money from rest of Europe is, as said, not a very viable option, because the others are not willing to pay up, and they are not really well off enough to give a lot. So, do whatever you like, but blaming others is not going to help Greece.

  4. Well, the IMF had no business “assuming a fiscal multiplier” when there were reasonably well-researched macro-models of the Greek economy that more or less predicted what actually happened. Moreover, only an idiot would swallow the assumptions that Blanchard is apparently prepared to swallow — and even defend post hoc!

    This is not about economics: it is about how powerful countries impose their political will on weaker dependent economies, and justify their criminal behaviour with incompetent economic models that would fail a PhD in any decent university. In other words, this is pure power politics — with Greek politicians playing the role (splendidly, I should say) of court jester. Someone should donate pointy shoes with bells on the end to Samaras, so that he can play his political role more effectively.

  5. Give up PJT this site is exclusively for the blame Germany brigade. Unfortunately we have many in Greece that won’t accept that we are to blame for the situation we are in. What, who, why and when afterwards is beside the point. Our whole public structure is in chaos, corruption throughout most of the ministries and departments, our law courts don’t function etc etc. Of course there are other means of raising funds, but we don’t have the necessary public structure and this is why we have technocrats here attempting to modernise our tax systems etc. In other words it isn’t simply cash we need but expertise which obviously we don’t have in Greece. Ask any young public worker and they will tell you straight most of the heads of departments can’t even operate computer programs.

    • Ann: has it ever crossed your mind that over half the eurozone is in economic crisis, that the UK, Germany and the USA are also in a terrible economic position, and the precise situation that Greece is in is not the result of its appalling public sector and tax evasion? Admittedly, Greece is in the front line owing to its very poor fiscal management: this does not mean that there is any solution to be found in correcting such mismanagement.

      And there is plenty to blame Germany for, because its management of the eurozone is ideologically based and contrary to the established economic literature on the management of currency zones. Your childish explanation may make sense to you, but unfortunately has little to do with reality.

      • Ann is pointing out to you, xenos, that whereas the UK, Germany and the USA have the structural means, (efficient public services and institutions) to get out of their economic difficulties, Greece palpably does not.
        Her practical experience over more than 30 years, in Greece and in the UK trumps any airy-fairy theoretical ideas.

      • Xenos:

        You have to understand who Dedrolivanos is. On another site(eKathimerini) he tells me that Greece’s solution(in order to get out of crisis) is micro-loans. And that he has a friend in India that did a few micro loans.

        So, what do you say to a guy like this? Shall I tell him that I know what micro-loans are and that re not fit for Greece?

        http://www.kiva.org/lender/dean8881

      • Hi Dean, so that’s what you do! I guessed something of the sort from previous discussions, but obviously you know a lot about microloans!

        Well, I think a lot of people commenting here are well-intentioned, and really want to help Greece out of the crisis (unlike some of the foreign a-holes on certain other sites). The problem here is in persuading people that commonsense arguments, experience in business and a basic understanding of economic principles are not enough. This is not really an economic crisis: it is a political crisis, a democratic crisis, a financial crisis, and above all a moral crisis.

        So, I can agree with more or less everything Ann has said about what is wrong with the Greek state structures and economy, but it doesn’t make any difference to the harsh reality of what is going on. If we are going to attend to micro-level details, then please focus on the homeless and hungry people on the streets of Athens and elsewhere; on the disillusionment of the young generation; on the despair of the older generations. But the structural problems lie outside of Greece, and Greeks bear no responsibility for their existence. Equally, the solutions lie outside of Greece — and I suppose people just cannot come to terms with their powerlessness to change anything.

      • Hi, Xenos! Good to see your steady input here. BTW, my business is not micro-loans. It’s something I do as an individual towards a contribution to society. When loans are repaid they are lent out again on new people who need them. No interest is collected. You just allow whoever has the need to borrow and then return the original principal loaned at their own pace. This is not a for profit endeavor.

        I too agree that Greece has structural issues but as you point out rectification does not equal salvation.

        Most commentators are of the mistaken impression that once Greece undertakes reform of certain depth, everything will be fine and self-explanatory. What they fail to see is that reforms have little to do with the revenue and expense reality. There are 2 parallel universes only intersecting at few points. You could see below how austerity(severe expense cutting) affects revenue.

        Anyone interested could click on the related link here and check it out.

        http://www.bankofgreece.gr/Pages/en/Bank/News/PressReleases/DispItem.aspx?Item_ID=4182&List_ID=1af869f3-57fb-4de6-b9ae-bdfd83c66c95&Filter_by=DT

      • @Dean: a useful link (if you click to get the pdf file). It shows very simply the effect of austerity measures — massively cutting government spending and also cutting revenues — with the resultant massive deflation and near-collapse of the economy.

        What is not so obvious, however, is the extent to which much of the private sector has been badly hit and will never recover, and the retention of most of the useless parts of the public sector (for party political reasons). These things can only be inferred.

        As far as the Troika “reforms” are concerned, they have nothing to do with the austerity programme. They are a political imposition that the IMF is insisting on, in line with its usual neoliberal deregulatory claptrap, in order to pretend that they actually have a strategy for the future of Greece. In fact, they don’t. It is destined for third world status, if things carry on like this. Maybe you will end up making microloans to the future Kingdom of the Hellenes and its German queen.

