Opinion

Felix Salmon

Why Greece won’t turn itself around

By Felix Salmon
September 8, 2010

If you haven’t yet read Michael Lewis’s fantastic piece on Greece, you should really carve out some time to do so. It’s almost impossible to summarize, but suffice to say that it serves as an utterly convincing and highly entertaining 11,500-word rejoinder to the IMF’s bullish case that Greece can somehow avoid default.

Essentially, the only way that Greece can survive its current debt crisis without default and/or devaluation is by a concerted and nationwide pulling-together for the sake of the country as a whole, including an unprecedented willingness on the part of Greece’s citizens to pay their taxes. But that’s not going to happen.

Where waste ends and theft begins almost doesn’t matter; the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed…

The only Greeks who paid their taxes were the ones who could not avoid doing so—the salaried employees of corporations, who had their taxes withheld from their paychecks. The vast economy of self-employed workers—everyone from doctors to the guys who ran the kiosks that sold the International Herald Tribune—cheated (one big reason why Greece has the highest percentage of self-employed workers of any European country). “It’s become a cultural trait,” he said. “The Greek people never learned to pay their taxes. And they never did because no one is punished. No one has ever been punished. It’s a cavalier offense—like a gentleman not opening a door for a lady.”

The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year—which meant, because incomes below that amount weren’t taxable, that even plastic surgeons making millions a year paid no tax at all. The problem wasn’t the law—there was a law on the books that made it a jailable offense to cheat the government out of more than 150,000 euros—but its enforcement. “If the law was enforced,” the tax collector said, “every doctor in Greece would be in jail.” I laughed, and he gave me a stare. “I am completely serious.” …

In Athens, I several times had a feeling new to me as a journalist: a complete lack of interest in what was obviously shocking material. I’d sit down with someone who knew the inner workings of the Greek government: a big-time banker, a tax collector, a deputy finance minister, a former M.P. I’d take out my notepad and start writing down the stories that spilled out of them. Scandal after scandal poured forth. Twenty minutes into it I’d lose interest. There were simply too many: they could fill libraries, never mind a magazine article.

The Greek state was not just corrupt but also corrupting… No success of any kind is regarded without suspicion. Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible; the collapse of civic life only encourages more lying, cheating, and stealing.

I’m sure the squeals of outrage are already beginning to emanate from Greece and from Greeks around the world: Lewis loves exaggerating national stereotypes, as he showed in his Iceland piece, and he does that even more here. After reading his article, I’d say it’s almost Greek, the impunity with which he throws around generalizations that most other journalists would naturally hedge and tone down. Who’s going to prosecute or punish him?

On the other hand, it really is useful to look at national characteristics when it comes to things like sovereign debt: it’s a simple historical fact that countries like Greece and Ecuador are much more likely to default than countries like, say, Canada or the Netherlands. And Lewis, with his article, does a very good job of showing how much of a gulf still separates Greece from most of the rest of the EU. It’s a timely reminder.

Comments
15 comments so far | RSS Comments RSS

The most danming figure in the piece was $250,000 in public debt per Greek worker, compared to something like $60,000 per U.S. worker. Assuming these are correct numbers.

Forget about default (or to use the polite term, restructuring), how about de-euroization?

Posted by gpowell | Report as abusive
 

I’m not sure where Michael Lewis came up withe the $250,000 debt per worker figure; it seems rather suspect (as does the $1.2 trillion debt number).

Greece presently has a public debt/GDP of approximately 130% (Wikipedia reports 113%, media sources including Felix Salmon argue that this ratio will reach 150% shortly). It also has a GDP of $333 billion (2009 PPP, from Wikipedia). That works out to approximately $430 billion of debt. So, I’m not sure where Lewis comes up with his $1.2 trillion number. Perhaps he is including private debt into the number? But Greece has relatively low private debt for an OECD nation.

