Monday, January 30, 2012

Why Greece Needs Control of its Budget

The idea that Greece should accept, as a condition for another bailout, a “budget commissioner” who will supervise the budget and retain veto rights has angered the Greek political class and public at large. The idea is indeed a bad one – but not for the reasons that most people think.

Finance Minister Evangelos Venizelos said the proposal would force Greece to pick between “financial assistance” and “national dignity.” Of course, national dignity is a relative term: when you are seeking another €130 billion because you failed to implement the provisions of the first, €110 billion bailout; when you are negotiating to cut over €100 billion in debt because you can no longer pretend to be able to repay it; when your country is derided daily in the international press; when your numbers are suspect and your promises empty; when all decisions are taken in tandem with foreign bureaucrats; and when the only momentum for meaningful reform comes from those same bureaucrats – then perhaps Mr. Venizelos would do well to tell us what dignity exactly he is trying to protect.

In many ways a “budget commissioner” would be a good thing. As I’ve written in the past, the troika has actually enhanced Greek democracy by depriving interest groups of their traditional, anti-democratic leverage. It has enhanced Greek democracy by trying to strip constituencies of their privileges – be they exorbitant salaries, senseless regulations or a tolerance for anomie. It has forced Greek society to debate serious subjects that the post-1974 consensus has preferred to keep silent. It has shed light into a vast state machinery by bringing some honesty into Greek statistics and by forcing some accountability for how money is being spent. The troika has made Greek democracy stronger.

But the “budget commissioner” is also a bad idea. At some point, Greek politicians have to stand up and take ownership of the reform agenda. If we liberalize professions, collect taxes, privatize state-owned enterprises, modernize the state bureaucracy and streamline the functions of the state only because the troika says so, then there is no hope. Greece needs to own this agenda. It needs people who will say that all these things are worth doing not because the troika says so but because they are the right thing to do. As long as Greek politicians say “the troika made me do it” they will demonstrate nothing more than their own cowardice and inadequacy for the task that the country faces.

We should reject a “budget commissioner” not because the idea violates our “national dignity” but because we should demand from our politicians the courage to make those tough choices by themselves and we should not allow them to eschew their own responsibilities by pointing the finger at the troika. Our national dignity requires nothing less.


  1. Convincing words. Every change must come from within a society, otherwise it is not sustainable.

    But I agree with you to only 90% (if that's possible to numeralize ;)!

    Because all this is not only about reforms but also about how the money is spent in Greece while reforms are being implemented. Greek politicians plan to spend some EU and IMF financial aid for entirely useless purposes. For example, a plan of the Greek defense ministry leaked that they intend to operate additional Abraham tanks which the US army doesn't need any longer. How sick!!

    I wouldn't recommend a budget commissionar, but as long as improvements haven't been made in Greece, I'd force Greek politicians by law (or contract) not to use the money for other than clearly negotiated purposes. Military spending should be absolutely minimized! And if I were a European politician, I'd force them to cut down their own income and pensions first!!

  2. I do not entirely object to the idea so long as they also employ Greek experts next to other Europeans,who know what the society needs.I wouldn't want Greece to prioritize debt repayment by enforcing more cuts on health care,for instance.

  3. Anonymous, we should try and avoid simply seeing Greece's problems through an economic lens. There are serious short and long term threats when we look at Greece's problems through an international affairs/geopolitical lens, which if they developed into hot incidents or conflicts, it would ultimately undermine the economy. I can list the threats if you like?

    Although, Greece could probably make improvements in the procurement of military hardware and reduce expenditure in the armed forces and so on, most of the military and intelligence experts in Greece (and Cyprus) deem that the threats are serious enough to maintain a meaningful defence posture.

  4. Just one more point, and forgive me Nickos as this is not a geopolitical blog, the international relations/geopolitics sphere differs from the economic sphere in one very important way. An economies may slow, and even go into recession, but almost always economies recover at some point in the future. However, once geopolitical sovereignty is ceded it is almost impossible to change this. Cyprus is one very good example. Consequently, we must always be prepared to pay a higher price for defence to avoid changes in sovereignty or even reduce the probability of changes in sovereignty.

    1. Please excuse my tone, but you are crazy. You defend military spending excesses when Greek people have such hard times, based on an irrational phobia that an open militariy conflict between European countries is possible nowadays. Even if Greece got any more tanks, neither could it afford to operate them nor would you impress Turkey which has the second biggest army in NATO. So additional armament leads to nowhere, you can't catch up and have no reason to try it.

