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Thursday, July 30, 2015

Greece: The Age Of Folly from 1981-2009

At the press conference after his first meeting with Angela Merkel in March, Alexis Tsipras made a statement which went hardly noticed. He said: "Germans are not to blame for the problems in Greece." I never thought that this reflected Tsipras' personal conviction. Rather, I felt it was meant to create positive vibes. Be that as it may, it certainly was a statement which would have deserved more discussion in Greece.

I have read several books about the history of Modern Greece and one of the threads running through all of them is the ambivalent relationship between Greeks and foreigners, particularly with Europe and the USA. Whenever something went wrong in Greece, the reflect was to blame Greek woes on 'foreigners'. One of the best descriptions of this phenomenon I read in Stathis Kalyvas' book on Modern Greece: 

"Most Greeks see Western Europe (and the United States) as unwelcome meddling foreigners, even though they have largely profited from their interventions. Conversely, Europeans (and Americans) are exasperated that Greeks have failed to see those benefits, even though their inverventionism has been driven primarily by their own self-interest and has been imposed over the Greeks."

Notwithstanding what Tsipras said to Merkel, there seems no doubt that the majority of Greeks blames their present woes on foreignes, particularly on Germans. And they have good arguments to support their viewpoint: (a) The EU, since 1981, sent billions and billions of subsidies to Greece without controlling their proper use. Thus, those billions found their way into crony networks (and, as some argue, destroyed Greek agriculture in the process); (b) after Eurozone entry, foreign banks lent billions and billions to Greece not on the basis of an assessment of the country's debt service capability but, instead, on the assumption of implied support from the Eurozone. And no one stopped them from doing that; (c) EU authorities had known all along that Greek statistics had been 'doctored' but, due to political pressure, they chose not to do anything about it; (d) Foreign corporations (Siemens is always the case in point) unleashed corrupt conduct among Greek politicians by dumping bribes upon them; etc. etc.

Most notable of all is the conviction of many Greeks that all of today's problems were caused during the last 5 years, during the Age of the Memorandum. Without the Troika's austerity obsession, so the way of thinking goes, there would have been a relatively smooth way out of the Great Crisis.

Personally, I had an eye-opener back in 2012 when I read the following in Prof. Aristides Hatzis' paper (see below): "When Greece entered the EC, the country’s public debt stood at 28% of GDP; the budget deficit was less than 3% of GDP; and the unemployment rate was 2-3%." I remember the late 1970s very well because I made my first visits to Greece then and formed my opinion about the country. Outside the large cities, Greece clearly showed a level of wealth and living standard way below that of Central Europe. Apart from that, however, Greeks seemed quite satisfied with their conditions of life. Maybe some Greeks spent too much time in cafés and/or were a bit more corrupt than usual but it all seemed to work alright.

Only 13 years later and long before Greece's Eurozone entry, a young Greek university professor by the name of Yanis Varoufakis said in a TV interview during the 1993 election campaign that "the state of the Greek economy is in terminal decline." Well, if the Greek economy was in terminal decline then, the Eurozone entry put a gigantic turbo on that development.

I have become convinced that most of Greece's current problems have their origin during the period 1981-2009; a true Age of Folly. I link two articles below which shed light on my argument. Prof. Hatzis summarizes the Age of Folly as follows:

"Today’s crisis in Greece is mainly the result of PASOK’s short-sighted policies, in two important respects:
(a) PASOK’s economic policies were catastrophic; they created a deadly mix of a bloated and inefficient welfare state with stifling intervention and overregulation of the private sector.
(b) The political legacy of PASOK was even more devastating in the long-term, since its political success transformed Greece’s conservative party (“New Democracy”) into a poor photocopy of PASOK. From 1981 to 2009 both parties mainly offered welfare populism, cronyism, statism, nepotism, protectionism, and paternalism."

Greece as a precautionary tale of the Welfare State, by Prof Aristides Hatzis
Lies, damned lies and Greek statistics, by Sigrún Davídsdóttir

27 comments:

  1. The old video of an interview with Varoufakis on youtube is a bit confusing.

    At the start of the video he says: about 0:30 "if we look at the conventional figures and compare 1993 and 1999. (did I misunderstand 1983 and 1989?) I listened to it three times now.

