Political Failures of Greece's Democracy May Doom Economic Future (6/20)     Print
By European Affairs

With Athens’ new debt bail-out hanging in the balance this week, the economic situation -- even for a comparatively small EU country such as Greece – could hardly be more dire. Even now, however, the country’s overall accounts might be susceptible to a recovery via a combination of international help and Greek commitment. But a growing threat to that formula for success is the increasingly obvious failure of Greece’s political class. After years of shirking responsibilities for the country's long-term future, Greek leaders may be unable at this point to rally the nation to face a major crisis.

In contrast to other debt-laden eurozone nations such Ireland and Portugal, which have managed to elect new coalition governments committed to tough recovery plans, Athens seems to be mired in local brinkmanship and a condition of what psychologists call “denial” (of reality) that now threatens the state with international paralysis and perhaps even internal breakdown. As the Financial Times commented Wednesday (echoing this blogpost by the European Institute), the collective national effort deemed by other Europeans to be the sine qua non of success appears to be nowhere on the Greek horizon.

The problem has emerged starkly a year after the first “bail-out” by the EU. The Greek government’s austerity measures have aroused widespread voter resentment but failed to go far enough to make significant headway in rebalancing the country’s finances.  The result is that Greece is worse off financially – and worse off politically.

This dilemma was laid out in a blog post by the European Institute last month describing how the politics of backlash against austerity have started to jeopardize the overall international plan (backed by the EU, the European Central Bank and the International Monetary Fund) for a sustainable path out of the sovereign-debt crisis.

The problem affects all the countries in the eurozone -- rich lenders and poor creditors alike in different ways -- but nowhere else is it as acute as in Greece. Greece has reached a "turning point" according to Vassilis Kaskarellis, Greek ambassador to the U.S., who said in a radio interview on June 20 that Greek voters were starting to revolt against a system that has extracted concessions from most of society but not stopped the drain on the system caused by widespread corruption and tax cheating in Greece. If, he said , Athens could enforce tax collection laws that are on the books, and crack down effectively on mass corruption, the government revenues would rise enough to ease the country’s debt burden (and increase its credibility in future bond markets). The third condition for this turnaround, he said, would be a vigorous effort to privatize state-owned infrastructure such as railways and utilities. Other analysts cite vast tracts of government-owned land in Greece as potential targets for privatization. These efforts, which the Socialist government in Athens pledged to start last year, have been dogged by the opposition of trade unions – opposition that has also discouraged prospective buyers.

Even if progress could be started on these issues now, analysts say that the Greek leadership may have lost the domestic credibility to carry out any promises it makes to its eurozone partners and the International Monetary Fund. The protests in Athens are increasingly insistent on the idea that the country has been sold out by politicians to foreign control via the EU and the IMF.  Ambassador Kaskarellis agreed, that the cumulative problems -- of successive Greek governments' fidcal laxity -- have built up over many years. The pattern has been that governments, leftwing or rightwing, pursue the same tactics of promoting social benefits for voters (and a blind eye for rampant corruption) as a way to keep themselves in office.

The current crisis fits this frayed pattern of Greek politicians practicing “their business as usual.” Faced with a crisis – with Germans and other Europeans accusing Athens of falling short on its commitments – Socialist Prime Minister George Papandreou sought to form a coalition with his center-right rivals. They refused, making it impossible to form a national unity government of the sort that all other European capitals are calling for in Athens. The opposition’s objections seem to be rooted in calculations that they could win power if they could force early elections now. Resisting that, Papandreou has resorted to a cosmetic government reshuffle and called for a vote of confidence in parliament on June 21: he is set to win that vote on party lines, then vote a further round of austerity cuts of 23 billion euros and then, in July, get another bailout from the EU.

The trouble with this “politics as usual” is that Greece has already taken tough-sounding action – and it has only made things worse. Debt continues mounting, and so does unemployment (perhaps as much as 40 percent among youth).  Even if Papandreou wins as expected, it is hard to see how he can deliver on privatizations, tax collection or corruption.

For that, the Greek voting class would have to show a sense of responsibility for which there have been too few examples among the Greek political class for decades.

The deepest fear of eurozone leaders is that Greece’s poor example – in civic irresponsibility and leadership failures that have now pushed ordinary Greeks toward outrage or despair  – could not only precipitate a Greek default, but also prove “contagious” to other eurozone countries which for the moment seem to be responsibly managing their debts.

For that reason, EU finance ministers – apparently kept to a tough line by the IMF – emerged from an emergency meeting saying that Greece must deliver new and more credible austerity measures before it gets a new injection of funds, now being withheld at least until July.

Ministers warned Greece that if “national unity” was not achieved in Greece, “the latest tranche of bailout cash would not be handed over.” In other words, political brinkmanship in Greece is creating high levels of uncertainty among EU finance ministers. After the emergency meeting on June 19, they issued a “call on all political parties in Greece to support the [new austerity] programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation,” adding that “national unity is prerequisite for success.”

The sight of politics rearing up against the economic establishment in Europe offers an ironic comparison. Normally, Euorpean leaders – in Athens, Paris or Berlin – insist that the markets should not be allowed to override the political values and determination of governments. That old reflex is still in place when these leaders confront credit-rating agencies or hedge funds or the global bond market.  But there the markets trump politics. In a national setting such as Greece today, however, politics -- at least the politics of ordinary working Greeks and their families – may in the end override the logic and long-run interest in economic stability that the politicians seem increasingly unable to impose.

 

By European Affairs