      • True. Well, stick around and welcome here. Nick is running a high quality gig in this blog.🙂

      • Micro loans are not the only source of financing in India, but for small ideas which could develop into sustainable enterprises, why not?

        Greece has been reduced to a level, for too many families, where no collateral is possible.

        But do go on with the big picture.

      • Don’t be rude. This is a blog where we all make comments according to our circumstances. We cannot blame Germany if the strructure of the EU is wrong, it was from it’s initiation. Greece was a bankrupt country. Unlike Ireland and others the fault was mostly due to lack of infrastructure and wide spread corruption. Obviously you don’t live here or you would understand the situation better. With regards to the EU and other European countries, the truth is that we have all overspent, lived on credit , imported rubbish from China etc. We are now up against economies such as CXhina, India, Brazil, that have little or no social services but all the while the cash was flowing, we didn’t plan for the future, we simply spent. The fact that Greece ever entertained the idea of entering the Euro was a mistake and many of us said this at the time. Whatever you want to say basically we have to implement changes and we are to blame for the state of our economy.

      • Ann, I don’t know if your comment was addressed to me or not. If it was, then let me tell you that I have lived in Greece since 1997, and conducted and published research on the Greek economy since 1988. You are entitled to state your opinions (which you do very visibly on the English language Kathimerini) and others are entitled to rebut them.

        Germany is at fault, whatever you may think; Germany and France actively rejected the expert advice on the construction of the eurozone in order to include Greece and others, to benefit northern Europe. Greece entered the euro without any research or strategy, because it was a political decision not only of Simitis and his government but also of the rest of Europe.

        Moreover, at the start of the financial crisis the German banks were the most vulnerable in Europe; after these years of German management of Europe, they are the strongest banks in Europe. This is not accidental: this was always the objective of the First Memorandum and the Troika. They had no interest in helping Greece: the priority was to save German and French banks from collapse.

        I appreciate that you are not privy to the expert knowledge that I have, but you might try listening. None of the German policies are about helping Greece: they are about stopping Greece from damaging Germany. These are VERY different things!

  6. @Male Rosemary: first of all, it is not clear that efficient public services have anything much to do with economic recovery when the fundamental problem is a collapse of the international banking system and its serious threat to the functioning of advanced democracies. The evidence is that the most developed countries are not actually getting out of their difficulties.

    Secondly, I very much support the reform of the state sector, and the modernisation of the Greek economy and polity. I have been complaining about these things for over a decade, and nobody was interested. My point is that these problems are actually not soluble without investment and even their solution will not produce any significant economic benefits. The Troika plan for Greece is neoclassical ideology and nothing else.

    Thirdly, I do not know the career of the good lady, but it is not relevant. It is her ideas that are airy-fairy because they have no root in reality. Unless she is old enough to have been heavily involved in the Great Depression of the 1930s, there is nothing in any of our own experiences that gives guidance to contemporary problems. In such a case, you are obliged to look to history, theoretical ideas and a high degree of intelligence in managing the problems. Sadly, everything that is being done in Europe (and for the most part also in the USA) fails these three criteria.

    • Simple reason, someone else had registered the female form of the word.

    • The collapse of International banking made it impossible to hide the truth about the false Greek economic ‘wonder’.
      Your second point I appreciate. No one wanted to face the truth that the way Greece was organised would lead to disaster…They were too happy stuffing their bank accounts, investing in personal properties; not in viable economic enterprises in the long term, with sustainable value to Greece. Far too many people were tainted by this, on the look-out for kick-backs from foreign firms.
      I was a child in the 1930s, I did experience the ultimate adjustments made by my own (UK) family in response to the farming ‘depression’ between the two European wars. It involved intelligent understanding of markets, banking (help and advice) and personal cost-cutting.Continued, of course, 1939-’45 and beyond.
      Nothing airy-fairy..
      Amen..

    • And, Dean, Xenos, on the subject of UK and EU economic policy I had many arguments and discussion with my deceased (although 11 years younger than me) first cousin, who was Deputy Director General of the CBI, chairman of Eurostat, and a board member of ACAS, as well as running a family business in South Wales..Educated University College London and Trinity Cambridge. Original special interest ‘Economic forecasting’, later, and more active, (with the CBI) relationship in ‘big’ business between owners and employees, in the form of.share ownership and benefits. He frequently visited the USA and Australia in his CBI role.
      Greece for many holidays with me
      Another first cousin, now an inventor (hobby) was a commercial property developer in the UK. A law-student cousin, a pilot killed in the war.
      Next generation, actor (UK television), civil engineers (one in Hong Kong) and farmers.. and in Greece drama student (already alternative in computer technology) and the youngest to be a philosopher sociologist..
      My career was in Nigeria and Liberia. Education (USA also).

      this capacity..

      • I forgot, in the generation after me,we have a barrister in the high courts of London and Paris, Universities Warwick, Bordeaux and Birmingham
        And we are all descended from farmers, on one side.

      • I don’t really see your point. For example, my father was a civil engineer, and responsible for some innovative constructions throughout the UK in his career. With decades of discussions about many of these interesting projects, and even with some limited education in natural sciences, the fact remains that I am not an engineer and am not competent to debate such matters. My only ability is to ask moderately intelligent questions of those who are expert in the field, and listen to their opinions. I would not think to argue as an equal.