    How could he say that in 1993.

    But interesting he describes himself as a conservative later.

    ******

    Can one use tags here?

    Treason charges: What lurks behind the bizarre allegations

    It's of course nonsense to prosecute him. But can he be anyway? Doesn't he have immunity?

    This is the most interesting bit. It surfaced in his interview in the UK too.

    "Unveiling how previous Greek governments turned crucial government departments, such as the General Secretariat of Public Revenues and the Hellenic Statistical Office, into departments effectively controlled by the troika and reliably pressed into the service of undermining the elected government."

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  2. ooops, did I close the tag of the link??? Maybe not.

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  3. I don't like to subscribe to the Financial Times.

    But if anyone here has a subscription it would be interesting to get a short summary of the article Yanis links to. I suppose he wrote it. At least the headline suggests it:

    "Something is rotten in the Eurorzone."

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    1. No subscription required. Just google for the headline and you can read the article for free.


      By the way, this "age of folly" reminds me to a line in the most known christian prayer, the "Lord's Prayer":
      "And lead us not into temptation"
      Greece was led into the temptation of easy money and failed bitterly.

      But there is another line that sounds like written for self-reclaymed christian parties like the "Christian Democratic Union" of Merkel and Schäuble:
      "and forgive us our debts,
      as we also have forgiven our debtors"
      We Germans are glad and thankful others people forgave our debts of history. Sadly we actually struggle in this dimension.

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    2. By the way, some people like to claim that German (and other nordic languages) have similar words for sin and debt and hence like to boost this topic to a moral dimensions, in contrary to the anglo-saxon culture.
      Interestingly both words seem to be used as synonyms in the english version of this prayer as well, at least regarding wikipedia: https://en.wikipedia.org/wiki/Lord%27s_Prayer
      "The prayer as it occurs in Matthew 6:9–13
      [...] and forgive us our debts,
      as we also have forgiven our debtors.[...]

      The prayer as it occurs in Luke 11:2–4
      [...] and forgive us our sins
      for we ourselves forgive everyone who is indebted to us.[...]

      Curious question: How o this prayer and this line translate into other european languages? Like historic and modern Greek, Latin oder modern latin languages?
      Are "dept" and "sin" used there as synonyms?

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    3. Roger - Anglican Book of Common Prayer uses the Tyndale version: "And forgive us our trespasses,/ As we forgive them that trespass against us."

      TE



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  4. The resentment from many Greek people towards Europeans and especially Germans is very clear. And surprisingly, you get the same from many Greeks who are living overseas, who maybe never lived in Greece at all.

    One consequence is that Tsipras, Varoufakis, Syriza still enjoy a record popularity. Completely ignoring the degradation of the economic prospects. So, I guess their popularity is due to their attitude with other European leaders, which mirror the population feelings and the shared will to resist any changes brought from the programs. Not a reason to be optimistic for the future.

    Nevertheless, there are glimpses of hope, some of the best commentators, in my opinion, are either Greeks or Cypriots, with a clear view of what Greece could improve on its own. I wish their voices reach outside AND inside the country equally

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    1. "the politics of resentment": That's what I find disturbing.

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  5. The 'blame it all on foreigners' culture is not peculiar to Greece, it's endemic throughout the Middle East. And in the 'West' it's quite common today to blame China, and its not too many years since Japan was the culprit.

    That said, it does seem that in Greece the tendency is more wide spread and intense than in many other places.

    I'm no admirer of Attaturk, but it does seem that his form of 'cultural revolution' has allowed the Turks to dodge that particular bullet. I read a comment on eKath yesterday suggesting Greece needs a 'cultural revolution', I think the writer had China in mind. But maybe a milder form of what the 'Young Turks' did for Turkey would help - an Hellenic Reformation.

    TE

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  6. Does this Ambitious waste plan prods local authorities mean that they will use the EIB loans already offered or did they get frittered away - I recall there were protests about such projects in 2011/12.

    TE

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    1. I recommend reading the book "The 13th labor of Hercules" by Yannis Palaiologos. The first chapter deals with waste management in Greece. That is simply an unbelievably story reminiscent of waste management in Southern Italy... If SYRIZA decides to make waste management a priority, they should be applauded. And if they manage to implement an efficient, non-corrupt waste management system throughout Greece, they should be glorified. The chapter explains the troubles around Keratea in detail. Unbelievable! If anyone can penetrate those communist networks, it's got to be the communists themselves...

