Thursday, February 18, 2010

Greece: The morning after

Giorgos Papandreou

Much of the current media coverage over Greece's debt crisis is focused on how the country is going to raise the funds necessary to cover the $400 plus billion it owes creditors. Scenarios concerning the role of Germany and/or France in bailing out Athens are discussed constantly on national TV and in the newspapers and what will need to be done in order to convince Greece's European partners to cover cost of lending the billions needed just to keep the country afloat.

However, whatever happens in the coming months the question of what Greece does next in a world in which its financial choices are closely scrutinised by whatever monetary institution steps into the breach to save the country from bankcruptcy has not been addressed. The prospect that an elected socialist government will be obliged to implement a conservative fiscal policy controlled by unelected officials raises all kinds of political dilemmas which Giorgos Papandreou's PASOK administration will have to deal with in the immediate future.

Papandreaou will be forced to challenge directly exactly those public sector trade unions which have put him and PASOK in power. In addition he will be forced to cut areas of spending which have been used by successive government to ensure political support.

The prospect of a place in the Greek civil service has long been the source of political power for parties on the right and left of the political spectrum. This combined by the promise of public sector contracts to economic elites in the private sector form the basis of the country's feudal political structure and in no small measure contributed to its present woeful economic situation.

Instead of land and power being swopped for military service the present Greek version of feudalism sees votes and political support flowing up the system in return for public funds and the influence it garners flowing downwards. It is a structure of patron-client relations which links the heads of the major parties to the humblest villager and is the lifeblood of modern Greek politics.

The ebb and flow of such influence and the complicated web of personal, familial and political relations that it engenders helps explain much of the apparent confusion and chaos of modern life in Athens and other major cities. Much of the country's infrastructure is divided into a patchwork of competing fiefdoms that have formed as a result of the present political setup. Each participant owes their position and continued economic well-being to maintaining the right connections with those above and below them in the hierarchy. In such a system qualifications, skills, effectiveness and ability play second fiddle to being able to curry favour with those who are in a position to advance your career.

Another by - product is chronic inefficiency and confusion as its duty of every fiefdom to ensure that it gets the maximum amount of resources in order to guarantee its survival. Co-operation and cost cutting mean giving up exactly those resources one needs to make sure that money and influence continues to flow to those whose support you need.

The effects of this system also affect the private sectors as the companies competing for contracts with the public sector, a huge player in the Greek economy, do so on the basis of political, personal and family connections. In some cases this takes the form of outright bribery but many others there is the mutual understanding that favours given must at some point be returned. It is no coincidence that many of the country's richest men have media wings attached to their business conglomerations which can be used to promote or attack parties and politicians .

The upshot of this unholy alliance is that crony capitalism and "licence Raj's" dominate the economy stifling innovation and competition. There is little incentive to cut the cost of your product or improve the quality of your service in such a system. As a result Greek companies which dominant nationally rarely have the expertise to break into developed markets where transparency means that methods used at home cannot be employed.

Whilst foreign observers often point the finger of blame at Greece's powerful public sector unions for lack of competitiveness and low productivity the reality is that pay in the private sector has remained stagnant for years and that much critised worker protection laws that supposedly coddle unsuitable employees are rarely applied to non - public sector businesses. Despite a pool of cheap, educated labour which can be hired and fired at will the private sector has done little to prepare for the demands of a modern globalised economy and instead reaped the benefits of low wages while raising prices far beyond the rate of inflation.

It is difficult to see how an economic and political system run on such principles can reform itself in the kind of time scale being proposed by Europe and controlled by exactly those people who helped run the country into the ground in the first place. The obvious answer is that Greece will not be able to implement the kinds of reforms being demanded and that in trying to square the circle the country will tear itself apart as different social and economic groups turn on each other to preserve a semblance of their priviledges and power.

Already there has been a growing wave of political violence with terrorist attacks now forming a staple of the daily news. That combined with a burgeoning crime rate form the background to a society that appears to be gradually coming apart at the seams.

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