        The commonsense ideas that people may, and do, have about complex topics are highly relevant for political discourses, but unfortunately are a complete distraction for those who are expert in any field. My range of expertise is primarily employment and labour migration, but I do have to understand macroeconomic issues fairly well in order to conduct research and provide expert advice in these areas.

  7. Xenos, you were told by Dean Plassaras, for some odd reason, that you have to understand who I am!
    Anyway; you mention employment and labour migration. My mother’s youngest sister was a local (Monmouthshire) expert in this subject, also on affordable local council housing policy., Not on a macro scale of course. Although a Conservative politician, she disagreed profoundly with Mrs Thatcher’s policy which, in South Wales made it difficult for families to take up job offers in new areas. I don’t remember the details, but her best supporter was an ex-coal miner, a Labour party member.
    Enough. Had Dean not taken such a militant line, you’d have been spared. Now he can go back to baiting the German Chancellor and her lot.

    • I am not baiting anyone. If you want to know about me just Google my name “Dean Plassaras”.

      You may find, that just as Xenos’ father, that I also have a civil engineering degree among other things. And that my comments are grounded in the reality that both capital investment decisions and economic issues are discretionary and driven by competitive and other factors.

      This line you are promoting on Kathimerini that somehow Greece has to reform and voila things will begin to happen is basically naive. It’s a diversionary tactic at best and even though it’s in Greece’s benefit to reform and improve in all aspects of public life(ancient Greeks were known for their perpetual strive towards perfection), it means nothing to the fabricated and ill-conceived experiment a la Germania that Greece finds itself today.

      Time only works in Merkel’s and the neolib benefit. Not for Greece’s benefit. This fundamental and crucial issue needs to be well understood.

      I am not an ideologue either. When I first met Xenos on another blog he was horrified to hear me support Samaras. I now know I made a serious error in thinking that Smaras would have an independent policy when in fact he turned out to be the worst servant of German interests money could buy.

      BTW, you and Ann have a tendency to gang up on others and of course it’s your favorite pass time here in this blog. Accusing me of things so that you can get on the good side of Xenos for recruitment purposes, might not be a very smart idea.

      Xenos can hold his own; just watch.

  8. I have no recruitment in mind. What an imagination.
    I t seems to me that for the present, in Greece we are simply making the most of a bad situation with whoever is in charge. No one can be complacent…but the alternative is an ‘unknown’ .
    But no reform of faulty institutions? Go on as before?

    • Have you ever heard of a saying that “you can walk and chew gum at the same time”?

      What does the walking have to do with chewing gum?

      What does the reform have anything to do with the present “manufactured” and “fabricated” state of the Greek economy?

      Nothing, right? Are you getting it now?

      • Obviously bail-out money and fiscal adjustment in an effort to bring under control the deficit is one aspect of the Troika’s plan. It can be operated separately from reforms to the institutions via which Greece got into the increasing economic mess. You believe that these reforms are not needed.
        The Greek economy was fabricated by successive Greek politicians, at least since the mid 1970s, The electorate was apathetic: few people cared what was happening. They believed the lies.

    • Reform of the very faulty institutions is needed because of the historical conduct of the two big political parties — pasok and nd. Exactly how is a dubious coalition government comprised of these two parties going to reform Greece? By committing suicide, perhaps?

      I am in complete agreement about the need for reform for the long-term benefit of Greeks and Greece. This reform cannot come from the current regime which is destroying the private sector in order to maintain the corrupt and useless public sector. Short of putting Greece as a colony of the EU, there is nothing the Troika can do to change that.

      Moreover, the current crisis has very little to do with the need for reforms. Ideally, this would be an opportunity to start major changes — even though there is no money for the cost of those changes. The most you can hope for is some greater efficiency in tax-collection — but this price will be paid by ordinary workers and even by families with no income. Do not think that the corruption is going to diminish: it can only increase in this mess.

  9. Actually I think at one time, the Greek Government and the Troika were very much in sync. The comments from the first adjustment program for Greece (May 2010) practically had them cooing at each other in mutual admiration.

    They even mentioned the risk about the collapse of demand due to too-fast fiscal consolidation, but concluded that the program itself was solid, conservative, and left ample room for correction.

    Ho hum. Regarding the fiscal multiplier, it varies hugely from country to country. In Ireland, it’s actually negative. They Cut the budget deficit (by about about half the amount, over two years, than Greece managed), and the economy actually grew.

    But that’s less because of Ireland’s general wonderfulness, than because it’s a small economy, and large foreign direct investment has a big skewing effect. Ireland’s export growth increased? Yeah, Google Europe is headquartered there. That’s €11bn export services right there!

    Regardless, it’s a better approach than the general greek “who is to blame?” approach. But seemingly a scapegoat is a required item on any greek political menu.

    • Well, more correctly — the political leadership of Pasok and the Troika, And even more precisely, Papandreou. That’s why he was kicked out and occupies the No-Man’s Land of “Useless and defunct politicians teaching at Harvard”, which is really the modern world’s version of the Victorian Freak Shows.

