Tuesday, February 15, 2011

Is Greece Still a Democracy?

The "debate" in Greece over the troika overstepping its bounds would be comical if it were not so tragic. To accuse the troika of “meddling in domestic affairs” while cashing its checks, or to claim that the government only "takes its directives from the Greek people" when all legislative initiatives are vetted by the foreign "bureaucrats" despite loud protests by the "Greek people" - none of these claims are serious. Greece may have not declared bankruptcy (yet), but it is at best in receivership, kept afloat by generosity (and self-interest) provided it can reform. Yet beside the comical theatrics lurks a deep question: is Greece still a democracy? Not only is the answer "yes" but, in many ways, Greece is more democratic now than at any point in its recent history.

Before delving into this question, please allow a brief diversion into history. In the past half century, few Greek governments have achieved both legitimacy and prosperity. Between 1945 and 1974, the state created some prosperity but not legitimacy. Incomes grew but an authoritarian state squashed dissent. As George Pappas has written, "actively opposing the right in Greece, even electorally, was an act that could become synonymous at any given moment with imprisonment, exile, torture, or even – in the extreme cases involving members of the communist party following the left’s defeat in the Civil War – execution.”

After 1981, legitimacy grew but incomes stagnated. Papas, again, puts it well: “PASOK’s basic contribution to Greek politics was to take the old clientelistic structure of control and reward and ‘massify’ it.” Government spending soared to buy the political support of those groups hitherto prosecuted. Democracy deepened, and politics became more pluralistic. But the cost of that legitimacy was a bloated public sector and a wrecked economy. Greece bought democracy with borrowed money (see here).

In the 1990s, the economy achieved relative macroeconomic stability but with only a modest rise in incomes. Indicators improved faster than livelihoods. Democracy, however, took deeper roots. After the adoption of the euro, incomes started growing more rapidly, but after 2004, so did government spending and fiscal deficits. Growth was strong but increasingly unsustainable.

All this provides a useful contextual point: rarely have Greek governments been able to deepen their legitimacy by appealing to broad based economic growth - instead they have usually purchased loyalty at the expense of sensible, long-term planning. Greece's political challenge is massive in this respect: how to convert political loyalty and identification from a clientelistic system that is largely based on patronage to a system where broad-based economic policy helps define political orientation. Or put more simply: when will Greek citizens vote for a government because of what it can do for all Greeks, rather than what it can do for them alone?

Go back to the initial question: is Greece still a democracy? In the IMF era, the government is sovereign in important ways: it still enjoys a public mandate, it was voted into office just over a year ago and it retains a parliamentary majority. It even survived a vote in local elections late last year, and no opposition force can claim a greater mandate. Whatever the Greek people may be feeling, the government represents that, at least partly. And in no way are freedoms curtailed – this is no autocracy.

Yet economic policymaking has clearly shifted from the government to a joint council between the Ministry of Finance and the troika. Wage cuts, pension reform, VAT increases, public sector accounting and accountability, privatizations, administrative simplification, the opening of closed professions and the liberalization of product markets - in none of these is the Greek government alone in deciding what course to take. In fact, even protestors have realized that protesting can be futile – neither does the government care nor would it matter if it did. In economic policy, it is an executor, not an architect.

How can Greece be considered a democracy if all meaningful decisions are made by a handful of bureaucrats, half of whom are neither Greek citizens nor elected by the public? Even if one sees the Memorandum as the act of a government democratically elected, the changes under way are far beyond any considered during the October 2009 elections. No one voted for these changes in 2009.

Yet what is a democracy anyway? If conceived narrowly - elected representatives governing the country according to the will of the people - then Greece fails the democracy test in many ways. But if democracy is something deeper, then Greece is in fact more democratic now than in the past. Yes, the rights of truckers or seamen or lawyers or doctors or pharmacists are being curtailed - but who said they should have had those rights to begin with? Why have a “right” to restrict competition in your profession and coerce me, the consumer, to pay you more than I have to. What “right” does the public sector employee have to get paid twice as much for half the work? These are not rights in any real sense - they are political abuses, perpetuated by politicians whose chief purpose is re-election for the sake of power and enrichment.

Democracy means not just representative elections but checks and balances. At no point in the past half century has there been a true counter-balance to the power of the state. Its growth has been unchecked, and in the process it either taxed its citizens or borrowed on their behalf. It did so to enrich its politicians and its cronies. This reform agenda is no freedom curtailed. The troika is the “check and balance” to state power gone wild. It is not flawless nor fully accountable. Yet an imperfect troika has changed more in six months than imperfect Greek governments have in decades. And that's the most a democracy can ever hope for.

Sunday, February 13, 2011

Greece’s €50 billion Privatization Challenge

Over the past few days, the Greek government has had its first public clash with the troika. At issue is a press conference where members of the IMF, ECB and EC announced plans so sell up to €50 billion of the state’s assets. Putting aside the theatrics of the dispute – who should have said what, where and how – and let us ask, is €50 billion a realistic number and did it, in fact, come out of nowhere?

