Friday, September 2, 2011

Greece and its political oligarchs: shooting the messenger....

Today marked a mini crisis where the newly-formed Greek fiscal council warned a high primary deficit and the deep recession have boosted to the extreme the debt dynamic, now "out of control”, offsetting the impact of the first €159 bn bailout loan. Finance minister Evangelos Venizelos said the report lacked validity of equivalent international reports, resulting in the resignation of Ms. Stella Balfousia, head of the Budget Office. Welcome to Greece, land of political oligarchs and the wonders of Socialist Democracy!

Unfortunately, the political restoration in 1974 sowed the seeds of the present Greek debt crisis and national bankruptcy. Institutionally instead of a sound democracy, an ugly, rapacious political oligarchy was created that was based on crony state corporatism financed by EU transfer money and loans. The main driver was the Pan-Hellenic Socialist Party (PASOK), which gained power in 1981 and started ‘socializing’ lame duck Greek companies. These companies had become lame ducks because of the inelastic labor laws and heavy state bureaucracy preventing them from restructuring during the late 1970’s, as the economic climate deteriorated under pressure of the rising Greek Socialists. The Socialists adopted a policy of expanded entitlements and maintained employment by taking over these companies financed by deficits and public debt.

Politics in Greece became a family name franchise to make money based on relations with the Greek State. Unsuccessful party candidates became senior management in state-controlled companies. State procurement went to favored Party customers. The state corporations generally lost ever greater sums of money, but they were given state guarantees to ensure further private bank lending - a major factor in Greek over-indebtedness. Even EU privatization became a party picnic where the Socialists maintained state control of many of these entities through public pension funds and state-controlled entities. Some say state entities were even used to buy the shares and pump up the prices in rampant insider trading deals. Much of the private economy is based on business with the public sector or granting of concessions that are in effect monopolies.

Consequently politics in Greece became a highly lucrative career path leading to substantial personal wealth. Some of the most coveted positions are in Brussels in senior political positions as well as key state ministries like Defense, Education and Telecommunications and Transport. Major party members evolved into a sort of ‘landed’ aristocracy with these positions as their ‘domains’. Today, the key party members of the Greek political elite are all very wealthy, living in large walled enclaves. Party “barons” have built large manor houses like this photo on various Greek islands sometimes with private beaches. Two-thirds of the Greek police serve as their guards.

They enjoy lavish jet-set life style and revel in Yuppyish behavior. Their world is increasingly distant from the average Greek, whom they tend to see more and more as their serfs not hesitating ever higher levels of taxation in hopes of maintaining their privileges. They largely see the IMF/ EU loan money as a means of preserving their financial, social and political status as the expense of the general Greek population. How can anyone protest, since they are elected officials and above all Socialists…..

Greece is a country where the keys to political power are tightly under lock except to a privileged few. The Greek political elite have done everything possible to consolidate their power. Institutional controls are virtually non-existent. Greek Deputies enjoy Parliamentary immunity from even common traffic tickets. The Greek Presidency is solely symbolic. The President is obliged to sign whatever is put before him without personal responsibility, even if the document has forged signatures or dubious legality. Elections are at the sole discretion of the Prime Minister for any reason whatsoever. The political party in power has an absolute parliamentary majority and routinely rubber stamps any legislation at the discretion of the party leaders. There is no separation of powers in Greece. The government generates nearly all the legislation. The judiciary risk their careers and promotion should they dare overturn any government laws.

Not surprisingly there are no institutional spending controls in Greece on public deficits and national debt. Greek politicians have always had a complete carte blanche to borrow and spend as they see fit. The problem with this system is that it has created unsustainable deficits and debt levels. The size of the public sector is too large for the private sector tax base to support. This process has driven underground a significant portion of the Greek economy. Taxation in Greece is largely retrogressive and arbitrary based on how much the State deems one’s income by the size of house, make and model of car, etc. VAT rates are extremely high. Likewise fuel tax, etc.

Thus, we have the spectacle today of the dismal report above that they reject, shooting the messenger….

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