  10. Is the Greek tax system TAXIS transparent? No, none of the tax offices are linked, neither are the various tax sectors ie: VAT, tax on profits, wages etc, this has allowed wide spread tax evasion and we have seen recently that citizens owning millions in tax arrested.
    Are the various national health systems for pensions and health services computerised? No, citizens have manilla files amounting to millions which has made is easy for people to collect taxes for dead relations and more than one pension. It has also shown the widespread corrupt practices throughout our health system with commisions paid for services and purchases and collaberation with medical suppliers for graft.
    Do our law courts function? No we have over 100,000 cases awaiting trial and over 20,000 awaiting a verdict. Simple case of false cheques and land claims can go on for over five years without a verdict.
    Do we have politics in our schools? Yes, we even allow representatives from far left and far right to enter junior schools and this has mushroomed over the past years.
    This is the only chance we have to modernise our country, there is no other choice. Our opposition is comprised of far left politicians which are unexperienced and anarchists. They have no program for growth and still consider that the EU will bail us out to continue in our runinous manner. The alternative is GD a nazi party of the far right. We are rightly concerned as while you are blogging over your anti German sentiments we can see that if the coalition were to fall we would be in desperate circumstances.
    Greece has been bankrupt so many times in the past and never learnt from their mistakes.

    • Generally, I agree. The pensions payments are computerised and integrated, but there are no checks on the mortal status of the recipients. Only the Greek state could make an efficient payments system for fraudulent claims!

      • No, only now they are for IKA but up intil the EU technocrats came they were not. I know this very well as I tried to trace my file to obtain a small pension from UK and it took four years to find it. They were all in manilla files, thousands of them and a card index. It’s only now that they have pensions from IKA computerised. TEVI is still not a complete system, I have a form from them hand written showing payments.

      • The payments system for all pension systems was computerised and was based in a building on Syggrou about 4 or 5 years ago. All pension payments were made from that building with the consolidated computer database. I visited the premises and interviewed the staff for European Commission research. However, they informed me that although they had computer access to all datasets, the copyright of the data was legally the property of every single social insurance agency separately, and no state agency had the right to access the files. This included the taxation service, the police fraud division, or any ministry.

        The problem is that with modernisation and computers and other techniques, the Greek state simply repeats ad infinitum all the mistakes of the last 180 years plus all the quirks of the Ottomans. Nothing the Troika proposes has altered their mentality, and it needs a revolution. That revolution will not come from Germany (for God’s sake, how could it?) and it will not come from Pasok or ND. My view is that there is actually no political force, unless you consider Chryssi Avgi to be such, that is capable of reforming Greece. We need a Greek Spring.

  11. You are talking about payments Guest, I was saying that the data for all citizens working in Greece was not computerised, so it wasn’t a complete system anymore than TAXIS for tax collection. The data up until 2011 was manilla files, so no checks against death certificates, addition al pensions being paid etc. Another point is that a friend of mine received a notification from Greek pensions of the funds paid to her aunt for the year 2011. The Aunt had died in 2009, so my friend went to the local IKA office and explained, she was told the funds had been paid into her aunt’s bank account, however that wasn’t possible as the account had been closed with solicitors. Iagree with you on the rest of your comments, however, until a Churchill, Mandela or Thatcher makes an appearance on the scene let’s stick with what we have, otherwise with the two extreme parties in the wings, I am very much afraid that we will have major problems here, we have to care because the weakest sector of our community will suffer the most.

    • Yes, this is a consolidated dataset for payment of almost all pension schemes, but it also contains some detailed data on contributions records. The problem was, I think, that the manual records had been only partially transferred to computer format by almost all insurance agencies at the time that I was researching these data.

      Even now, I believe that the Interior Ministry still relies on paper files for immigrants’ residence permits — with the computer dataset as a copy of the paper files. This has the advantage of making (internal) fraud more difficult, but it is also very expensive and time-consuming.

      The cause of these problems is that the Greek state has created jobs en masse for political reasons, but refuses to create employment (even time-limited) for skilled personnel actually to complete a specific task of important work. Everything takes second or third place to political parties, and this has not changed.

      • Xeno:

        You seem to be an expert on this issue. But let me ask a simple question: From what budget Greece will now find and hire the skilled personnel to do the book cleaning?

      • @Dean: well, there are enormous amounts of EU allocated moneys that the Greek state just doesn’t take up. There seem to be many reasons for this. The oldest one, which I first encountered in the 1980s, was that the state simply was too incompetent to process applications for EU funding. This was partly because of the few skilled staff (in OAED, for example, where I based my research) and partly because the applications involved the private sector and state employees saw no benefit in doing any work that would reward the private sector and not them. This changed in the late 1980s, when systematic corruption emerged as the public servants’ payoff for actually doing their jobs and processing EU funding.

        Another reason, that I have direct evidence of, is that state officials and politicians used to prefer not to receive EU funding if it would benefit persons or companies outside of their political influence. They also preferred to turn down money if it presented difficult choices — like having to decide which of three Pasok-oriented companies would benefit from Eu financing. The correct way, of competitive tendering, was always and remains faked. No politician here believes in competition, and I suspect that few Greeks do as well.

        My view is that with the increased clampdown on corruption (with variable effect) there is the possibility of returning to the mid-1980s very low takeup of EU moneys. This will depend to a great extent on how the civil service is reorganised: if it is done properly, then state employees will be evaluated on how much they have assisted the private sector in economic recovery/development. I doubt that this will happen.

        There was an amusing incident under one of the recent fiasco governments (I forget which), when the Minister responsible for immigration went off to Brussels to demand more money for Greece in handling the irregular flows and asylum claims via Turkey. I knew in advance that this was absurd, because Greece had failed to take up more than 50% of its financial allocation. So the idiot blustered at Commissioner Malstrom, who bemusedly brought out the file on Greece, and said “Certainly, when you have used up the 300 million allocated come back and ask for more!” And the idiot Minister did not know that there was 300 million euros left unused — or at least claims that his ministry did not tell him of it.

