Saturday, 21 June 2014

NARCOTICS, MONEY LAUNDERING AND THE GREEK POLITICAL ECONOMY

There is a relationaship between public sector corruption and private sector corruption, and both impact economic growth growth and development in so far as corruption is parasitic and does not add anything to the economy. Similarly, there is a relationship between endemic corruption and an economy's ability to function according to marketplace rules as publicly stated and obesrved by some entities. However, it would be misleading to conclude that corruption is the cause for lack of growth and development, considering that very corrupt countries, including China, Russia and India have enjoyed substantial growth and development in the last decade and a half, while the less corrupt Western economies have not perfmored as well.

Greece is indeed one of the most corrupt countries in the world, and the most corrupt in the European Union. It is also a country that has been an experiment for austerity measures in the EU in the past four years, an experiment that even by the criteria of the IMF and EU has not achieved the publicly stated goals of reaching public debt of under 120% - the real debt is at 175%, but actually 220% if all public enterprises are taken into account. Nor has Greece the ability to float long term bonds in the private sector because of high interest rates. Similarly, the IMF and EU were wrong that austerity would reduce unemployment because foreign investment would flow into the country. On the contrary, austerity has entailed real - as opposed to official - unemployment of one-third the entire labor force, while investment has been trickling in. A pro-market publication called CAPITAL, recently asked its readers if they won a large amount of money outside of Greece, would they bring it back to invest.

Given the dim prospects of an economy that increasingly resembles those of its northern Balkan neighbors, exactly as Germany stated where Greece ought to be in terms of its status within the EU, the question is what are the domestic political abd business elites doing about reviving the national economy. The answer even greater corruption and more illegal activity than existed before the crisis of 2009.This is not to say that Greece has an economy where narcotics production and trafficking plays a major role as in Afghanistan, Colombia and Mexico. However, it has similarities with economies that rely on the "informal" and illegal economy for roughly one-third of GDP, perhaps even higher given the elaborate money laundering operations.

In early June 2014, the Greek police, under the direction of US narcotics agents, raided the home of a wholesale diamond dealer where they found half a ton of heroin. The same day they raided the villa of a Greek shipping tycoon in whose house agents found over half ton of the illegal drug, for a total of 1.2 tons. The arrests included two Turkish nationals that the US agents had been tracking in the Middle East - Afghanistan is the origin - through Turkey and then Greece where the shipment of narcotics was headed for Western Europe.

The Greek tycoon was on a list for tax evasion, including the infamous ‘Christine La Garde list’ of more than two thousand names of the Greek socioeconomic elite that has been engaged in massive tax evasion among other financial crimes that the Greek government has yet to prosecute. The alleged narcotics traffickers were well known for their lavish lifestyles, but they were beyond the reach of the law, and the only reason they were arrested is because US narcotics agents provided information about a precise shipment of heroine, including names and addresses.

Holding the number one maritime spot in the world, Greek shipping companies are the major traffickers of narcotics, linking Turkish, Greek, Iranian and Albanian heroin traffickers from the East as well as Colombian, Spanish and Dutch traffickers in the West. There are many ways to transport narcotics without detection, including the latest of hiding the heroin bags inside larger bags containing marble dust used in construction. Additionally, if the tanker ship copntains petrol or crude oil and other chemicals, detection with trained dogs becomes even more difficult. In the specific case of the massive horein shipment onboard a Greek tanker and on the properties ofa shipping tycoon and diamond dealer, an inside informant provided details to authorities of the narcotics shipment.

The only way to get the narcotics trade flowing in Greece as well as other parts of the world is to secure that customs officials, coast guard, police, judges and/or politicians are all on the payroll. For example, it has been an open secret that the island of Crete is a major supplier of hashish to Western Europe (mostly Holland) simply because public officials, including prominent politicians provide cover and facilitate the drug trade. Everyone knows exactly where the cannabis is growing because there have been periodic raids in the areas, just as they know it is transported in large quantities onboard trucks and ships. Despite the publicity of this issue, the drug trade continues uninterrupted.  

According to the UN, "Balkan and northern routes are the main heroin trafficking corridors linking Afghanistan to the huge markets of the Russian Federation and Western Europe. The Balkan route traverses the Islamic Republic of Iran (often via Pakistan), Turkey, Greece and Bulgaria across South-East Europe to the Western European market, with an annual market value of some $20 billion. The northern route runs mainly through Tajikistan and Kyrgyzstan (or Uzbekistan or Turkmenistan) to Kazakhstan and the Russian Federation. The size of that market is estimated to total $13 billion per year."

Just a few days after the heroin drug bust in the Greek shipping tycoon's home and the diamond dealer's property, another ton of heroin apparently was confiscated by Greek police, again with US-DEA assistance, and based on an insider informant's details of the shipment. Once again, the shipment size required large ship as well as large trucks for transport, indicating major organization behind it involving very well connected people. The combined confiscated heroin for the month of June amounts to 2.2 tons, the largest amount confiscated in the history of Europe and it may be one of the largest confiscations in the world valued at least 400 million euros. 

As nice as the news sounds about the DEA-Greek capture of 2.2 tons of heroin seized in June, the problem is the nature of the Greek political economy rooted in the subterranean sector that represents at least a third of the entire GDP. There is the whole question of whether governments ought to measure GDP by including illegal actities, such as drugs, sex trade, etc. After Nigeria decided to include such illegal activities in its economy adding 90% to its GDP, a number of EU countries said they would do the same, while the US said it had "no imediate plans" to count illegal activity money in the GDP. This in indicative of how governments turn a blind eye to illegal economic activity, and provide a sense of legitimacy to it after the fact. If large international banks are laundering drug money, why should the government leave the illegal economic activity out of the picture?

Greek prosecutors have been trying to go after the elites of Greece, all well known because the country is so small and the sudden wealth of many of these people cannot possibly be explained. Politicians of the two ruling parties – neo-conservative New Democracy and the neoliberal PASOK – have been protecting the elites directly through legislative measures by also by intervening in the justice system, often threatening to prosecute the prosecutors, especially when they have gone after the very corrupt top politicians in the current government with cases involving massive bribery scandals from domestic and foreign companies. 

Because there are laws providing amnesty for ministers, they cannot be prosecuted. When a current case came from the prosecutors involving the Vice Premier Evangelos Venizelos and his involvement in a massive corruption scandal regarding submarine contracts during his tenure as defense minister, the government immediately shut down parliament, so that the case can be legally “written off” and not be allowed to be heard and pursued in judicial channels. Because government ministers and politicians of the ruling parties are so immersed in corruption, they try through back channels to protect the elites that prosecutors are hunting down.

Several prominent businessmen, among them Dimitris Kontominas, owner of TV station and insurance company and well know for his role in scandals involving banks and government officials, and Angelos Filippidis, former head of Hellenic Postbank, and several of his colleagues, have been indicted over loan scandals that cost the former state-owned bank an estimated $700 million. Along with a number of others receiving loans without any guarantees and never repaying the loans to the state-owned bank, there are the charges of money laundering operations against top businesspeople closely linked to the ruling parties. These scandals involving top businesspeople would not be possible in the absence of top government officials giving the green light on the loans, which leaves the question of the motive of government officials.  

The biggest scandals involve the defense sector where it seems that Greece has been paying for tanks, helicopters and submarines that do not work properly, but it has been paying a much higher price than the market price. The bribery scandals in this sector have one former defense minister and other former government officials serving prison terms, but some of the politicians involved in corruption are currently in government. The infamous Siemens scandal that involved a number of New Democracy politicians remains unsolved, but the well known corrupt politicians who cannot possibly account for their millionaire status are in government enforcing austerity measures.    

While the political and business elites have bee stealing from the public treasury, they have had no difficulty insisting that austerity imposed on the middle class and workers must go one. This despite the reality that reality that the public debt is unsustainable at 175% of GDP, that it would probably come down to 120% of GDP in 2022 and unemployment will remain above 15% for the next ten years, with very low wage scales. 
Official reports from various international organizations about labor conditions indicate that Greek has some of the most archaic labor policies and conditions. 

The IMF/EU used austerity to impose this new system with which the PASOK and New Democracy right-wing government imposed largely because the domestic financial elites go along with this policy so that the masses pay for the public debt. Ironically, these are the same elites that are tax evaders, and smugglers of illegal cigarettes, narcotics, guns, and petrol; the same elites that launder money through real estate and professional athletic clubs, the elites that have taken out most of their money to stash it into offshore accounts, the elites that paid very little taxes while receiving massive benefits from the state through their businesses, these elites now present themselves as the best hope for the revival of the country from the current crisis.

About one-third of employers owe their employees back wages of a few months to a year.  There are currently workers who receive no payment other than that in kind – food, clothing, shelter. This is not only for foreign workers in the agricultural fields, but also Greeks who exchange labor services so they can live. According to the laws of the land, it is illegal to have anyone working in return for in-kind compensation rather than money wages. The government has put an end to any powers that trade unionist enjoyed, including collective bargaining. Using the austerity regime as a pretext, the government introduced a labor policy that resembles 19th century conditions. Even when workers take their case to court and even when courts rule in their favor, the government simply ignores the court ruling, or engages in endless delays using the legal system.  

Given that the country is swimming in corruption because political and business elites know of no other way to conduct policy or business, what is the prospect of Greece for the next few decades? The role of Greece in the world economy is bound to remain as an intermediary strategic area in the following domains. 

1. Main entry port for China's COSCO Corporation. This means that the Greek ports and some railroad operations will be under Chinese control in the 21st century, unless something changes drastically in the geopolitical map. The beneficiary here is China that has ready cheap access to a strategic port/railroad operation base. In exchange, Greece secures a few thousand jobs and the promise that China will be buying bonds in the future to demonstrate confidence in the public sector. The government provided very low cost operations for the Chinese leasing operations so that it can attract roughly five billion in investment, or 2% of GDP. Because Greek shipping companies secure financing from Chinese banks to build their ships in Chinese shipyards, the quid pro quo is that Greece must make concessions to the Chinese on port and rail infrastructural systems. After all, the Greek shipping tycoons have always had a preponderate influence in the direction of the economy and on public policy, although shipping accounts for a lower percentage of GDP than tourism and shipping tycoons keep their assets outside of Greece.  

2. A major intermediary for natural gas coming from Azerbaijan, Russia and the Black Sea/trans-Caucasus area in the future. This is a capital-intensive investment area that brings few sustainable benefits for the economy, if we exclude the initial investment in infrastructure and the relatively low cost of energy. Solar panel and wind power are other areas of investment, but those are also capital-intensive with dim prospects for offering anything but huge profits mainly to the German manufacturers of these sustainable energy systems and to large investors. Smaller investors are so highly taxed that they cannot compete in this market, given the considerable capital required for the upstarts.

3.  Gulf States investment in tourist-related real estate development that helps the tourism and gambling industries. However, profits are taken out just as in shipping, and the investment is not at the level that it would make much difference is absorbing a portion of the 28% unemployed. 
4. Varieties of operations ranging from legal state owned gambling (lottery) operations offered to billionaires linked to the ruling party. That the average taxpayer is well aware of how government subsidizes business elites closely linked to the ruling parties accounts for widespread cynicism and political polarization.
5.  Capital-intensive enterprises in select areas from computer system to banking are areas that will attract some investment as the political and economic climate becomes more stable. However, there is no possibility of Greece developing a diversified economy that is capable of serving the basic domestic needs. This means that it will rely on imports not only in the domain of capital and intermediary goods, but even agricultural products competing with domestically-produced ones. The result will be a perpetually low-wage environment because tourism accounts for about 15% of GDP at best and is not capable of sustaining the rest of the economy.

Because small and medium-sized businesses account for the absorption of the labor force, the prospects of unemployment below five percent is not in the horizon. The best prospect for college-educated people in Greece is to leave the country, given that Germany and the domestic political and economic elites agree that Greece is relegated to a status much closer to the northern Balkans where living standards are much lower than those in Western Europe. Meanwhile, the government, business analysts and Western apologists of austerity and neoliberalism as well as the media eulogize the success story of Greece that is now deeper in debt, with its future resembling the early Cold War years of socioeconomic and political polarization. How likely is it that there will be a change in the nature of "baksheesh capitalism"? Because this is as much a political economy issue as it is a cultural one it is dirfficult to say that there will be any change in the near future.A cultural and political revolution is unlikely in order to bring about change.

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