At the start of the memorandum, in May 2010, the IMF was forecasting annual privatization receipts of €1 billion from 2011 to 2015, for a total of €5 billion. It also stated that by December 2010, the Greek government would have prepared “a privatization plan for the divestment of state assets and enterprises with the aim to raise at least €1 billion a year during the period 2011‒2013.” The first review of the Program, released in September 2010, says little more.

The second review, released in December 2010, noted that, “The authorities are preparing a more ambitious three year privatization strategy than originally foreseen in the program … The authorities are working towards a more ambitious privatization plan, with the aim to raise at least €7 billion over the next three years (3 percent of GDP), including at least €1 billion in 2011 … To further develop the plan, the authorities indicated that by mid-2011 they would make an inventory of real estate holdings.”

What these writings show is (a) from the start, the privatization plan was meant to be articulated in the end of 2010 – hence, targets released until that date (€5 or €7 billion) are best seen as tentative; and (b) that there has been, at least since December, an eye towards having more privatizations, as seen by the “inventory of real estate holdings” planned for mid-2011.

But why €50 billion? The point of departure is a table shown by the IMF in its December 2010 review that lists public sector assets. The IMF shows that Greece had €195 billion in assets, broken down in the following categories: €12 billion in currency, €2 billion in securities, €1 billion in loans, €39 billion in shares, €21 billion in other financial assets, and €120 billion in public sector capital stock. There is also an “n/a” entry for real estate, pending the mid-2011 inventory listed above, but the IMF notes that analysts have estimated real estate holdings at €200-€300 billion. References in the press to the Hellenic Public Real Estate Corporation show holdings to have an “objective” value of €272 billion, with total holdings reaching €300 billion.


So the starting point is some €330 billion in debt and some €500 billion in assets. Obviously, just selling assets to pay down debt is not an ideal strategy, although the point that has been made by the troika – that Greece can take advantage of the low trading value of its bonds – is important. Greece’s debt has a face value of €330 billion, but Greek bonds trade at a discount to their face value. If the state were to raise €10 billion from asset sales, it could shrink the debt by €12 or €13 billion. Since the selling assets also shrinks liabilities (loss-making enterprises, for example), there is a triple accounting benefit.

All this takes us back to the main question: can Greece do €50 billion? Since 1991, Greece has raised $29.2 billion from privatization proceeds, of which three-fourths have come from finance, real estate, telecommunications and transportation. In the period 2005 to 2009, it was raising an average of $2.9 billion a year – in today’s exchange rates, that is equal to €2.1 billion a year. In other words, the €5 or even the €7 billion estimated for a five-year period is timid – at best, it assumes a continuation of pre-crisis sale trends. Of course, today’s market environment is tighter and getting a good price is not as easy. Even so, the past targets indicated no serious commitment to the downscaling of the Greek state sector – just business as usual.

This is the context in which to think of this €50 billion target: one tenth of Greek asset holdings, requiring a privatization schedule that is aggressive and that requires a doubling of the effort versus the best privatization years, but also has the potential to lower the debt disproportionately, cut future deficits, can further remove the state away from the economy, and can help utilize all those assets that Greeks have long complained are going unused. Better to have a €50 billion target and miss it than have a €7 billion and achieve it.

Sunday, February 06, 2011

The Decline of Religious Weddings in Greece

One of Greece’s most difficult tests will be to maintain social cohesion in the midst of an economic crisis. Cohesion will be tested as social classes clash; but more importantly it will be tests in how Greece deals with immigrants. What is at issue is the concept and the malleability of Greek identity – and while this is a vast subject, I thought these numbers should put some cherished notions of Greek religiousness in particular in some perspective.

The graph below shows the number of religious and civil marriages in Greece since 1995. What is obvious is that the composition of weddings is changing with civil weddings increasing and religious weddings declining. In 1995, just 11% of the weddings were civil marriages; by 2009, the number was 42%. If this trajectory persists, by mid decade, more than half of the weddings in Greece will be civil, not religious.

Now look at this second graph which shows the overall rate of weddings in the country. The data shows four-year rolling averages to smoothen the volatility that comes from the fact that people avoiding getting married on leap years because they think it is bad luck; it is also normalized per 1,000 people. There is an unmistakable long-term decline in weddings since the mid 1960s. But the decline in weddings has stopped at roughly the same time that civil marriages started to rise in the early 2000s. The institution of marriage is being “saved” by civil, not religious marriages.

What does this mean? I have no intent to read too much into these two graphs. Greece’s religious identity has always been a mixture of religiosity and tradition, and marriage is a small part of that web of practices and beliefs we call religion anyway.

But as we ask “who is a Greek,” people will start making certain statements and assumptions and, inevitably, those assumptions will be interlinked with religious identity. In those times it will be good to ask how important is religion in modern Greece and to what extent does it define who is a Greek? And in answering these deep questions, the numbers above should make us pause before asserting the unshakable link between Greek Orthodoxy and Greek identity.