      Greece has to set priorities when it's insolvent and requires foreing financial aid, and its first priority should be to solve this debts crisis as fast as possible instead of fulfilling geopolitical power phantasies at the expense of the Greek population.

  5. Controlling government deficits should be the objective of every nation.

    In case of Europe all they have to do is find a way to enforce the Maastrich Treaty. Go to page 12 for an Outline of the Economic and Monetary policy.

    Since almost all the EU member states are operating far a above Maastricht Debt to GDP ceiling it should follow that every European nation needs a budget commissioner....ideally consisting also of committee members who have no ties to the banking industry.

  6. As an answer to Dionysis, I agree, that geopolitical issues give another dimension to this crisis. I even believe, that one of the important reasons, why Europe keeps funding a country, that is constantly breaking its promises, is geopolitical. We just do not want a complete chaos to a country, that is situated at the border Western and Islamic civilizations. On the other hand, Greece has a very powerful army and as a member of EU and NATO is pretty well protected already. So I do not believe, that huge military investments are necessary at the moment.

    I would also like to add some comments to a discussions, we had in this blog.

    Selene has repeatedly stated, that Greece has GDP drop of 20% already, and that is too tough. That statement assumes, the previous level of GDP was in some reasonable level. I think this assumption is wrong, because this previous level of GDP was achieved by unsustainable lending that lasted 20 years. I personally think, that you will not regain this level (discounted of course) for at least decades, maybe never. So you need to need to give a new meaning to a "normal" living standard, which is much lower "normal", than the previous one.

    You also mentioned Latvia, as a bad example of austerity. I have to admit, that they were hit really hard, the biggest problem being demographic catastrophe (massive emigration). But on the positive side, they have turned the corner and are on the rise again. I just visited Municipality of Riga last week and spoke to their Treasury dept. Their slump lasted for about two very tough years, but for the last two years their economy has been growing again. Although their GDP is remarkably lower than before crisis, it is much easier to bear it, when you see that things are going upwards. They are also not dependent on IMF anymore and can borrow money from financial markets. If I remember correctly, then they have credit rating of Baa+ (positive), couple on notches up from their bottom. I really don't know any Greeks and I don't know, how well you handle crisis mentally in general. But I do think, that five years of worsening conditions without positive outlook, might be even harder to handle, than very fast and tough reforms with positive outlook.

  7. I think you are right. It should be clear that Greeks have to decide what they want to do and what measures they want to take. At the same time it must be clear that only Greeks (not the EU, not Germany or other European countries, not the IMF or anybody else) are responsible for what has happened in their country and what is going to happen there. Greek politicians should not be given an easy excuse to blame others for unpopular measures that have to be taken. (Even now, they way that Mrs Merkel and other European leaders are depicted in some parts of the Greek press seems to me rather problematic for a civilised country.)
    But if Greeks take their own decisions, it should also be understood that they cannot expect the rest of Europe to take over more and more of their debt and finance their deficits forever. European leaders should finally have the courage to let Greece default if it does not live up to its promises. That may be expensive, but arguably less expensive than financing ever-growing new "umbrellas" which regularly turn out to be insufficient after a few months, while little reform progress is made in Greece and the general dissatisfaction with the European integration process grows in many countries.

  8. It is even rumoured that the EU was behind when Turkey proposed joint military expenditure reductions and Greece refused.And Turkey continues to violate territorial waters uninterrupted,yesterday a Turkish frigate was heading for Cape Sounio which is close to Athens-so much for NATO solidarity.However,it is good that Greece and Cyprus are trying to establish closer ties with Israel in light of the Israeli-Turkish conflict.

    What I'm saying,Martin,is that Greece can't afford to remain for five consecutive years in recession and now economists estimate that Greece will have negative growth in 2013,too.I thought the bail-outs planned to help Greece be able to borrow money from the markets on its own by 2015,but that can never happen when you cut the GDP to such a degree(that is,unless Germany is willing to fund the Greece until 2020).We desperately need to return to growth if we are to reach the budget targets.Not everything is about living standards,especially when you have to repay a huge debt.

    That's why I wish they could roll-over Greece and Portugal's debts until the countries balance their budgets and return to growth.Alternatively the Greek state under Europe's supervision should have renegotiated its debt *earlier* in May 2010.The government could calculate what percentage of the debt was manageable over time and in so doing remain in the Euro area.

    Concerning Latvia,let's agree to disagree,because the notion that the recipe that was applied in Latvia was the right one is absurd in my humble opinion...

