Sunday, 20 February 2011


Just three years ago when the global economic crisis began, I was optimistic that the economic miracle of Greece running full steam in the past 25 years would most likely continue for the next five years, in spite of pending world economic slowdown. The middle class had become much larger and wealthier, while living standards were closing the gap with those of western EU nations.

Large-scale foreign investment and the natural gas deal with Russia and the Black Sea Consortium represented considerable impetus in a country that has weak agricultural and manufacturing sectors. Greek-owned firms had been taking advantage of low-cost labor and have been expanding the Balkans and the Near East, and Greece had benefited from cheap immigrant labor that continues to fuel its economy. By 2012 Greek living standards were expected to be higher than Italy's, just as Spain was expected to move ahead of Italy by 2012.

All that optimism for continued growth and upward social mobility faded with the sovereign debt crisis that swept from Greece to Ireland, Portugal, Spain and with it the euro became volatile. Crisis of confidence in the public sector was reflected in the bond markets from late 2009 until the present. Almost immediately, the reaction by the strong northwest creditor EU nations was that everyone in the union is on their own, and must get their house in order. What eventually evolved was a bailout for the debtor nations but with a new integration model that essentially reduced the debtors into semi-colonies, at least at the financial level. To force the debtors to shape up, the creditors, mostly Germany, argued that culprit was systemic corruption.  
If Greece was as free of corruption as Denmark which ranks first in the world for its transparency, if Greece did not  rank 78th along with cocaine-producer Peru and narcotics-exporter Colombia, if it was as clean as Iceland also in crisis would the public financing crisis have taken place and the IMF-EU austerity program not been necessary? According to all indications, the debt crisis would have taken place almost exactly as it did in 2010. This is partly because of structural fiscal and balance of payments imbalances, but largely because German and French banks that helped Greece accumulate debt far beyond its capacity to pay, and then with Goldman Sachs assistance, helped Greece cover up that debt through swaps that were illegal but which the European Central Bank was aware of. 

It is not the case that the Greek debt crisis emerged from structural corruption, but from structural finance capitalism's fraudulent practices on a global scale. After all, didn't the crisis start in the US in late 2007? And it is not the case that Ireland ranks 14th in Transparency International index, but owing to its banking crisis it too had a debt crisis and forced to accept austerity measures not much different than those of Greece. As most EU officials have been arguing throughout 2010, bond and currency speculators were also responsible for precipitating the public debt and euro-currency crisis at a time when cash was in short supply globally, and deficits nations like Portugal, Italy, Ireland, Greece and Spain (PIIGS) as well as Belgium were looking to the creditor nations (Germany & France) for support.
That structural flaws in finance capitalism caused the debt-euro crisis does not mean of course that corruption in Greece's public and private sectors is not a reality that contributed greatly to the economic slump the country experienced from late 2009 and it will continue to experience through the remainder of the decade, given that the public debt as a percent of GDP will not be well above 100%.

Transparency International studies show that Greeks paid more than 780 million euros in bribes in 2009, or an average of 1,355 per household for everything from medical services to securing a construction permit. These figures are very low because most people do not admit they have paid a bribe as it is against the law and a public stigma. Nor do the figures include corporate and government corruption where the larger crimes are committed. 

For example, a former ministry of culture vice president whose job it was to oversee payments in the ministry was found with a 9-million euro bank account! Politicians become very wealthy very quickly without any way to explain their sudden fortunes, but because the problem is widespread not a single one has been prosecuted for corruption. 

German magazine Der Spiegel reports that German companies contracted to four submarines sold to Greece paid tens of millions in bribes. Multinational corporation Siemens of course is infamous for dishing out tens if not hundreds of millions in bribes to Greek politicians, officials, military personnel, businesspeople, and unknown others in order to secure contracts that were intended to be competitive and not closed. The US fined Siemens, but in Greece not a single politician has been prosecuted - the privilege of politics is to remain above the law! Of course, there is the issue of the bribe recipient at one end, but also of the corporation that offers the bribe at the other end to secure the contracts, something we see not just in Greece but globally.
Despite the Greek economy's impressive growth rate from 1980 until 2009, the socioeconomic gap will be widening once again after it had been closing in the past three decades, as it did in Spain, Portugal, and Ireland. IMF-EU privatization recommendations that have been implemented, or they are
on the way, tightening social security benefits, along with rapid price inflation and the lowest average wages in the EU entail that Greece is hardly the economic miracle of the early 21st century that some EU observers have praised. The situation will not be much better for Portugal, Spain, Ireland and even Italy.

Unrelenting rampant official corruption, chronic and widespread tax evasion not much different than
in a Third World country, a thriving subterranean economy that include but not limited to pervasive narcotics, sex traffic, and money laundering activities; a corrupt educational and health care system are some of the problems facing the country that is headed for a second-tier status within the EU along with the other PIIGS.

While southern Europe and Ireland do not have monopoly on capitalism's inherent contradictions, such traits manifest themselves more poignantly in the periphery in the form of 'baksheesh capitalism' in contrast with Scandinavian-style 'enlightened or rationalized capitalism' where the state and private sector are as free of corruption as we can expect from humans. Amid a cesspool of rampant corruption and deteriorating social conditions for more than two-thirds of the population, economic growth in Greece benefits no more than 20 percent of the population, most of which is directly or indirectly linked to the corrupt public sector.

At the bottom of the social ladder, an estimated 20-25 percent live below poverty level, unemployment in February 2011 stands at around 14%, likely to rise to 20% in 2011. While the EU integration model yields benefits for its periphery members, it has not fostered 'enlightened or rationalized capitalism,' thus raising
questions about the extent to which 'baksheesh capitalism' will impact the broader social classes of the rest of the Balkans and Turkey once they become full EU members.

While Greece is not a microcosm of EU's northwest members, it is a reflection of the periphery and future members whose role will be to serve as satellites for northwest Europe in a two-tiered EU economy. In the era of globalization and privatization, the inherent characteristics of baksheesh capitalism are evident in other countries and contribute to the radicalization of the masses just as in the case of Greece. While it is unlikely that the social unrest that has spread throughout North Africa and the Middle East will infect southern Europe and the Balkans, it is not entirely out of the realm of possibility that revolts in EU's periphery nations may take a different form in the future unless there is socioeconomic improvement. For now, the EU is still selling a dream of a better tomorrow for all who in the union, a dream that is fading as fast as the American Dream.

No comments: