Wednesday, February 17, 2010

How does the Greek economy measure up? by Issac A. Karipidis "Athens News"

"The truth is somewhere in the middle. One thing, however, is certain: the policies of the last decades have driven the country to its present position and now it is the weakest link (Greece)in the European Union."
 In London

IT IS THE first time in the history of modern Greece that the British media, particularly the financial press, have shown such concern and interest in the country. Even the Olympics didn’t attract this much attention.
The running joke among some Greek correspondents in London is that the Financial Times should be renamed the Greek Times. We learn more about the Greek economy from the FT than from any other financial press in the world, including the Greek press. Every day there are more articles about the Greek economy than there are for any other country, including Britain.
This raises the question of whether the Greek financial problem is as serious as the British press says or whether there are other interests at play here. The truth is somewhere in the middle. One thing, however, is certain: the policies of the last decades have driven the country to its present position and now it is the weakest link in the European Union.
We asked the opinions of four experts who keep abreast of the political and financial situation in Greece. All of them live in Britain, are greatly interested in Greece and all have different points of view from those who live in Greece and those who criticise the present situation without sound knowledge of the country.

Tax evasion as unpatriotic

Bruce Clark is an editor of The Economist,
which has an average circulation of just over 1.4 million copies per week. In the 1980s, Clark was Reuters’ correspondent in Athens and speaks Greek fluently. He is also well known as the author of Twice a Stranger: How Mass Expulsion Forged Modern Greece and Turkey
Athens News: Do you think the Greek government is doing enough to deal with the current difficult financial situation?
Bruce Clark: I think it is probably doing as much as is politically possible in Greece, but that may still not be enough to convince the world that Greece can find its own way out of the current crisis. The parameters of what is politically possible keep shifting, of course, depending on what is happening in the markets and in Brussels.
What else could the Greek government do in order to improve the financial situation in Greece?
One of the best things would be simplifying and clarifying the tax system while exposing scandalous cases of tax evasion and encouraging the idea that it is unpatriotic, especially in the present situation, not to pay taxes.
To state the obvious, in Greek popular culture there is a persistent feeling, doubtless dating from Ottoman times, that all authority is illegitimate. In such an environment, cheating the authorities, even in small ways, is easily perceived as a praiseworthy demonstration of cunning and defiance.
Unfortunately, this attitude has not been completely absent from Greece’s transactions with the European Union since 1981.
What is the biggest problem for Greece: its credibility, deficit or debt?
I think the question is right in implying that restoring credibility comes first. Perhaps the most basic thing, as I have already suggested, is that the Greek state must regain a minimum of credibility in the eyes of its own citizens. The report on Greece issued by Eurostat, the EU data service, in January is a truly terrifying document - presenting a pattern of systematic manipulation and juggling with figures over many years. Rather unusually for a bureaucratic document, it is written in a spirit of real anger. Creating an independent and reliable statistics service in Athens would go a long way towards calming this anger and restoring the country’s credibility.

How likely is it that Greece will be bailed out of the EU, declare bankruptcy and bail out of the eurozone?
As of early February, it looks very much on the cards that there will be a bailout - not by the European financial authorities, who have no mandate for such an initiative, but by Greece’s partners in the eurozone. I think a default by Greece and/or a departure from the eurozone are unlikely because of the damage that would do to the whole project of the common currency. Broadly speaking, the eurozone’s reputation would be badly hurt by a Greek default, and also by a weakly conditioned bailout. But if there is a bailout on convincing terms - in other words, linked to an improvement in Greece’s finances - then the eurozone will not be unbearably damaged.

Who or what is mainly responsible for this situation? Was it created by decisions and actions rooted in the past, or is it the result of the global financial crisis?
I think the global financial crisis unmasked some deeper financial problems in several EU members. In the Greek case, perhaps the most unfortunate thing is that the country failed to take advantage of the opportunity to improve its financial health, which was provided by membership of the euro. Being part of the eurozone means that you can borrow on the same terms as Germany. That provided an opportunity to strengthen the country’s balance sheet and make it more resilient in the face of crises. Sadly, that opportunity was not taken. But in fairness to the previous government, it would have been very difficult, politically, to use spare cash on boosting the balance sheet as opposed to shorter-term handouts.
To what extent do you think it has been driven by negative international press coverage?
Let me answer the question in two parts. First, has the international press exaggerated the weakness of Greece’s fiscal situation, and the unreliability of Greek statistics? No, I don’t think so. In fact, the situation is probably worse than most outside observers realise. But in certain senses, the press coverage may have been somewhat unfair to Greece. First, because there are plenty of other EU countries whose public finances are far from perfect. And, secondly, because both Eurostat and Greece’s eurozone partners bear some responsibility for the present situation. In the spring and summer of last year, they knew - or should have known - that a serious situation was developing but they failed to blow the whistle.
How long do you think the present situation will last?
For the rest of this year at least, the social and economic situation in Greece is going to be quite rocky. Handling it will be a political challenge, not a purely technocratic one, for [Prime Minister] George Papandreou.
ATHENS NEWS 15/02/2010, page: 8-9

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