        This is also the information that I am getting from some diplomatic contacts in Athens, that Greece just isn’t handling the bureaucracy properly to use money from Europe. It’s not only about applications: it;’s also about submitting accounts on time, following rules properly and general competence in management. However, there is usually EU money available to solve specific structural problems like computerisation of datasets.

      • Xeno, thanks for joining the debate and thanks for this interesting nugget of insight. In Greece’s current plight, EU subsidies seem a double-edged sword. They are one of the few sources of capital that the Greek state or businesses can get their hands on but at the same time they are seen as a panacea, which give us an excuse not to address any of the underlying issues.

      • Xeno:

        You seem to have detail and in-depth knowledge on the subject.

        However the absoption issue seems to be a widespread issue among EU recipient countries. Neibgboring Bulgaria has the same probem as also does Romania and other Eastern bloc(the core is usually the donor)

        To me everything that has a subsidy dimension ressebles a bit of the drug viagra. In other words it’s artificial help to assist you perform an unnatural act(or something it does not come naturally to you).

        Yes, the European money is there but the buraucratic hurdles are enormous towards approval to the user. Usually the amounts given are only good for certain very conditional and narrow acts which make the whole exercise kind of useless.

        Recently, Samaras hailed the fact that he got out of Europe 18 Bil. euro pledge of assistance, whereas the last European budget allocated 25 Bil. to Greece. But everyone knows that the actual release of such funds is a complicated, cumbersome and thoroughly bureaucratic experience which sours the recipients and multiplies the non-absoption factor.

      • Sorry, diregard the unedited part above. This will have less typos.

        Xeno:

        You seem to have detailed and in-depth knowledge on the subject.

        However the absorption issue seems to be a widespread issue among EU recipient countries. Neighboring Bulgaria has the same problem as also does Romania and other Eastern bloc(the core is usually the donor)

        To me everything that has a subsidy dimension resembles a bit of the drug Viagra. In other words it’s artificial help to assist you perform an unnatural act(or something it does not come naturally to you).

        Yes, the European money is there but the bureaucratic hurdles are enormous towards approval to the user. Usually the amounts given are only good for certain very conditional and narrow acts which make the whole exercise kind of useless.

        Recently, Samaras hailed the fact that he got out of Europe 18 Bil. euro pledge of assistance, whereas the last European budget allocated 25 Bil. to Greece. But everyone knows that the actual release of such funds is a complicated, cumbersome and thoroughly bureaucratic experience which sours the recipients and multiplies the non-absorption factor.

      • @Dean:

        well, the EU system was created prior to the presence of any Mediterranean or Balkan country other than Italy. From the outset, Italian participation (at least of the South) was highly problematic. The first documented problem was when the EC decided to subsidise olive growing. Italy was the only country to grow olives in the EC: the processed claims for the number of olive trees (which have clear requirements of ground space) would have a required the entire surface area of Italy to consist entirely of olive trees! So, the Commission decided to use aerial photography to estimate the accuracy of claimed olive plantations. This strategy was leaked in advance, and farmers dissected their olive trees into three or four pieces and planted the dead branches across their land! They actually destroyed the ability of their trees to produce olives, in order to collect money…

        You see the general problem. There are assumptions in the EU policy framework that are northern European/Protestant. France is a mixed case, but is somehow acceptable because it is … France. The Mediterranean and especially the Balkan countries have very different social, political and economic structures: how can they all fit into one framework? The Germans discovered this with Greece in the 19th century; the EU realised it with Greece in the early 2000s (when officials confided in me that they were determined not to repeat the mistakes made with Greece with Bulgaria and Romania). The fundamental problem is really a scientific one: that you cannot modify institutional structures once they have been established. They have to be destroyed and rebuilt in the correct manner. Maybe a civil engineering analogy would work here: if the foundations of a building are just completely wrong (e.g. built on unstable rock) then there is no point in replacing the window frames. The fact that the glass was shattering every 6 months was more to do with the structural integrity of the entire building than with the actual window frames!

        I have been fighting with the EU integrationist ideology for over 20 years on these things. In fact, I was once rejected for an assistant professorship at Bath University, because they didn’t like my presentation on Greece. The reason? “Oh, we don’t agree that Greece is any different from the UK. All European countries are more or less the same, and we reject your analysis”. The assholes had never researched Greece, they had visited as tourists maybe, and were imposing their political correctness on academic scholarship. They appointed a Greek student with no publications in preference to me, whose work followed their requirement of pretending that Greek structures and statistics are exactly the same as those of Germany or the UK.

        When you view the crisis now, with this sort of information, it is clear that the problem is actually more with northern Europe than it is with Greece or Bulgaria or wherever. Those are the countries with expertise, and they chose to put political malakia and money collecting from the EU as a priority over academic research excellence. This is one of the reasons that I do not share Ann’s conclusions, although we have very similar views on what is wrong with Greece.

      • Xeno:

        LOL!🙂 That was so funny about the Italian olive trees. I am still laughing! Actually I can’t stop laughing!🙂

      • I guess Xeno, someone like yourself could be an asset to Greece’s reconstruction due to your insights.

