Sunday, November 06, 2011

Greece's Choice: Undo or Format?

The word "referendum" ended George Papandreou's career. I came out very strongly against the referendum because I saw it as a crass political maneuver to create "consent" by offering the people a choice that was too narrow to be meaningful. Does that mean I am afraid to hear what the Greek people have to say? No. I just want to make sure we ask the right question. And that, in turn, requires an honest presentation of the alternatives available.

Broadly speaking, the Greek people are faced with two sets of choices. The first is a narrow decision over default. At this stage, there are two options: a 50% haircut on privately held debt (which amounts to a ~30% haircut overall) or an instant and disorderly default. Perhaps there could have been other choices, but such is reality that these are the only ones available right now. The referendum, at least as it was conceived at first, was meant to pose this question: haircut or disorderly default? The problem is that this is not a very profound question. It is like asking whether you would like me to break your legs or kill you - you will likely say, yes, break my legs, but you hardly "consented" to that.

More fundamentally, this is not the difficult choice. The issue is not whether or not to default but rather, how far are you willing to go to avoid default? What kind of Greece do you want to see emerge from this crisis? Those are the only meaningful questions, and it seems to me that the Greek people have two options: they can press "undo" or they can press "format."

"Undo" is basically about going back to the status quo ante. Let's say you rewind back to 2007 or 2004 or even 2000. The "undo" option assumes that this crisis was the result of one or two bad turns and that it was exacerbated by Lehman Brothers and the global financial crisis. If it were possible to return to the "good old days," let's do it. This choice, in practice, means default and, most likely, exit from the Eurozone. After a period of immense upheaval, life would return to "normal." The Greek people would lose much of their wealth, but a sharp currency devaluation would stimulate growth. Call this the Argentina option.

"Format" is different. As with computers, you only press "format" when you run out of options and when it is the underlying structure, rather than one or two pieces, that are flawed. According to this view, Greece is rotten to the core and nothing sort of a complete wipe will work - anything less and you merely reset the clock for another crash a few years later. In practice, "format" means restructuring Greek politics, economics and society. It means shrinking the state, introducing competition in the private sector, and ending privileges; it means a transition from clientelism and protection to accountability, meritocracy and less shielding from the uncertainties of life. In short, it means a Greek revolution.

I would love to hear the people's answer to that question: undo or format. Of course, a referendum cannot ask such a question - only elections can do that. Except that is not really the choice being offered to the Greek people by the political class. Too bad because that is the only question that matters - everything else is just nonsense to pass the time.

12 comments:

  1. Well, when he said tuesday yes or no about the bailout yes or no for the euro, wasn't that precisely the question he did want to ask? And i totally agree, the elections will not allow for the real question to arise.
    The problem was not the referendum per se, nor the question, everybody instantly understood the the real question, what merkozi did on that fateful night was intellectually quite correct, it was the political meaning -and thus the political action-of them performing it that was crucial.
    The problem was that he did have a more "balkan-like" political instinct, when he chose the intiative; by not realising the international parameter, he blew it, he should have either found a way to cope with it intelligently beforehand or leave it.
    As for the interior greek ractions, they rather justified his move, by their complete hypocricy, they proved him correct, the problem was that the realvarena, the european-international one made the former irrelevant.
    And that was the big disappointment: for a leader being for years advertised as a "cosmopolitan"statesman, this was too balkan, unilateral a move.
    that referendum should have taken place some time ago. I really think however that without it all the elections will be trips to nowhere with alibis set up. In 2004 it was "restructuring the state", in 2009 it was "there are money". In the coming ones, the BS will be "renegotiation", the alibi that will cloud the issues.
    Or perhaps the new government will allow the real question emerge.

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  2. Everybody knows that a reformat is the ideal (unless you belonged to one of the privileged class). How to do it is the question. I find that when push comes to shove too many Greeks will be too afraid to move out of their comfort zone to help make it happen. It takes more than casting a vote and I see Greeks simply expecting others to do the work (i.e. simply the politicians that they voted into government) and they walk outside their home and civil society will magically change.

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  3. Setting the initial conditions rightly is not enough. There is no guarantee that your system will ever reach the desired state nor that it will not succumb to its previous modus operandi.

    The dynamics of the society, the ways, the habits, the ethics, the citizens mindset push towards the same mode we currently reside.

    The underlying rationale of your question could be "large or small reforms?", since the analogy of UNDO/FORMAT between a memoryless system (HD) and a long term memory one (society/economy) is flawed.

    The answer is neither small nor large reforms, but the right ones.

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  4. The "undo" option would still need a serious sociopolitical background to bring us back to the good old days and ensure some development numbers; so the "revolution" is the #1 concern. If Greeks find a formula to built this background then any choice will be successful.

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  5. A 'format' is necessary but who has the brains to do it? The British? Swedes? Norwegians? Modern Greece is Byzantine in its way of thinking. The laws are not enforced because 'custom' rules in Greece. The Greek Church acts thinks & looks like it's still in the 12th century & everyone in the church is paid well by the government to think backwards. If a politician admits that he doesn't go to church he won't be elected - he knows this so Greek politicians are always bragging about about how faithful & 'Orthdox'(backward) they are. Is there any other country - except nearly bankrupt Italy - similar? The problem is rooted embedded so deep in Greek culture that only a complete thorough 'format' will eliminate the rotten roots of the problem & a Swedish, British, or Norwegian - way of thinking - replaces it. But are the Greek people in their sunken ship which is sitting on the bottom of the ocean & waiting to be salvaged smart enough to let a new crew take over the helm? Are all the Greek politicians - including Pompadreou & Venuzeulos & Bopulia - who sat idly by for years & years & watched everyone who wasn't a 'timbelly' (lazy) - plunder & loot the ship at will without any fear of punishment -because 'justice system' was and still is a'joke' -until it could only sink willing to let 'psyknews' (foreigners) take over?