Posted by Kosta0101 | Report as abusive
 

@Kosta,

It’s there in black and white in the article: he’s counting future pension obligations as “debt”. They are about twice government borrowings.

“In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions.”

Posted by Greycap | Report as abusive
 

There was a comment that showed up and then disappeared about how Lewis got to the $1.2T in debt number.

He starts from your $400B in reported debt. However, Greece has $800B in public pension liabilities that have been accounted for off the books.

I agree that its a mind-boggling number – about an $800,000 pension liability per current public employee. But if the accounting is as bad as it seems to be, that’s sadly not impossible.

Posted by AnonymousChef | Report as abusive
 

@AnonymousChef

Thanks for clarifying how Lewis gets his $1.2T number. I’m not sure of the applicability of including public pension liabilities in the debt totals as there are a lot of actuarial assumptions that go into this calculation. Other countries have pretty scary unfunded pension liabilities as well.

@Greycap

I read the opening paragraph multiple times, you know the part where Lewis first mentions the $1.2T number, and I still don’t see the black and white explanation of the debt number. I guess I missed the second reference when I skimmed the rest of the article.

Posted by Kosta0101 | Report as abusive
 

I don’t mean to be a Greece apologist. But I don’t get why Michael Lewis used such an unconventional debt measure in his lead paragraph. Why did he go for this sensational argument? Couldn’t he find find a more conventional scandal to highlight? As far as scandals are concerned, Lewis claims that “there were simply too many: they could fill libraries, never mind a magazine article,” and yet he leads with this odd measure of debt?

I believe Lewis when he says that Greece is full of scandals. It’s a shame that Lewis cheapens his own credibility with the poorly chosen debt measure.

Posted by Kosta0101 | Report as abusive
 

@Kosta0101 if you don’t like the debt as a Greek scandal, read further into the piece where he discusses how the Vatopaidi monastery got hold of land that could be worth 1 billion euros by trading what appears to be valueless land to the government.

Posted by johnhhaskell | Report as abusive
 

But even if you accept public debt at $400bn, you still have somewhere around $85,000 in debt per worker. Given that Greece is saddled with a currency more appropriate for Germany and productivity that is decidedly un-Teutonic, what chance do they have? I they plan to deflate, that burden just rises.

Posted by gpowell | Report as abusive
 

@Kosta,

I never said that the explanation was in the opening paragraph, just that it was in the article. And for crying out loud – don’t shoot the messenger! I agree with you about pensions & debt!

But I think you hold an untenably strong opinion for someone who, by his own admission, has not actually read the article. This obsession over pension accounting risks losing the forest for the trees. If you are going to demonstrate that Lewis is tendentious, it would be far more useful to do so over his assessment of the Greek national character. Because unless he is wrong about that, it hardly matters whether the debt is 400B or 400T; Greece will have a structural deficit in either case and its finances won’t work even after default. What will happen then?

Posted by Greycap | Report as abusive
 

Kosta,

I agree that you have to be careful about pension liabilities because of actuarial difficulties. That said, that’s the Greek government’s number, so I doubt its understating the risk. Further, the unconventional move was Greece pretending that its pension liabilities were zero, not Michael Lewis including them in the country’s debt. Its an obligation owed in the future – it absolutely belongs in any tallying of debts.

Posted by AnonymousChef | Report as abusive
 

@Felix :

“I’m sure the squeals of outrage are already beginning to emanate from Greece and from Greeks around the world”

Less than you might think.

Being Greek, I find the situation Michael Lewis describes quite familiar. I agree with Kostas that the $1.2T figure is unnecessary (and, for the many people that won’t read the article through, a bit misleading) but other than that, his quote is right on :

“The Greek state was not just corrupt but also corrupting”

What Michael fails to address, however, is the part of Greece that doesn’t plunder the public sector and is actually working and paying its taxes. He does make a note of it, in respect to bankers (“In Greece the banks didn’t sink the country. The country sank the banks.”) but it’s by no means that bank sector alone. It’s more or less anybody who *doesn’t* have to deal and/or rely on the state.

