Thursday, February 18, 2010

What is happening in Greece?

Greece and its economy have been in the spotlight for several weeks/months now and that made me come back to my (mainly) tango blog and write some thoughts about the situation. I have two good reasons to do it, namely a) texts about Greece are in fashion so people read them; b) I consider myself somebody who is well aware of the Greek society, but I am currently living abroad, and thus I am able to see it from a broader perspective.

The village of Oios (Oia) on the island of Santorini, Greece
The tile is ‘What is happening in Greece?’ but should rather be ‘What has been happening in Greece?’… Because things are pretty bad, but they have been bad the last years and they were going bad, ever since I could see a tomato and say ντομάτα Last year the riots were indicative of the deep problems the Greek society is facing (discussed also here) and this year is the economy. Our dept is currently more than the value of the whole country; we have a population which is constantly getting older, no perspective for economic growth and people who don’t have any respect to the governments they elect, the EU and any kind of institution in general… So apparently things are not ideal

This is not going to be an economic analysis, but rather a social one. Anyway, I lack the academic knowledge for an essay on the Greek economy and for that you will find other resources, like Edward Hugh’s blog which I enjoy reading lately. Anyway, it is said that ‘politics is the game of the devil’ and when looking for possible substitutions of the first word, ‘economics’ comes straight to my head. I am sure that many of you also think that all these ‘debts’, ‘GDPs’, etc are partially BS… Most of the countries in the world are in debt and to me it has been a constant puzzle, how and to whom we all owe money and why the outcome of all these transactions are always us being more in debt and never paying off (of course the answer is known and some simplified explanations can be found in here or here). According to my average person perception, the issue is who is more in debt and the winner of this year is definitely my country, Greece!
To finish this introduction, please don’t forget that the present post is my PERSONAL perception of things. You may find some things written below hard, or even exaggerated and you are welcome to ignore and argue against them. Moreover, sometimes inevitably I express my ideas or predictions on financial or political problems for which I may not be informed enough. You are welcome again to correct me… So here I go…

Firstly, I have to take something out of my chest, for all of you to know Greece belongs to the EU, NATO, European Space Agency, UN, OECD, or whatever, but is not like the other Western European countries. To put it better before the recently new EU members, it was NOT an EU country, at least considering the structure of the society and the way this works, the prevailing culture, mentality and way of life, etc. An average western European with the average Greek, sitting in the same table will have a hard time finding interests and ideas to share. In fact, Greece is a country, until recently, geographically isolated from the other EU members, for a long time influenced by its Balkan and Turkish neighbors, with people that mostly imagine and are attracted by the idea of being part of Europe, rather than actually doing it.

One of the main reasons Greece became part of the EU is because the Western world has always been feeling indebted towards the Greeks, for the heritage of the ancient Greek civilization. We were given the chance to become part of the EU, thanks to the other parties desire to honor our ancestors. Given the philosophical and ideological hypostasis of the Union (which matters among other more practical issues), a Europe without Greece would be like Christmas family dinner without the grandparents (who are very sick, not very fancy and badly behaved in our case). The other reason is that considering its geographical location and size, Greece was not a poor country. We are still the rich of the Balkans and we were richer than Portugal and Spain, so why not?

Now comes the difficult part… Why we are still in the EU? Inertia, momentum, are some words that come in mind… There are many member countries which did not honor the objectives and the overall spirit of their ‘EU contract’; but none like Greece. We didn’t even read it, we went straight to the chapter ‘Rights and privileges’ and we tossed all the other pages to our barbecue. In fact the society was not ready for this and the whole outcome always looked like teaching gorillas how to use hair style mouse. We are still in the EU after constantly hiding and postponing the current crisis with painkillers (e.g. see this link). We are still in, because any bailout would appear as a black eye for the EU institution. We are still in because other countries face similar problems as well, certainly to a lesser extent and our quitting would bring huge confusion, given the already fuzzy rules, definitions and criteria, of our already fuzzy and titling economic system.