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  6. By opposing the referendum the entire political class and its hanger-on intelligentsia, from far right to far left, exposed their fundamental elitism, fear of democracy and hypocrisy.

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  7. There you go again! You just can't accept the fact that there is no 'way out'. But why not? It's not that hard to understand.

    Any kind of change needs a change agent. That person or group must be immunized against what the rest have been infected with. Such a person or group does not exist in Greece today. All the institutions of the state - the political class, academics, armed forces, church, the commercial sector - have corrupted themselves out of existence and, in addition, the general population is totally corrupt. All of them.

    For the third time now, I need to point out that Greeks only have three viable options: emigration, return to the countryside as peasant farmers, or suicide. Personally, I would encourage you to take option three. Emigration means lots of Greeks polluting decent societies with their vile practices - nepotism, rousfeti, kombines, miza, arpakti, fakelaki etc. For me, that would be 'contagion' in the truest sense of the term.

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  8. I'm a Canadian of Greek descent. My parents immigrated from Greece in the 1960's. Most of my relatives are still in Greece, and my sister actually moved back to Greece a decade ago. So my contacts with Greece are quite deep and frequent. So here are some of my own personal anecdotes of the Greek political and social culture.

    My aunt recently died of cancer. I recall one telling moment regarding the corruption that pervades Greek society. She had just finished a visit with the oncologist and when they got home she asked my uncle how much was in the "fakelaki". I don't remember how much was the amount, but when he told her she said, that it wasn't enough. She should have given more. So that she could feel she was getting the best care. When I asked my cousin (her son) how he could stand to have to pay bribes like that, he said "you in Canada have your system, we have ours. It's just the way it works." I just stood, dumbfounded, with my mouth agape. I couldn't believe how deeply bribery is woven through out the fiber of society.

    My father, on his retirement wanted to build home in village of his youth. Unfortunately the plot of land he had inherited from his father was too small on which to build a house. The local land registry officer said she'd look past that if he gave the work to her husband, a local contractor.

    A friend of my father's is a die hard Pasok supporter. When her daughter had finished high school (lykio) she didn't have the marks to go to university. So her parents contacted the local Pasok party officials and threatened to take their votes to ND unless they gave the girl a job working in the public sector. She's been there for 20 years now.

    My cousin married into a family that had a successfull shoe business. We were told how they could bribe the tax collectors with 50000 drachmas to save themselves 500,000 (or more) in taxes.

    My father's cousin actually did work in the tax office. A simple public servant, he retired with two Land Rovers, two Audi's several apartment buildings in Agia Paraskevi.

    I could go on, but I'm getting tired.

    And so, I think Greece needs a Format.

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  9. The word "referendum" ended George Papandreou's career.
    Παρακαλώ τα εισαγωγικά να μπουν στο ended.

    Για κάποιους σχολιαστές:
    Τι ναρκωτικά πίνετε βρε παιδιά;

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  10. Being a German taxpayer, I'm very much opposed to any kind of European/German payments ("credits") to Greece.

    Apart from that, what do I think about your position and the referendum itself?

    While your analyisis is as sharp as ever, your approach might be too rationalistic.
    My reasoning would be that a referendum would have faced the Greeks with the (limited) choices they have - and (since I'm sure they would have opted for further cheques from the fellow European taxpayers) accept that the country has to change. Or at least admit that through this vote they themselves have agreed to a deep social change.

    Without a referendum, it will be a lot easier for people to argue that they didn't agree to changes, but those were imposed upon them.
    Of course they're going to claim (or at least think)that one way or another. But a referendum would have given reform-orientated politicians and opinion makers better arguments against this attitude.

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  11. The Greek government as envisaged in the Constitution and expressed through the existing political system requires extensive "formatting".

    The Parliamentary system puts politicians with national aspirations to run ministries for short periods of time. The result is putting untalented, politically connected caretakers running the bureaucracy and out to please interest groups.

    The instability engendered leads to frequent cabinet reshuffles and frequent calls for elections, as we see now by opposition parties in Greece.

    The Framers of the US Constitution, who studied closely the problems that led to decline in Ancient Greece and Rome, sought to create a new federal republic that could simultaneously maintaining stability through democratic means. The Framers divided government into three branches (executive, legislative, and judicial). They expressly prohibited members of Congress from holding positions in the Executive Branch.

    Another problem with the Parliamentary system is that of proportional representation and party lists. The parties become the extension of the party leader--leading to dynasties (unfortunately something that does plague the US system).

    Proportional representation begets MPs who obtain their positions by currying favor with the Party leadership, rather than by connections with the grassroots.

    To me it seems that the political classes have so gotten caught up in the game of one-upping opponents and power-grabbing that they had become oblivious to the pending catastrophe. Regardless of whether one would call it a National Humiliation, the EU's stern warnings to Greek politicians are the kind of jolt the system needed.

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  12. I don't see why you associate the default to an "undo" and the austerity plan to a "reset", I would say the opposite.

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