Reform Rebellion In Greece

Just as another avalanche of demands and new plans to bail out Greece rolls over the Eurozone, Greek society is digging in its heels. The bailout Troika (E.U. Commission, European Central Bank, and IMF) stipulated that Greece reform its government sector as condition for further bailout payments. Giorgos Papandreou, the prime minister, and his finance minister, Evangelos Venizelos, promised to do so, and parliament passed some laws to that effect. But now the ministries pulled the rug out from under them.

The government sector dominates the economy with 151 ministries and money-losing state-owned enterprises that employ 1.3 million people. But inefficiencies and corruption have made it a drag on economic growth and development. And it’s a money suck with high salaries, overstaffing, early and well-paid retirement, and a host of other issues. During the initial phase of the reforms, 10% of the 700,000 civil servants and 600,000 employees should be transitioned from their jobs into a paid (60% of salary) retraining program and finally into the private sector. Long term, reductions of several hundred thousand people would be needed to accomplish meaningful results.

As condition for the next installment of €8 billion in bailout money, Venizelos should have delivered to the Troika a list with names of people to be transitioned into the private sector—30,000 people by the end of 2011, a first step. But Greek ministries and state-owned companies have ignored the directives by parliament to come up with those lists and cut their budgets (Welt, article in German). And, get this, instead of delivering lists of employees to be cut, they submitted letters demanding that additional positions be created.

This institutional refusal to get off the gravy train that huge government deficits had made possible for so long is systemic. There is resistance on all sides, with constant lobbying, political maneuvering, ministerial refusals, strikes, demonstrations, and civil unrest.

Strikes wreak havoc on the already damaged Greek economy. For example, in Athens subway employees, train engineers, and bus drivers went on strike simultaneously; they saw their rich pay and benefit packages threatened. Result: public transportation in Athens came to a standstill. Even Taxi drivers were on strike that day to prevent reforms that would liberalize the taxi market and open it up to competition. The day before, there were street battles between police and demonstrators. Now, the police union has called for a strike to protest salary cuts.

The Troika’s deadlines are constantly missed. None of the promised privatizations have occurred, and none are being worked on seriously, though the first €5 billion in proceeds were supposed to arrive by year end. They are being counted on to keep Greece out of default. Any efforts to institute a functional tax collection system are immediately torpedoed. And Papandreou’s promises have been broken without fail since the first bailout negotiations in 2010. No surprise that creditors have lost all trust.

The missing list of employees to be cut was one of the reasons the Troika inspectors left Greece angry in mid September. Now the dance starts again as the inspectors are supposed to return to Greece (only to depart angry).

That this will never work is clear. The Troika should instead initiate and encourage public discussions across the Eurozone about the two realistic options: either keep Greece on the dole permanently, or allow it to default, exit the eurozone, and start over again in a manner Greek society sees fit.

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  3 comments for “Reform Rebellion In Greece

  1. Sep 30, 2011 at 4:03 am

    Truly, why should the Greeks pay their taxes at this point? The money is going into a bottomless pit and would never be enough to turn things around. This thing is going to end in revolution with a chaotic, disorderly default that sets new low records for recovery rates, and it is going to happen sooner than the rest of Europe would like.

  2. Sep 30, 2011 at 4:55 am

    Good point. For individual Greeks, it doesn’t make sense to dance to the German tune. And that’s what we’re seeing. The Greeks don’t want the German program. They want the German money but not the rigors and pain. And they certainly don’t give a hoot about the German banks. Completely understandable.

  3. Romford Dave
    Oct 5, 2011 at 8:45 pm

    Regardless of what the German government does now, the newly ruined ruins of Greece will be populated by a whole tranche of people that will lay the blame at the door of Germany, ignoring their own role in their current situation.

    That reason alone should be the prime mover in any decision Frau Merkel arrives at.

    If you're going to be hated, better to be hated while you still retain your wealth rather than give it away only to achieve the same result.

    Poverty rarely makes a good bedfellow, even less so when your not of the same clan.

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