And now comes the most important part, since I will stretch something that some experts may know (I am not sure if all of them do), but the normal people in Europe probably cannot perceive. The amount of corruption in Greece and how much, along with the way things work in general, this puts the country on a league of its own; at least for EU standards. It is normal that people everywhere are not happy when they pay taxes and that politicians are charismatic personalities in terms of communicational skills, but usually ignorant, and with a tendency to take advantage of state money; but when there is nothing more that this, then I can tell you WELCOME TO GREECE…

The names of the members of the parliament have remained the same the last 50 years, as do the names of the university professors and any other high ranked position. There is no way that somebody will be given any kind of power, without ensuring first that he belongs to this ‘special tribe’ and he will not have any intention to change anything[1]. That’s why the Greek people have been trained not to trust anyone but themselves. That’s why nobody will listen to what the others say, even if they have PhDs or parliament seats, since all these things usually mean corruption. There is no right or wrong, true or false, good or bad when you leave in such a society. And people cannot learn and advance, they just develop constantly their emotional intelligence through their effort for survival.

Political parties are dominating life from the university years and active members get degrees without passing any exams, the same way they get the jobs later[2]. For example a former minister of Public Works, responsible for the development of the whole country, didn’t even do his undergraduate thesis himself. The ‘normal people’ on the other hand, vote the candidates who promised them a position in the public sector and they don’t trust anyone. My generation grew up listening to their parents telling them that the best man is who doesn’t give a penny to the state. And this is the key element of the problem. I was lucky to have lived in several countries and I have seen many corrupt politicians and crooks. But completely corrupt countries you don’t meet easily

Just to give you an idea I mention a recent story below Last year there was an environmental regulation towards the renewal of vehicles, giving a benefit for each old technology car, exchanged for a new one. Aftermath: They ended up giving 4 times more benefits than they were expecting. The whole system was mobilized: cars cut in two were valued twice, documents for crashed cars coming from all over the world were issued overnight to be after retracted, etc. Offering an extra unemployment benefit is enough to double the number of unemployed in the country in one night, anyway people working ‘in black’ are so many. Nobody wants to pay taxes, so all the energy is spent to find the illegal way to make money, constituting the Greek economy a highly self-organized chaotic system, instead of a structured EU country it is supposed to be. In the meantime the media, reproduce daily stories of scandals and corruption, eroding any moral principles left on the people… Bottom line: people do not care for anything public, they are definitely not willing to financially support their country and they will do their best to avoid this… Plus the whole system is highly tolerant to this attitude as this is …the way things work!

What is very strange is that the Greek system is offering, apart from sun, beautiful beaches and good food, several benefits to its people and deserves to receive its taxes, despite what Greek people believe. As a Greek, I received good education, including my PhD, which allowed me to make an international career. As a university student I had free textbooks, courses and food, I have played volleyball at competition level at state subsidized clubs and received student benefits from my parents’ jobs. Comparing the health system with other countries I have been recently living, I find the Greek one not so bad and in general I think that the people have several good reasons to support their country. The problem is that it doesn’t cross their mind that they should, neither can they imagine that this is what everyone else in the civilized world is doing. They just can’t

Pasok leader George Papandreou waves from a car outside the presidential palace in Athens yesterday. Mr Papandreou has won a decisive mandate to battle corruption and lead Greece out of a worsening economic downturn. Photograph: Yiorgos Karahalis/Reuters
What the current government is trying to do is make the people pay taxes. Greek people have a high standard of life, getting wined and dined more than anyone else in Europe. France is a historically rich country, but the French would be surprised with the quantity and frequency of lamp or fish consumption in Greece, or how often people go to the restaurant. They also drive good cars, own (several) houses and spend a lot on entertainment, since there is no rival for the Greek nightlife in Europe. While a coffee costs typically 5 euros and clubs and bars (selling 7 euro beers) are full 7 days a week, 95% of the population declare income less than 30000 euros. At the same time, the country is flooded by villas, swimming pools and BMWs, with doctors, engineers and lawyers getting their euros under the table.

The new government is aiming to get a piece of the black money which is almost half of the total economy. All the economic indexes are fake, as there is no control in transactions; after all these years of completely chaotic, corrupted governance, the ministers cannot even know how many people are working in the public sector, not to mention the private one. They have a rough idea on how much they spent on salaries and how many kilos of potatos were produced last year and that’s it. Everything else is just part of a sequence of events that they mostly observe from a privileged point of view. If this government really has any intention to do something and this is mostly because of the external pressure it’s receiving, the first step is to start organizing the system and make it gain conscience of its actual condition (aka make an accurate budget!). Technology can help on that as it is now cheap and abundant, allowing centralized control, since in such a corrupted system, any transfer of information through people carries high amount of entropy and results in distortion of the figures.