We do exist, and it’s no suprise that a number of us have already or are seriously considering to live permanently in other countries.

Posted by dandraka | Report as abusive
 

@john, @gpowell, @Greycap, @AnonymousChef

I’m not trying to defend Greece, at all. I don’t think Lewis is justified in using the $1.2T number in his opening paragraph without explaining where he got the extra $800B in his opening paragraph (or at least footnoting it).

When I see an author do something like that in the opening paragraph (and yes, it can be viewed as tendentious), I wonder how many more times does the author repeat the trick in the remaining article. I then wonder how many times will I be aware of the fact that he’s potentially misrepresenting facts and statistics, or more importantly, I wonder how many times will I be unaware of the misrepresentation.

Posted by Kosta0101 | Report as abusive
 

@john, @gpowell, @Greycap, @AnonymousChef

I’m not trying to defend Greece, at all. I don’t think Lewis is justified in using the $1.2T number in his opening paragraph without explaining where he got the extra $800B in his opening paragraph (or at least footnoting it).

When I see an author do something like that in the opening paragraph (and yes, it can be viewed as tendentious), I wonder how many more times does the author repeat the trick in the remaining article. I then wonder how many times will I be aware of the fact that he’s potentially misrepresenting facts and statistics, or more importantly, I wonder how many times will I be unaware of the misrepresentation.

Posted by Kosta0101 | Report as abusive
 

Kosta01 is correct, Lewis is totally wrong to quote the Greek national debt as 1.2 trillion dollars. Many other countries are facing huge pension problems and it’s not the same issue as the national debt. If Greece were to default on its 400 billion dollar national debt, the banks that lent that money would be in trouble. However, not being able to pay pensions to your own citizens is a different issue and doesn’t necessarily affect foreign baking institutions in the same way.

I’m not trying to say that the pension issue isn’t a huge one, but it’s clear that Lewis has added the two figures together to sensationalize his own shaky argument. I challenge anyone to find a single other source that uses the same approach as Lewis in calculating national debt. For anyone who is interested, I’ve written a more in-depth criticism of the article at http://capitalistcrisis.blogspot.com/201 0/09/screw-you-michael-lewis.html

Posted by Vasili | Report as abusive
 

What everyone forgets when trying to understand these problems in Greece is this:

1. Once the social securities taxes are included, Greeks are the *second highest taxed* people in Europe and one of the highest taxed in the world, yet government services and infrastructure absolutely suck. No wonder they don’t like paying these exorbitant taxes!

2. There is no concept here of streamlining and cutting red tape. Efficiency in government processes is an unheard of concept. Government bureaucracy exists to: (a) provide cushy jobs with a pension (b) terrorize the masses, hence extract bribes, with trivial paperwork and endless, meaningless hurdles to getting anything done. Government bureaucracy and red tape stifle initiative. Business is strangled at birth. It is so awful, so inefficient and backward, that it is impossible to get anything done without either having relatives/contacts in the system or paying someone off. Yet if you have the right relatives anything is possible. The only laws that get enforced, really, are those that give paper bureaucrats power. Just try and set up a business in Greece as a foreigner – you’ll find out all about it!

3. There are few modern management practices. Business and public sector are top-down, extremely hierarchical with no devolution of decision making. Jobs are therefore unrewarding and promotion is based on who your family is, not on ability. Salaries are very low and are not independent living wages so people depend on their families for support and bribes become attractive. But families are shrinking and divorce rates high. Prospects are bleak for many so there is little motivation to work hard. Consequently, the idea that your job or career partly defines you and you should enjoy it is not one held by many Greeks.

While we’re bashing Greece – it should be noted that Italy is reputed to be just as bad in all respects. We are talking a Mediterranean thing here.

Posted by philzxyz | Report as abusive
 

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