        Have you ever thought of providing your services on a consulting basis to the Greek state and perhaps use some of these EU structural funds as a source for your compensation?

      • @Nick: Thanks. I try to assist Greece in the current crisis, but as you say membership of the EU is a double edged sword. Greece never really fitted into European policy frameworks, and still doesn’t.

        @Dean:100% of my work now is as a consultant for international agencies (UN, OECD etc.) and European governments. I also have a small research centre in a Greek uni, but I despair with Greek academia. It’s a microcosm of everything that is wrong with Greece.

        I worked in the past with both pasok and ND governments; they know me well and hate my guts🙂

      • Xeno:

        Drop me an e-mail at dplassaras(at)gmail.com. (at)=@. Like to stay in touch.

      • Xenos, your authority is invaluable, beyond price. It endorses everything I’ve read, especially articles by Aristos Doxiadis as well as received through many Ekathimerini ‘opinions’.
        Real experience, analytical, understanding, well expressed and uncompromising.

    • This is all tremendously revealing, with personal experience on all sides.
      Just off the main subject, in my local Post Office I’ve seen an employee getting information on a computer screen, but having to transfer it the old paper system, in order to proceed with the next step, which took a very long time.

      • Thank you, dendrolivano. I particularly appreciate it, as I was not exactly polite to you and Ann…

        @Dean: I’ll drop a quick email later today.

  12. I have learned quite a bit from reading these comments (particularly Xenos’ reports about the inner workings between EU/Greece). I would like to add the following cases in point.

    Cosco took over half of the Piraeus harbor 2-3 years ago and has made a miracle story out of it since then (my sources: NYT/Ekathimerini). Business volume tripled and is still growing fast; 300 MEUR are being invested in a new pier; the idea of Pireaus (and Greece) becoming a gateway to Europe for Asian and other products is catching fire. Presumably, employees had to accept some austerity when the Chinese took over but even a rather leftists Greek journalist with whom I am in touch told me that the wages are ok now.

    Last November, it was announced that HP had chosen Piraeus as the site for its central distribution center for products destined for Central Europe, the Middle East, North Africa, the Mediterranean region and the former Soviet republics. HP products will be distributed by sea from the terminal that Cosco controls in Piraeus and by rail via state railway service operator TRAINOSE. That then rekindled Russian interest in Trainose which will transport a considerable share of that volume to other European countries.

    Also in November, Unilever announced that 110 of its products that are currently imported to Greece from elsewhere in Europe will soon be produced in this country, in a much-needed boost for the local economy. The impact of this move on employment is obvious.

    Johnson & Johnson announced the intention to transfer the production of some of the group’s products from other countries to its plant at Mandra in western Attica. “The company believes in Greece and bears the responsibility to support it in the effort it is making to stand on its feet again,” Kosmatos said. “We will continue to invest, as the unit here has proven that in spite of all the difficulties it can be productive and flexible,” he added. The Greek production unit is one of only three which J&J has in Europe. The factory in Greece is already highly active in exports, with the products it manufactures ending up in some 30 countries. The share of the plant’s output destined for export has risen to 90 percent, from 80 percent a few years ago. Some 500 people are employed at the Mandra facility.

    Henkel also has returned to Greece in the production of detergents. Sources say that Rolco-Vianil, one of the country’s oldest enterprises in the sector, is now manufacturing products for Henkel, destined mostly to cover the needs of the local market. However the possibility of exports has not been ruled out.

    And, finally, BUT MOST IMPORTANTLY: Sunlight, a company owned by Panos Germanos which operates in the design, production and distribution of batteries, announced on Wednesday it is investing 20 million euros in the creation of a new unit for recycling lead batteries at Komotini in Thrace. The new plant is expected to start operating this summer in the Komotini Industrial Zone and its main activity will be the recycling of used batteries from around the country for the extraction of lead, which constitutes 80 percent of a battery’s raw material. That will then be used for the production of new batteries. While Sunlight’s annual lead imports amount to 40 million euros, the company now expects to stop importing lead altogether, becoming self-sufficient through the recycling of used cells, thereby increasing its profit margins. (Source: Ekathimerini).

    Here is my point: so little energy is invested by politicians, media, academia, etc., in general by the Greek brainpower, to focus on promising signals for a better future. Instead, all the energy seems to address questions like what is wrong with Greek politicians, with corrupt Greek administrators, with incompetent EU elites, with egotistical Germans, etc. etc. However accurate those critiques may be, that’s no way to accompany a turn-around situation. In a turn-around situation, those who are in a position to do so are challenged to also promote positive themes, themes which could kindle some hope for a future perspective on the part of the population.

    The examples I quoted above are cases which I believe should be as much part of the debate as the multiplier. If they are really as good as they sound, the streets of Athens should be full of demonstrators calling for more examples like these.

    The most fascinating example to me is the Sunlight case. That really has all the ingredients of what the Greek economy should focus on. As far as I could determine, it got brief coverage in the Ekathimerini and not much more elsewhere (but I may be wrong). And I saw exactly zero debate about it in blogs.

    • Klaus:

      What is wrong with you?

      A Sunlight case? A euro 20 Million investment? That’s chicken feed man.

      Are you so desperate to prove that the German malfunction is working? To throw around minor cases that are not worth printing in the village press as some sort of gigantic announcement?

