Saturday 24 March 2012

Letter to a Friend

Part of a letter sent to a college room-mate in the United States. 

You asked about Greece: the situation is infuriating most of the time, surreal at the best of times. The government here, together with the political parties that rule it, has been proven to be a complete and abject failure. Corruption and incompetence are the order of the day. By my count, 30% of the seats in Parliament are inherited from family to family. In the last 30 years, the prime minister’s position has been held by 3 entrenched political families and one professor nicknamed “the Chinaman”.

In the midst of all this, you would think that the voters would eventually say “enough is enough” and get rid of these idiots. Unfortunately, that hasn’t been the case. There has been political fragmentation as the two larger parties lose their dominance, but the irony is that the smaller parties which emerge are led by former members of the larger parties. This is going to create absolute political paralysis in a future government.

In the meantime, the real root causes of the crisis have not been addressed. There has been no real public sector reform, just spasmodic efforts to reduce wages and pensions. Rather than closing useless public sector enterprises and replace citizen-facing functions with online or automated solutions, they have kept nearly all enterprises and transferred all staff to other public sector organisations, keeping them on the payroll. Those staff that have been terminated have been those in temporary contracts, or those who have left for retirement. The number isn’t small—it’s about 100,000 out of pre-crisis employment of about 850,000. The point is that it is neither strategic nor planned. It’s happening by accident, not by design.

You probably don’t know this, but since 1997 my strategy has been to diversify my consulting away from Greece, and to have nothing to do with the Greek public sector. This has been a good decision ethically (though a difficult one financially), and I do not regret it. The result is that today I do real consulting projects, and make an honest living. The large majority of Greek consultancies made a lot of corrupt money during the boom years, and are now thrashing about looking for the next golden opportunity.

So I have as little as possible to do with the Greek state, and in this I consider myself blessed. Unfortunately, the problem of the Greek state and the corrupt political system behind it remains solidly in place. It’s signature achievement has been to portray itself as the “saviour” of Greece against the “voracious” Troika, which wants more heartless “reforms” in exchange for loans. This is a “bait and switch” of epic proportions, and is a perfect illustration of why politics is the dirtiest game in town.

This is not to say that the Troika has been doing such a good job of things (the Troika is short-hand for the European Central Bank, the International Monetary Fund and the Eurozone, which are supposed to be saving Greece). Most days I doubt they understand the difference between their ass and their elbow. Bashing Greece turned into good domestic politics in Germany and some other countries, so we have a situation where the same European politicians who were supposed to convince their parliaments to support the bail-out package did so by spouting nonsense at political rallies. This nonsense, unfortunately, was carried by Bloomberg, Reuters, and everyone else. So they basically have been doing their level best to destroy the very loan agreement they have spent so much energy and political capital to set up.

Add to this the fact that the structure of the bail-out package was a disaster. I’ve been running debt analyses on Greece every quarter: I don’t know what numbers the Troika have been using, but they have been consistently wrong in their modelling and their assumptions. They under-estimated annual interest on public sector debt by EUR 8 billion per year (in a GDP of EUR 310 billion). They phased in the public sector fiscal adjustment over 5 years, which means that they wanted Greece to “return to markets” for borrowing in 2012 when the country was supposed to keep incurring deficits in 2015.

It’s difficult to see how anyone in this story has covered themselves in glory. Greek politicians continue to do what they are best at, which is lie to the public. German politicians resemble Dr. Strangelove more than would seem reasonable in the real world. Eurocrats design plans which are properly left in an ivory tower. The educated people I know here, the professional class, are fed up with political lies, but have no political alternative to vote for. The uneducated people continue to believe in miracle solutions, conspiracy theories and snake oil merchants. The quality of public services, which was never high to begin with, continues to deteriorate. Elections have been called, so politicians are now thumping on soapboxes and promising higher pensions for everybody, when everyone knows that there will be another round of cuts in June-July.

The only encouraging thing I see is that ordinary society continues. Pensioners are begging on streets in the centre of Athens: people help. There has been a huge response to charities feeding and clothing the homeless. In our neighbourhood, there have been no changes – schools are open, people still shop at the baker. A few stores have closed in the centre of our neighbourhood, but somehow people make do.

The other thing than no one has managed to screw up yet is the weather. Sunshine and spring have returned, and with it a bit of optimism. The day the Greek government or the European Union set up a ministry for weather is the day I will seriously start to worry. 


  1. In my own practical experience as a consultant around the World, corruption thrives when systems are bad. Even in countries that top the statistics of incorruptibility, like Sweden, whenever the system is poor you have both rampant corruption and criminality, like for example the soviet-styled housing system of the country: you have to pay bribes of ten to twenty thousand euros just to get a lease contract on a flat. Poor laws and terrible systems do give rise to corruption, in fact, they render corruption necessary and I could state many examples. Sometimes it becomes, on balance, preferable to pay bribes rather than to follow the stupid system!

    Greece has reached the nadir of idiotic systems on practically everything. The sad thing is that the EU is not exactly an encouraging paradigm when it comes to organising things in a rational, unbureaucratic way, which is probably the only way to get rid of corruption. Despite my example above on the Swedish housing system, which is "an exception that confirms the rule", as we say in Greece, I would turn to the Scandinavian countries for models of simple, straight forward, paperless and yet safe ways of organising life.

    As such, the Greek crisis is useful both for Greece and EU as a whole, because it might cause a change of mindset on issues like public administration and raising the quality of our laws. It is probably the only opportunity Greece can get in our lifetime. Greeks should stop blaming others for their predicament and tackle their problems at home. And the basic problem, in my view, is an overly bureaucratic system that harbors parasitism and corruption. - Another basic problem is, of course, our mafia-like unions.

  2. Another very good description of the situation.
    If you own a ship which can sail or consultancy which can sail, the outlook in OK. But if you have bricks, machines, workers, etc. you can't sail. For trapped Greeks, there is light at the end of the tunnel. Personally, I am waiting for a Don Quixote to rise above this political litterbox and offer the Greek people a serious option. But then again, I am afraid the Greek people will not take it.