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  7. When the Greek crisis became known in Switzerland I decided to find out how such a tragedy was possible. Today I would sum it up saying that the two links given (Hatzis+Davídsdóttir) summarize the way I see it:

    a) An incredibly silly banking industry who mercenarily lended money without adequate checking

    b) A society in Greece who has a culture not compatible with the culture in northern EU countries.

    c) An incredible silliness how dilettantish politicians tried to handle the crisis, multiplying the problems.

    I had hoped that until end of this month a Grexit would allow Greece to regain sovereignty and self-esteem and that they would find their own hard way out of the mess.

    As this story seems to go on forever without any improvement, I decided to spend my time with other intriguing themes. I will no longer comment on this forum and would like to thank Klaus for his continuing efforts to shed objective light on the scene!

    H.Trickler

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    1. Have you considered a program extension of your vows to stop observing Greece? You know, a program extension à la Greece?

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  8. I have always enjoyed Prof Hatzis articles and the one you mention I read whenever I feel the urge to recap how Greece ended here. The piece from Sigrun Davidsdottir was an eye opener, and seems to be well researched. Both of them makes me wonder why anybody would want to send money to Greece.
    For decades Greece has had populist, statist governments and thereby created weak institutions. These governments have behaved so without admitting it, or even denied it. Now Greece has a government that has declared that it is the sort of politics it wants. They openly say that they do not want strong rule based institutions. They want the institutions to be politically controlled. They openly say they do not want economic transactions to be based on rules and carried out between voluntary partners. They want them to be politically controlled and preferably to pass through the government.
    That should be enough to scare away investors and lenders.
    Lennard

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  9. In fall 2014 Attica got a new regional governor. One of the first thing she did was to cancel the tenders for 4 major waste disposal projects, amongst them Keratea. The projects would have reduced the depositing by 50%, and have been a big step towards a more environmental waste management. The projects had a grant of EUR 140 MIO from EU that, for now, is forfeited. Nothing has been heard about the projects since then. The governor is a prominent member of Syriza, Rena Dourou. Go on dreaming.

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    1. Well, nothing like being educated about facts...

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  10. The issue of the 4 waste treatment plants is not off, in fact the Governor of Attica has been quite outspoken about it since then. she opposes it for 2 reasons, it was the wrong economic concept (PPP), it was the wrong technical solution (not today's state of art).

    1. PPP's are a concept she cannot accept for ideological reasons. She venture that only civil servants are able to plan, build and operate waste plants, or in fact all utilities.
    2. The technical solution was not the latest technology, but it was the most cost efficient, and it could be implemented in 3 years. In all modernizing projects there is a diminishing return on investments. To close the first 50% of the gap of development of waste management, only cost a fraction of what it will cost to close the last 50%. In that sort of project one must also consider if the technology can be operated and maintained with the (locally) available resources. One must also consider if the population is mature enough to implement their part of the solution. Their part would have been reduction of waste and sorting at source.

    So what did the lady achieve? That when the 4 plants would have been finished, Greek committees will still discuss the degree of sophistication of new plants. In fact one could argue that evolution of waste management will prevent them from ever taking a decision. That exemplifies the decision process in Greece, nothing gets done before it's too late. It also highlights a lack of realization of where they are in development, or a misguided trust in their ability to leapfrog that development gap.
    PS. I have worked a large part of my life in utility management in developing countries (electricity production, heating, water and waste) and have therefore also followed it in Greece since mid 90es.
    Lennard

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    1. Hmm, I also dont like public private partnerships, seeing their track of records in Germany.
      Quite often the contracts worked in the way that the profits are taken by the privat partner while risks and losses are taken by the public partner (The dream of every private enterprise). And quite often PPP's were accompanied by bribe scandals. In a society with a culture of bribes I would take the PPP-model with even more scepticism.

      On the other hand the perfect is often the worst enemy of the good. Vetoing medium and economic solutions by aiming for a better and (more pricey) one, and finally getting none of both, but the worst of all solutions is a pattern I see quite often in left politics. Just reminding the famous oxi-referendum...