      This is very irritating. Are you now a mouth piece for the Samaras morony?

      And you Xenos? Saying this is the way out? Are you people nuts or what?

      • Haha, Dean. My point is that there is more than one problem to be solved — far more. Although the functioning of the eurozone (and Greece’s position in that) remains the dominant problem, it is unrealistic to think that even a good outcome of the eurozone reforms would be sufficient to enable a successful recovery of the Greek economy. So, from my vantage point many things need to change in both Greece and Europe: it would be a grave error to focus only on the euro crisis and “sovereign debt”.

        Of course, the level of investment in the cases cited by Klaus is small. That is not the point, here. Rather, it is to try to identify a future strategy for Greece such that it is can escape its semiperipheral economic status — effectively to modernise and learn how to compete in the global economy. Most certainly I do not see it as a vindication of the idiocies and kowtowing of Samaras, Papademos or Papandreou. Granted, the current government is trying to distract from its failures by drawing attention to some minor successes. Do not conflate the two very different reasons for finding virtue in these useful but small-scale improvements in the Greek economy.

      • I hadn’t seen it. Thanks. Although I am completely opposed to the neoliberal austerity crap that is going on, I do not share Krugman’s optimism about what the crisis actually is. This is especially true in the case of Greece, which by joining the euro system revealed the very serious structurual problems of economy and polity. Admittedly, the problems were magnified by eurozone membership, with respect to both the real economy and the fiscal crisis of the state. Nevertheless, given the continual eastward shift globally in both investment and production, Greece’s reliance on consumption for GDP growth was completely unsustainable. Greece is not the USA.

  13. I agree on these points, Klaus. The strategy for Greece’s possible economic development is contained here. Two reservations: one, as far as I can recall, all political parties and trades unions fought strongly against the Cosco initiative, and it emerged as the least bad choice for them. Secondly, Greece is still very dependent on EU funding and the role of the State: therefore, the political elites will continue to manage the use of such moneys for their own political and personal interests. Reform of the political infrastructure is still required, regardless of some positive steps such as the ones you describe.

    In other words, there are many levels and strategies that need to be understood. Obviously, as in any country, popular and journalistic discourse is simplistic and largely unhelpful. This is where Greece’s elites need to step in, to provide intellectual leadership. It is not only about the euro — although the euro remains the biggest problem for Greece.

  14. I expand a bit on my earlier comments and want to point out that what I say about Greece really applies to any economy.

    The Greek budget will soon have (or has already) a positive balance before interest and the same goes for Greece’s current account. Thus, the holy grail of economists, i. e. balanced domestic and external accounts, is achieved. If all of Greece’s foreign debt were forgiven, the country could live happily hereafter within its own means.

    The only trouble is that when Greece’s internal and external accounts are in balance, unemployment goes through the sky. The logical conclusion of that is that the Greek economy, in its present shape and form, requires stimuli from abroad in order to employ its people more or less fully. The stimuli required appear phenomenal because even during the 2001-10 period, when on average a net of 30 BEUR of foreign savings flowed into the Greek economy annually, the unemployment, the way I remember it, never went much below 10%.

    My gut tells me that much of this is due to the low level of manufacturing in Greece or rather the low level of everything that is not services (services in the sense of ‘selling souvlaki to one another’). Jobs are in manufacturing. Ross Perot had phrased that phenomenon beautifully during his 1992 campaign when he warned that the de-industrialization of the US would lead to a situation where “our children will sell hamburgers to each other and pay for them with money borrowed abroad”.

    So much for my argument that the non-service sector must be developed. If Greece can achieve that on its own, like in the case of Sunlight, that is wonderful. If not, Greece should attract money and know-how from abroad as foreign investment because the economy WILL NEED stimuli from abroad. The 20 MEUR figure of Sunlight is indeed a bit off the target. Because it is too small? No, because it is too large. The type of small and medium size enterprises Greece needs will require much less investment. The Sunlight investment is presumably very capital intensive because it creates only 50 new jobs. What Greece needs are investments in enterprises where 5 MEUR of investment create 100 jobs (or more). The McKinsey study once described how 500.000 new jobs could be created in Greece within 10 years. Until recently I thought that this was their own intellectual property. By coincidence, I came across a paper titled “National Strategic Reference Framework 2007-13” published by the Ministry of Economy and Finance years earlier. McKinsey must have copied from that paper. It just goes to prove that Greeks can do a lot on their own without the help of foreigners.

    So why, then, did I cite multinationals in my earlier comments? Because it can be great to have them if they are the ‘right ones’, i. e. those who have a commitment to stay and to contribute to the country long-term. The cases I cited seem to fulfill this requirement.

    Suppose the government had a list of several dozen investment opportunities à la Sunlight with business plans and all that, to solicit foreign investors. Would they come? Probably not yet because they worry about all the bad things about Greece which have been voiced so clearly in the above comments. How much longer will it be until the whole country is ‘ready’ for such investors? A very, very long time because one cannot reform an entire country from A-Z in a short time. That is why I have been arguing seemingly forever that Greece needs to implement ‘pockets’ or ‘special zones’ or whatever one calls it. There investors would be allowed, just like in the case of Cosco, to operate within a framework which makes it interesting for them to invest. It is much easier to start something new from scratch than to reform an existing system. Just like Cosco could reform one side of the harbor quickly (while the other side apparently remains ‘very Greek’), the same could happen in ‘pockets’ elsewhere.

