Greece and Ireland would both benefit if either country could find a way out of the debt morass, but the outlook for divided, corrupt Greece is even less promising than it is for us, writes ARTHUR BEESLEYin Athens
HUNDREDS OF economics books line the shelves of Yannis Stournaras’s office in a dusty Athens backstreet. If these learned volumes represent the inherited wisdom of generations, the latest act in the Greek debt drama marks a real-time brush with peril, fear and despair. These are difficult days, says Stournaras, who was chief economist for the socialist government in the 1990s and is now general director of the Foundation for Economic and Industrial Research.
He is tired-eyed from almost constant meetings as part of the all-hands-on-deck effort to secure the release of crucial bailout loans. Although he says the crisis is an opportunity to breathe new life into an inert economy, he recognises that the challenges are immense.
“If everything goes well we’re going to have a very modern country, because it’s a very beautiful country with a lot of opportunity for investment, provided we remove all the barriers to entry,” he says. “In the bad scenario, if the political system doesn’t respond to the needs of the times, we will be bankrupt, worse than Argentina.”
Greece received the euro zone’s first bailout in May last year, a deal that was followed six months later by the EU-IMF intervention in Ireland. Portugal was rescued a few weeks ago, greatly increasing pressure to stop the rot contaminating Spain. It’s a gruelling war of attrition, involving many casualties and huge political tensions throughout Europe, as wealthy donor countries confront the consequences of sharing a currency with profligate neighbours.
If different forces lie behind the domino-like collapse of the “Pig” countries – Portugal, Ireland and Greece – the brute effect of the crunch is exactly the same: all need external aid because the markets won’t lend to them.
Much as the Greek turmoil last year magnified Ireland’s debt dilemma, each country needs the other to find a way out of the morass. No one expects Greece to get back into the markets next year, and that will make it more difficult for Ireland to make its own return.
THERE ARE SIMILARITIES and differences in each country’s tale. Ireland’s implosion had its roots in a grinding bank bust, crippled public finances and inattentive leaders who chose lax regulation over proper supervision of greedy financial institutions. The hope remains, however, that the modernisation that fuelled the boom will provide a platform for recovery and growth. It won’t be easy – far from it – but Ireland’s export-led orientation offers the rare prospect of potential growth on an arid horizon.
Greece does not have a similar platform. The country came into the crisis with huge debts and a weak private sector that is heavily dependent on business from an overweight state. Pay is generally low and the political system is tainted by tax evasion and corruption.
In a country with a history of violent protest, people tend to take their frustrations on to the streets. Pollsters suggest that less than one-third of Greeks have demonstrated against government cuts, but nightly protests outside parliament for more than a week have raised concerns about the potential for something nastier occurring. Riot police, some of them paid no more than €700 a month, intervened a few nights ago to escort MPs from parliament when demonstrators blocked the entrance.
“You have a social crisis boiling up,” says Chryssanthos Lazarides, who describes himself as a “humble” adviser to the opposition leader Antonis Samaras, head of the New Democracy party. “Things are getting worse and worse by the day, probably by the hour. We are not a step away from a total uprising, but we are not very far either.”
Many of the protesters are just as unhappy with New Democracy (which led the previous government) as they are with the socialist Pasok administration, which took office in autumn 2009 and quickly declared that its predecessor had falsified the public accounts. The country has been in deep trouble ever since, but no one doubts Pasok’s role in the huge expansion of the Greek state.
The protests are noisy, and prominent in the international media, but most Greeks aren’t hardliners. In a recent poll 74 per cent of respondents approved of strikes as a form of protest, 43 per cent approved of jeering and booing politicians, but only 2 per cent said it was acceptable to smash windows and destroy stores, banks and cars. But it is not difficult for protests to tip over the edge. Two women and a man were killed in a bank in Athens last year after rioters set the building alight.
What do Greeks think about the rescue deal and its sponsors? Sixty-two per cent of poll respondents last month said that the EU-IMF package harmed the country, 61 per cent had a negative opinion of the head of the European Central Bank, Jean-Claude Trichet, and 74 per cent felt the same way about Dominique Strauss-Kahn, then the head of the IMF.
But national leaders fared worse. Seventy-seven per cent of respondents said they did not trust their prime minister, George Papandreou, to deal with the economic crisis, and 80 per cent distrusted George Papaconstantinou, their finance minister.
Prof Loukas Tsoukalis, president of the Hellenic Foundation for European and Foreign Policy, criticises Papandreou for not fully explaining the implications of a failure to rescue the economy. “He should have made the message even clearer, both to his party and to the citizens; basically, what failure implies in concrete terms. Otherwise you allow demagogues to hijack the debate, and demagogues have very easy solutions for everything,” he says. “Sometimes the political debate has an element of the surreal, because people present populist and simple solutions that are simply not feasible.”
NONE OF THIS is to take away from the anger about the mountainous public debt of about €340 billion. All Greeks know that the fiscal pain required to sustain this debt is compounded by their government’s failure to improve tax collection and root out corruption. Government officials insist that resolute work is under way to tackle both scourges, but the sense remains that ordinary people simply don’t believe that anything serious will be done.
Corruption in Greece actually decreased last year, according to the campaign group Transparency International. The proportion of households reporting irregular payments, in both the public and private sectors, dropped from 13.4 per cent to 10.4 per cent. Transparency International says this was the first significant reduction in corruption and was partly attributable to recession and austerity. Yet the corruption figures remain very high. It can still cost between €150 and €7,500 to speed up surgery in a public hospital, and the cost of making “tax arrangements” is between €300 and €15,000.
The tax question festers. Some Greeks whisper that one of the richest men in the country spontaneously paid €2 million to the tax authority recently, a sign of progress. Others report a “white strike” in the revenue office, whereby officials, angered by deep pay cuts, advise taxpayers not to hurry their payments.
According to Athenian lore, there are plenty of swimming pools and sleek cars in the plush suburbs of Kifissia, Ekali and Vouliagmeni, and not a lot of tax receipts. Doctors and lawyers take the bulk of the blame.
Stournaras says that successive governments have come to power on the back of promises to tackle the tax evaders, but that none has managed to deliver. “Unfortunately, most people don’t believe in this,” he says of the current clampdown. “Tax evasion is there and booming.”
