Greece has seen the biggest fiscal re-balancing in OECD history. Does this mean that the bail-out strategy is working?
Since 2010, Greece has endured deep social and economic pain. Indeed, its recession is now comparable to that of the Wall Street crash. No other European state has undergone such pain in the last fifty years or more. And, of course, Germany followed a more benign path towards the GDR than it has insisted upon with Athens. We should note the IMF’s admission of a year ago that it has wrongly estimated the effects of the Greek austerity programme: the calibration of the ‘multiplier effects’ was misconceived.
Eventually, tough austerity can overcome a government’s fiscal imbalances. Thus, in 2014 Greece will have achieved a primary budget surplus and should return to economic growth. Business confidence is rising, as is foreign investment. Greece has seen the biggest fiscal re-balancing in the OECD’s history.
Does this mean that the bail-out strategy is working? The answer is only partly and that bigger challenges remain. Removing a deficit is one thing – and when the IMF comes to town that’s what their prime aim is – and deeper, structural reform is quite another. Even if Chancellor Merkel had thrown money at Greece to ease its debt crisis, no serious analyst could have claimed that the public institutions – and the state administration in particular – were ‘fit for purpose’.
This is where Kyriakos Mitsotakis, as Minister for Administrative Reform, comes in. Not since British ministers were sent to Northern Ireland during the ‘Troubles’ has a minister faced such daunting a challenge. He is well-supported by his deputy, Evy Christofilopoulou: Mitsotakis belongs to the centre-right New Democracy party, Christofilopoulou from PASOK, the centre-left socialist party. Their agenda is not directly one of ideological contest. Rather, it is one of the reform of the state administration to make it more efficient and flexible, better informed, with higher skilled systems and staff.
It is mistaken for the outside world to identify the central problems as being only corruption and patronage. It is certainly true, as Mitsotakis recognises in the interview, that present failings stem, in part, from previous governments appointing staff from their own ‘clienteles’ with little regard to merit. He doesn’t defend the ‘political class’ or even his own family. Both major parties have been guilty of the politics of clientelism for the last thirty years or more. Both indulged in pre-election sprees to buy votes with public sector jobs. This takes its toll on the operation of the government. It also structures public attitudes towards the role of the state: corruption locks in both politicians and the voters and has them see the state as a trough. As the former Deputy Prime Minister, Theodoros Pangalos, famously put it: everyone ate together (from this trough). In other words, it wasn’t simply a rapacious political class that exploited the system: many of the public also expected its cut. Let’s hope he’s right when he says that today a ‘silent majority’ wills his reform agenda.
Mitsotakis also has a point when he suggests that the total staffing level for the state administration is not the core problem – Greece is not so out of line with other European states in these respects.
As big a challenge as corruption and patronage is the task of instituting a culture change within the state bureaucracy. There has to be a paradigm shift in the norms, procedures, and habits of how the administration operates. The Greek administrative culture drew, historically, upon that of France and Germany. Academically, it is often categorised as being ‘Napoleonic’. It distorted this model, though, and it reformed it less than other ‘Napoleonic’ states. A very thorough OECD Report of 2011 produced a ‘Review of the Central Administration’, and this detailed a damming set of failings in the system.
The bail-out strategy for Greece has evolved. The loan it received in May 2010 came with an infamous ‘Memorandum’ that set out reforms required of it, if the loan was to continue. A ‘Troika’ of representatives from the EU Commission, the European Central Bank, and the IMF have visited Athens regularly to monitor Greece’s compliance with the terms of its loan. Led by the IMF’s Poul Thomsen, the Troika has a ‘Viceroy-type’ type office in Athens for this operation. Both the 2010 Memorandum and its 2012 revision detailed a list of reforms that Greece is required to implement to its state administration. Indeed, of all the reforms required of Greece, some 40% involve the government bureaucracy.
This is the right agenda for a bail-out of Greece. Left alone, the Greek political system would be unlikely to deliver this re-modelling of its public institutions. Since 1989, every national election in Greece has focussed on the modernisation or reform of the state. But the problem of the public bureaucracy has essentially remained. There have been too many vested interests; the public sector unions are the strongest of all; and the severity of the recession would all have made the political cost of action too high. That said, the Troika’s strategy has itself been somewhat inept: insisting on too much speed and on horizontal cuts with little preparation.
The relationship between Athens and the Troika has, at times, been akin to a soap-opera. The Troika’s insistence on urgent and deep horizontal cuts set the domestic cost of adaptation too high. Greek politicians were left to haggle over every cut and every job. The contest has been nonsensical: the targets for job losses in the public administration were not set by any review of what Greece needed or where; they were crude means to the fiscal re-balancing. So, the demonstrators on the street had a point. All this deflected attention from the core agenda of the need for reform and re-modelling. The Troika supervision could hardly have been more cack-handed; the strategy needs to move on.
Much closer to the real agenda for Greece’s recovery has been the EU Commission’s Taskforce for Greece. Led by Horst Reichenbach, this was created in a later phase of the Greek crisis – in 2011 – and its role is to offer fulsome technical advice and aid to overcome the dysfunctionalities in the administrative system. An incentive is to enable Greece to absorb more EU development (or ‘structural’) funding.
This is the underlying dilemma of the Greek crisis: how to make the Greek state institutions operate more effectively. For this is the long-term task that will remain long after the Government has achieved its primary budget surplus. And it is also part of a wider challenge for the European Union: a stable monetary union is increasingly recognised to require it to be able to reach down into domestic systems and oblige them to adapt and follow stringent rules. A heterogeneous EU, beyond the euro-zone, also poses similarly difficult tasks of EU coordination of macro-economic development. In short, the new European agenda will inevitably rest, in part, on its domestic leverage.
Greece alone cannot do this; might it do so in combination with the EU? The task combines institutional re-structuring and a culture shift – both are daunting. Recent reforms are encouraging. As Mitsotakis says: the tax collection system has been re-structured and, more generally, there is more use of the internet and technology. Following the reforms of the previous government – dismissed by Mitsotakis here – Greece now scores very well in international rankings on transparency, given its innovative reforms on e-governance.
A serious reform strategy must plan for the long-term. Though organisational structures can be transformed, cultural mind-sets can’t be ‘abolished’. The task for the EU is to keep Greece tied to the reform path, but also to allow it the time to implement changes properly. We should be careful of short-term judgements on whether Athens is succeeding or failing. After all, Greece is not unique in having political corruption or ‘cronyism’, let alone inefficient bureaucracies, many European states encounter similar challenges in different shades – our newspapers are full of such stories. A smart European plan for Greece must avoid simplistic contrasts or criteria; it must be engaged step by step.
*Kevin Featherstone is Eleftherios Venizelos Professor of Contemporary Greek Studies and Professor of European Politics at the London School of Economics, where he heads its Hellenic Observatory