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  11. Yes, the 20 years were the years of folly, but the bill for that period has largely been written, if not paid. Discussions about who ran it up are ongoing; with most Greeks claiming it was not them.
    Another bill is the one for the last 6 month folly. That is being written now (partly on ATHEX) and in the future, we shall not know the total for several years. Do you think we are going to have the same discussion about who ran it up?
    Lennard

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  12. @ Roger
    While it's true that some PPP's have gone sour it's also true that quite a few have been win/win's. I have worked on several that were delivered "on budget, on specification, on schedule", very few public projects are (does Berlin Airport ring a bell?).
    As for corruption in Greece I share your concern, but. Corruption is, sure as hell, not a problem isolated to the private sector. Voluntary private to private deals in Greece are quite honest, for the simple reason that there is no donor in the form of EU or the tax payer. Corruption only exist when 2 parties are in a position to agree to steal from a third party. But lets for the sake of argument assume that in the two models the degree of corruption is the same. Greece would still be better off if a PPP could deliver a functioning plant on schedule. The Greek state has never* delivered projects on time, most of the time it has not delivered, period. There are numerous projects started in the 80es that have not yet been delivered, they are for all practical purposes dead, the only parts that still exist are the ruins and the managements still being paid their government wages. So the choice is, corruption and a plant or corruption no plant.
    *I recall one project that was finished on schedule, The Olympic Games, but it had enormous cost overrun and was far below specifications (quality). And to add to it, in various ministries you can still find committees and personnel of departments tasked with the preparations and holding of the games. Gianna Angelopoulos was taken off the pay role as late as January 2013.
    Lennard

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    1. I do not think corruption is isolated to any sector, not private neither public. I realized that the mixed responsibilities between private and public lead to even less transparency, that opens more room for bribery and corruption. And that room is filled, so my impression.
      So I prefer completely private or completely public projects, or even complete projects of a company with private and public shareholders together.
      I just distrust the usually handmade PPP-treaties with their loss of transparency and responsibility, as for what I seethey lead to a quite higher level of corruption than many other constructs.
      Disclaimer: I can only compare from gGerman projects, I have no sight into greek projects

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  13. There are PPPs and there are PPPs. There is no standard module. Each one is structured individually and separately. Structures are driven by EU regulations (and how to get around them).

    Maastricht was the original driver behind PPPs: communities faced financial constraints and used PPPs to build that road, for example, which they could not have financed via loans. Those were really only partial PPPs: the private party (often a bank) carried the planning and construction risk but once the road was turned over to the community, the private party was off the hook riskwise. From then on it really had communal risk. To the private party, the return was much higher than what it would have been would it have made a direct loan to the community. To the community the advantages were more efficient planning and construction and lower costs. The communal bureacrats were made because they were cut out of the action…

    ‘True’ PPPs are where the public and private share the construction risk but also the operational risk. If the private investor is supposed to get paid back by highway tolls but there is no traffic on the highway, he is the one who loses money and not the public.

    Like with any project, be it a hotel of a waste management facility: planning and construction is one side of the picture but the other equally (if not more) important side is the operation of the business. No one will invest in a hotel before having lined up an operator. I would have my serious doubts that a public sector management can operate a waste management facility as well as a private expert.

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  14. The ideal solution is that the private partner participates as a Build-Own-Operate partner. With that kind of partnership the public get the plant they need, of a quality that is inexpensive to operate and maintain. The perfect PPP is the one where both parties, after a couple of year's operation, offer to buy out the other party. Sigh, I don't think it can work in Greece, it requires political stability. Imagine the next government saying "waste treatment is a public good, and we have decided to lower the price to 10% of the present".
    Klaus, would you underwrite that political risk?
    Lennard

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    1. That sounds fine for me.

      By the way, your problem sounds for me less a question of political stability but of independent justice.
      With an independent justice the company can go to the court and say "Okay, the governmental decision to reduce our prices lead to income losses of X. The government can reduce prices, but they have to pay us these income losses of their de-facto-dispossession. We sue the gov for that money."

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  15. @ Roger
    You can call it weak institutions or political instability, I don't think we disagree that much.
    Lennard

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  16. I don't think Greek public sector management could operate a periptero, let alone a waste facility.

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