My #1 Surprise From Visiting Greece

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ATHENS, GREECE — I don’t leave Greece for another 24 hours, and I’m running the risk of pissing off a lot of the folks I’ve met on the ground, but my #1 surprise after being in Greece for 5 days to cover the election is that I have more sympathy for the position of Angela Merkel than I did before I arrived.I said early on when I got here that my biggest initial surprise was the extent to which people blamed their problems not on the flawed structure of the Eurozone, or the ECB, or the IMF, or the Troika, or Angela Merkel, but rather their own government, which is comprised of a seemingly corrupt political class, and a massively bloated bureaucracy.

Folks across the whole political spectrum seem to feel some version of this sentiment, from businessmen to hardcore leftists.* (see addendum below)

One seasoned Athens resident told me that for a long time, the rule was ’25 to 1’… If you got 25 people to vote for a given party, you got a job either for the government or a state-owned company. The public sector was then filled with numerous ‘green shirts’ (supporters of the socialist PASOK party) or ‘blue shirts’ (supporters of New Democracy). Everyone, they say, has some family member working for the government or a state-owned company, making it virtually impossible to lay anyone off.

And though austerity has contributed to the crisis here, there really hasn’t been that much in the way of real cutting or firing. What has happened is better characterised as “furloughing” as some people go without pay, but keep their jobs.

This is not to say that austerity would “work”, but the case for some kind of structural reform does seem strong. Even if you don’t think at all about the actual levels of government spending (which is what macro-economists might focus on), the tax system seems extremely complicated (little use of electronic taxes, lots of in-person appearances, everyone needs an accountant) and the regulations on businesses seem burdensome (just talk to the young folks trying to build a startup scene here about some of the costs they face setting up a corporation).

So while the status quo isn’t working, Merkel’s position that Germany can’t write a blank check (which is arguably what Eurobonds is) until there’s more reform, is understandable. And the fact of the matter is that nobody expects the government to really deliver on reforms, and if the domestic population doesn’t expect it, why should Merkel or anyone else in Europe? Even people who think that Merkel in some way feels a need to punish the Greek people can’t argue that the local government would be great stewards of more support.

This isn’t to say that Germany isn’t complicit and wrong in all kinds of ways. The German obsession with keeping inflation at bay in Europe has caused the ECB to make all kinds of bad decisions and exacerbate the crisis. And the Germans benefitted massively from Greece during the boom years. Greece has been a huge customer for German products, ranging from arms to medicine to engineering services to cars. 

For the Eurozone to function, Germany has to sacrifice as well, because it too enjoyed the fruits of the bubble on the periphery.

But in 2012, even with the crisis, Merkel’s long-game is somewhat understandable.

If Germany is going to bear the fiscal weight of the Eurozone, it’s hard to argue that this should be sped up before governments can show at least some impulse to fix things. And we’re not talking about the generic “fiscal house” that always needs cleaning everywhere, but the actual functioning of a government that Greeks themselves argue is deeply messed up.

*There’s one important thing to note, which is that you can’t necessarily trust people to honestly assess their own government’s level of corruption. A recent survey of Europe found that almost every country thinks their own government is the most corrupt in Europe.

Hedge fund manager Mark Dow had a great post on this:

There is a tendency to listen more to the people in the country being analysed. It is presumed they have ‘better information’ and understand better how things work. But what I have learned in my experience with sovereign crises over the years is that whatever informational advantage they have is usually more than offset by (1) their difficulty in distinguishing between things that matter and things that don’t; (2) the psychological baggage with respect to their own past, and (3) the often emotionally-charged nature of their perspective. Shorter: never ask a Brazilian about Brazilian inflation risk.

Five out of eight countries chose their own country as the most corrupt in the survey. Why? I, for one, still haven’t been to a country where people complain they are being taxed too little. Similarly, I hear in virtually all countries going through rough times that they could solve their problems if they could only end corruption in government. This is the height of wishful exculpation. It also ignores the fact that China has grown spectacularly over the past decade, despite what many believe to be a highly corrupt system. And, even if it were true that corruption were the primary cause of a country’s ills, it also ignores the reality that government is usually a reflection of a country’s culture, and changing the politicians doesn’t change the incentive structure that gives rise to corrupt behaviour.

So it’s ironic, but perhaps totally predictable, that I’m more sympathetic to Merkel after visiting Greece, and getting the Greek perception of their own government.

That being said, this doesn’t necessarily negate all of the above. For one thing, Greece can barely form a government after two tries, and it nearly elected the leader of a basically communist coalition who threatened to tear up everything and explicitly double down on a large state sector. These are facts. Couple these facts with idea that Merkel and the rest of Europe can only assume so much about what the government here can do (if the residents don’t even believe it), and having some more sympathy for Merkel remains logical.

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