    The NYT commented the Cosco story as follows:

    “In many ways, the top-to-bottom overhaul that Cosco is imposing on Piraeus is what Greece as a whole must aspire to if it is ever to restore competitiveness to its recession-sapped economy, make a dent in its 24 percent unemployment rate and avoid being dependent on its European neighbors for years to come.”

    As I said: There is no way that one can, within a reasonably short time frame, impose on the entire country what Cosco has done in Piraeus. But one can certainly do that ad-hoc in the right places for the right investors.

    And how does that tie in with my criticism of Greek opinion leaders for not promoting enough the positive perspectives which Greece in fact has? Well, the Ekathimerni recently wrote the following:

    “The state, society and the media must change their hostile stance toward investment and stop seeing it as something suspicious and profit as a bad thing.”

    If such views are indeed part of today’s Greek DNA, then they must be changed radically. They can’t be changed by law. They can only be changed by education, discussion, communication, etc. And who is better equipped for that than Greek opinion leaders and/or Greek brainpower? That is where a lot of new stimuli must come from. Don’t wait for politicians to do that!

  15. The Greek economy in its entire history has been dependent on loans, external aid, privileged access to markets, etc. At no point since 1832 has it ever been a viable economy, in the sense of balanced internal and external accounts while being able to employ its population. Even with massive loans and inflows, the economy was not able to achieve a reasonable employment rate. The closest was in the mid 1990s, with cheap, illegal and plentiful Albanian labour — which represented a form of subsidy to Greek small businesses.

    The problem with the euro is not only that it exaggerated the imbalance between internal and external accounts (by facilitating the borrowing at low interest rates by consumers and the State, amongst other reasons) but it also prohibited the financing of deficits through printing money. As soon as the euro received an external shock, it was inevitable that Greece would fall apart.

    AS far as recovery is concerned (and I mean merely returning to the bad situation of pre-2000) this is now impossible because the Greek state and the Troika have established such a punitive and unfair taxation regime for small businesses — along with zero assistance from ministries in promoting exports — that it requires businesses to operate illegally in order to turn a profit. Until the state structures are corrected, SMEs have no chance in Greece.

    The primary issue at the moment, anyway, is economic collapse through incorrect macroeconomic policies. There is nothing anyone can do when the environment is so badly damaged by the Troika and useless Greek puppet goverments. You are talking about a hypothetical future, and a possible recovery. Greece will always remain dependent on its politicians, because that is in the culture of the society. The horrendous bureaucracy and incompetent management structures are taken straight from the Ottoman period, and Greece has had 180 years to lose them. Conservatism is a good thing if you want to keep things as they are: in the case of Greece, this lack of innovation is a disaster. However, I see no change in mentality, nor has the Troika done anything that would help.

  16. The difference between you and me is one of a mindset. My mindset was trained by Americans that phrases like “this is now impossible” or “there is nothing anyone can do” can become reasons for firing if one repeats them too often. Your mindset was obviously trained differently.

    • No, I respect this approach that you have. But I am primarily an analyst rather than an activist — and I just describe things the way I see them. The overwhelming power of the incompetent and corrupt state structures over the private sector is not to be lightly dismissed, nor is the macroeconomic environment. In Greece, politics has always trumped everything.

      As you will have noted, I do support the development of new ways of doing things in Greece. My personal experience here, though, indicates that Greeks will not accept change. Even now, when I am bringing money to Greece for research, their mentality is one of trying to retain political control (by completely useless people) and resist change. I would like to think that this experience is confined to the research and education sector; certainly there is some evidence that there are parts of the private sector which can compete in the global economy.

      • I take it you are a Brit with long-time experiences in Greece, very similar to my very good Brit friend. Both of you seem to argue similarly. Below is a quote from one of his recent emails to me:

        Quote
        “Read today’s ‘Comment’ in Ekathimerini entitled ‘Samaras and the madhouse’. A true reflection of how I see the insurmountable problems in Greece – which can only be resolved by a return to the Drachma and a sole concentration on Tourism, Agriculture and Shipping together with an abandonment of true reforms across a myriad of professions. I.e. the Greeks will never change – except to be encouraged to enhance their activities in the three areas that I have mentioned”.
        End of quote

      • Well, British who started research on the Greek economy in 1988 and moved here (more or less) in 1998.

        But I don’t agree with the views of my compatriot. First, there can be no return to the drachma: this would drag the economy down even further, probably for a decade at least. Secondly, shipping is a useless sector for the economy (unless he means shipbuilding); tourism is too weak, seasonal and Greek management of it is poor; agriculture, yes, this could be a good export sector, properly managed. It already is for Cretan produce.

        But on the whole I share your view that Greece needs to produce manufactured goods. This can only be done in a competitive way with extensive modernisation, but especially of the labour force. It’s just not happening. Even at Masters level, which I used to teach, the training and skills of the students are too low. The other equally serious deficit is the role of the State (as I keep saying!). The Greek state not only fails to assist the private sector, but actively works to damage it while overtaxing it! This is the area where the Troika has failed to make any impact at all, and it is the most important one for reform. Forget deregulation and privatisations: these are marginal issues for economic development and will actually add to the living costs of ordinary Greeks.

        With serious structural reforms, which need to include the appalling judicial system, Greece could benefit from FDI and serious investors. But it’s not happening, as far as I know.

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