The second step is to force the people towards more legitimate practices and this is what all the measures taken are all about. The power that accountants had to save money from their clients, is indicative of the level of corruption and the measures are specifically aimed there. The receipts, the means test, etc are precisely pointing towards a more structured economic system, and again with the help of technology significant results can be achieved. Many analysts consider the goals set by the government too optimistic, but even though I am not
an economist, the ‘secret ingredient’ could be the present extent of corruption. In fact after a year and if they achieve something, then they will actually know what can be actually achieved. For the moment they only can hope that the money on the black market is the holly grail.

The problem is that such action will bring a big shock and act as an endurance test for the Greek society, at it will affect most social layers and aspects of life. People don’t understand that they can’t go on living with this attitude and that they even have to pay for the mistakes of the past. They also don’t believe and that’s a very difficult point, as they will react to the pressure to come. They protest and they will protest more, because the moral principles have been diverted all those years of thoughtless spending of EU subsidies. They are the same people who were giving fake invoices, asking for EU funding to expand their businesses, or the farmers who planted subsidized crops, only to burn or damp them later. And these people are not crooks, but the average Greek, the family man, the civil servant, the doctor, the lawyer, the minister. All used of drinking aged malt whiskey paid by EU money, won after submitting fake papers, money given to help us increase our productivity.

The current world is mostly one of economies rather than countries. During the EU experiment, strong economies offered the unique opportunity to the weak ones to receive significant financial help and know how in order to improve their economic, social and technological level. Experience showed that for some reasons[3], South Europeans lack the focus and discipline to respond to such a challenge. The gain of the strong was the potential of exploiting a larger scale economy and expanding their activities without the previously existing political and legal barriers.

This adaptation period seems to be almost over, given also the present reduced credit possibilities and the weak countries will have no excuse for not being able to survive. As a result their high value human and physical resources will be absorbed by the ones who have the power. This is what is happening to Greece, which has already sold most of the public sector, while at the same time the population is undergoing significant change. The most educated people are going abroad, while emigrant are taking their place back home.

The currently attempted change in Greece came way too late, as now the money has been almost completely spent and the deviation of the mentality and the economic system is difficult to be corrected. A fundamental problem is that nobody can speak about morality as all are immersed into corruption. Even the government, cannot convince the people to pay their taxes, as long as they are being bribed, linked to private companies and even receive their disproportionally high salaries and pensions. In fact, if they are really interested in winning the people’s trust, they should from cutting of their own benefits and huge security expenses. according to my perspective, this will be the critical point for the Greek economy: whether the society will respond and will endure a structural change that is inevitable anyway. The new government is trying to promote a more transparent way of governance, putting figures and information on the net, but has to do more. It has to convince the people to change their attitude and prove that it has honest objectives and wants to play the game with fair rules. The next question is whether this effort will not collapse by the inevitable strikes and people’s reaction and chaos will be avoided. Already tax collectors’ drive for work has been significantly reduced, after the new measures blocked ways for them to get bribed. One move towards the right direction and the system deflects it: state income is reduced instead of increased. Finding ways to control transactions and get taxes will be an exhaustive strategic game that the government has to play very well.

The only positive sign is that Europe will not let Greece fall, even though it deserves to. Any country leaving the Euro zone will be a hard blow especially, considering the constant efforts of expansion during all these years. Moreover, other countries (Italy, Spain, Portugal) are facing similar problems (not in the same scale) and are already being dragged down by the Greek crisis. They have been using similar tricks to hide their debts and they are now having difficulties in getting loans, with everyone’s eyes in Greece If things escalate and the door opens for one to leave, nobody can control who else will have to do it also, so the risk is too high to take.

For the Greek people, the question is simple… Whether it is not too late and if they will survive this crisis with dignity, or after a big humiliation. For sure the change is necessary and if made earlier would be for a better life, while now will be just to stand on our feet and not become Latin America. What worries me is that this obvious message still doesn’t get through, neither the people, nor the politicians and that will delay things even more.

[1] Even in the highly corrupted former USSR, Gorbachev, a poor farmers’ son could become General Secretary. Back in Greece 90% of all the current parliament members are first degree relatives of former ones.

[2] One could argue that corruption exists also in other countries and for example Italy is one of them. On the other hand at least, Italians build cars and design beautiful things and this is done only by competent people. In a country like Greece where most jobs are services, skills are again important but not so necessary and proving one’s value is not so easy.

[3] In fact the hostile environmental conditions in the northern regions and the limited physical resources (compared to the south), forced the people to evolve and develop a higher level of discipline, social organization and efficiency, turning the tide in their favour.