Facing the Greek Crisis

Here are the hard facts about the ongoing crisis in Greece. Fact one: After over a year of trial and error, Greece’s bailout of 110 billion euros has not worked since the tough austerity measures that were imposed upon Greeks have failed to significantly eliminate deficits; instead, budgets remain out of balance and spreads have continued to blow out causing a surge in borrowing costs. Fact two: A new rescue package is now being prepared that would offer Greece an additional loan of over several billion euros. As the Institute of International Finance has stated, and almost anybody else seems to agree, this will buy Greece some time but offer little realistic hope of recovery. Fact three: As with the first bailout package, the new one is given to Greece on condition of yet another round of fiscal austerity measures and tax increases. Further tightening is however certain to deepen the recession and make it even harder for the government to cut deficits; it also increases public external pagediscontent on the streetscall_madeof Athens and external pageothercall_made external pageGreek citiescall_made. Fact four, deriving from the previous facts: Greece’s chance of reviving its economy, and paying off its debts, looks nil. The country has to keep paying full interest and principal on a debt burden that now approaches 148 percent of GDP, and is rising. Debt restructuring, therefore, looks like a very likely outcome.

Despite the grim outlook, as US president Lyndon Johnson would have said, it is a pity for a good crisis to go to waste. For, if the fiscal pain ahead will not be avoided, here sits a great opportunity for Greece’s leaders for the radical redesigning of the post-crisis state with a focus on deepening democracy, fighting corruption, and increasing productivity. What economists so far seem to have overlooked is that growth depends above all on political design, and the political ethos it produces, rather than on economic correctives. Here are, then, ten proposals from a political scientist’s point of view for the Greek government, but also its European partners.

First, bring down the size of the legislature by cutting the number of deputies from today’s 300 to at least 200. Portugal has a unicameral parliament of slightly more (230) members, but Norway is doing well with only 169 deputies and Israel’s Knesset has just 120 members. Reducing the number of deputies, besides its significant monetary benefits that have been estimated at eleven million euros, would have great symbolic value for a society that has recently taken to the streets and turned against its political class in the belief that all politicians are thieves.

Second, reduce the size of government by merging ministries and making them more efficient. To clarify by current example, the top leadership in the Ministry of Education consists of the minister, her assistant minister, two deputy ministers, four general secretaries and three special secretaries, a total of eleven individuals who find it hard to work together, let alone take decisions in swift and efficient ways. And, is there any reason why this ministry shouldn’t merge with, say, the Ministry of Culture?

Third, reduce the size of the state everywhere you can. Callicrates, code name for a project implemented in 2010 for reducing the number of Greece’s municipalities from over one thousand to just 370 and consolidating its formerly 54 prefectures into 13 peripheries, was an excellent idea that must be applied to the entire state, especially in such expensive areas as education, health, and state radio and TV. What is the point, for instance, in having 24 state universities and 15 polytechnics spread in numerous large or smaller towns throughout Greece when, as unemployment grows, the demand for university degrees is plummeting?

Fourth, reform the electoral system by introducing an open-list system that would allow voters to choose among individual candidates. After the crisis is over, voters should have become wiser about the kind of politicians they want and candidates more careful about the realism of promises offered. Such an electoral system would, in addition, offer a powerful mechanism for penalizing corrupt, or simply inefficient, candidates who could otherwise have enjoyed the protection of party leaders or other organized interests.

Fifth, establish universal criteria for granting tenure to public servants, including a sufficiently long probation period. Although its is certainly true that tenure in the civil service is essential for securing its employees from political and partisan controls, it is equally true that many Greeks have entered the civil service thanks to political preferment and through patronage networks. With her job secure, the typical public servant in Greece is better off than the average (and, on average, more hard-working) employee in the private sector.

Sixth, embark on a radical programme of privatizations and labour markets liberalisation. This is a proposal commonly put to the Greek government but its rationale should extend far beyond fiscal considerations such as generating capital, making profits or generating jobs. For one thing, privatizing the large state-controlled utilities and other state corporations will be a major blow to public-sector unions that so many times in the past have used their power to obstruct reforms. For another, privatizations will further reduce corruption, which is rife in state monopolies.

Seventh, stop increasing taxes but improve (even better, perfect) the state’s tax-collection mechanism. If that mechanism remains inefficient, do as economy Nobel prize winner Christoforos Pissarides has suggested: assign this task to private companies. A similar idea would be to borrow know-how and personnel from abroad. After all, what does it really matter whether the cat is black or white as long as it catches mice?

Eighth, redefine the public debate. Talk about public morality, a new political ethos, and the common good. Cultivate consensus, and try hard to win hearts and minds in the cause of remaking Greece. Above all, focus on productivity and competitiveness, and steer clear of more austerity measures. Link the need for painful reforms to job creation and sustainable growth in the long term. Campaign actively against incompetence and, whenever possible, penalize it.

Ninth, prepare for a major constitutional revision that will set new rules for the political game. What now seems urgent is the establishment of a new contract between the Greek society and the country’s political class. Opposition party leader Dora Bakoyannis has proposed a referendum to decide for such a revision by the next government (instead of waiting until the required time period has elapsed since the 2008 constitutional revision). This could be the perfect basis for consensus at least between the major parties.

Tenth, this bit addressed specifically to the current Greek leaders, after having achieved all the above, resign from politics and return to your private lives. Most certainly, you would not be re-elected, nor should you. But you will be remembered as that leadership who, even in the last moment, had the wisdom and the political courage to promise nothing but ‘blood, sweat and tears’ in order to best prepare the country for the post-crisis period.

These proposals, interconnected as they are, can lead, if implemented, to a major restructuring of Greece’s badly damaged political system. They depend on purely political decisions and require courage, vision, and strategic alliances. But do they offer Greece a way out of its fiscal crisis? And, are they feasible at all? Even though each and all proposals provide for drastic budget cuts, the answer to the first question must be negative since, at the moment, Greece’s debt is so high that hardly anyone believes it can be manageable. The answer to the second question, however, should be positive. Prime Minister George Papandreou seems to have understood his difficult position and has at last begun telling Greeks unpopular truths about painful but brave reforms. The problem is how to rally the support he needs for implementing such reforms. His party’s deputies, although fractious, will not dare cause the government’s downfall. Society, on the other hand, is restive and very angry against the political class. But this doesn’t mean that it will not support most of the changes proposed. Reducing the legislature, the number of ministries, and certain areas of the state are popular measures. Reforming the electoral system and the constitution, as well as establishing an efficient system for raising public revenue, will also be greeted positively by society. A large privatizations program is already on the agenda and reactions to that plan are on the wane. Regarding state tenure, a recent poll revealed that an impressive 65% of Greeks want civil servants to lose their job security. More definitely, Greek society will be pleased to hear fresh ideas and realize that a new political ethos may be in the making.

There is, finally, the massive support Papandreou should expect to receive from his European partners for implementing such a bold programme of political reforms. For, at the end of the day, there are only two truths, one very painful the other more hopeful. The painful truth is that Greece, practically in no position to pay the accumulated debt, may be forced out of the Eurozone, but this will be catastrophic for all. The hopeful truth is that the Greek government has one card left for increasing the credibility of its actions: embarking on a programme of bold political reforms both in preparation of a post-crisis adjustment and to create the conditions for long-term growth. Perhaps, then, in exchange for such reforms, European debtors could be required to accept write-downs of Greek debt so that the Greek economy can better grow its way out of the crisis.