    On a more positive note,it seems Greece has a primary surplus now:

  9. Anonymous, Greek and Cypriot “irrational phobia” of military conflict is not between European countries but with Turkey. The Turkish army continues to occupy 40% of the island of Cyprus. Turkey has not revoked its cassus belli (reason for war) policy towards Greece if its delineates its continental shelf, territorial waters and national airspace according to international law. Fully armed Turkish warships and aircraft continue to make unauthorized forays into Greek territorial airspace and waters. Turkish warships have been cruising unauthorized around Cyprus’s Exclusive Economic Zone waters in response to their sovereign right to explore for gas and oil. The Turkish Army of the Aegean conducts exercises to land and occupy islands. Turkish rhetoric continues to question the sovereignty of several Greece’s North East Aegean and Dodecanese (and other) islands, the so called “grey zones”. Turkish secret services have been methodically Turkifying and radicalising the Muslim minority in Thrace. Is defending your sovereignty territory and creating a deterrent geopolitical fantasy? I would have thought this is what any sensible country does. Also, Israel has raised the threat level recently. Are Greece, Cyprus and Israel all wrong?

    Martin, how do you conclude that Greece is well protected at the moment? Has the EU and NATO forced the Turkish army from occupied Cyprus? Has the EU and NATO stopped many of the threats that I have listed above?

    Again, apologies Nickos as this is not blog to discuss security and geopolitics.

    1. I meant, that given your current financial situation, there is more urgent things to focus on, and that you are not currently in threat. Of course, US is not going to free Cypros from Turkey, but I believe, that current situation is pretty stable. You can also say, that Russia is still in war with Japan, but their territorial claims are probably solved or not solved behind the table. You are in similar situation. Turkey just can't attack you without permission from US, which they are not going to get.

      I think the same logic (defence costs are important), can be applied to almost any cost. Unfortunately you just can't afford it, and I (as a Eurozone member) am not too happy about paying for your tanks. So it is understood, that I want control over your budget or I just stop paying your costs at some point.

      When it comes to budget surplus, then on the one hand is good news. On the other hand, it's misleading. This surplus is strongly supported by the economic effect of 100m € support package.

      I don't know, what is Frau Merkels exact plan for you today but I feel, that on the one hand she wants you not to default, but on the other hand to suffer as much as possible.

    2. "but on the other hand to suffer as much as possible."

      You know, people like you are exactly the reason that we get sick of risking our money to solve problems we didn't cause because that's what we get in return. First of all, Merkel is deciding whether or not German money is used to support Greece and she bases her decisions on Troika reports, which in turn consists of economists from the EC, ECB and IWF which work with the Greek government. So even if she wanted you acribe powers to her she doesn't have. The next thing I wonder is the motivation: why would she or any other German like others to suffer? I leave the answer to this question to your sick imagination.

      It is a matter of fact that there is no European leader, so she is pushed in this role from the outside to fill a vacuum because she must risk the most money and the whole world expects her to have this role. And it is more than legitimate to expect a return and a certain degree of controll when she is risking her electorate's money. Those who don't agree with her call it cowardly "domination", morover European decisions are based on consensus and not single opinions.

      Now I would like you to switch on your brain, I think you had a weak moment because I am convinced that you can do better than that.

    3. For everyone who is interested in this topic, here is an excellent short summary of how German media reacted to the not so smart idea of a "budget commissioner":,1518,812715,00.html

    4. By saying Frau Merkel I of course meant Germany in general, that was probably understood. I think, it's pretty clear, that whatever any member of "trioka" decides, all the important decisions must be accepted by Germany. Most of the important decisions are made or orchestrated by Germany, mostly behind closed doors of course. And for obvious reasons of course.

      When it comes to "sick imagination", then you may call it "sick", but you can also call it "human". And when it comes to "imagination", then you should try to speak with someone, who has access to corridors, smoking corners and bars in Frankfurt. The desire to see Greece suffer is more widespread, than you probably think. I do not think, this is good in any sense, but it also shouldn't be ignored.

    5. You call the desire of letting others suffer in this case "human"? Some people would call it "sadism" which is a mental disorder. And following your logic, there would be an over average amount of sadists being involved, e.g. the guys from the Troika, many governments or even Nikos himself:

      I doubt very much that any of them is a sadist. Your opinion rather tells me that you haven't understood yet some politics and economics in this crisis. And the fact that you seem to hang around with some sadistic guys in "corridors, smoking corners and bars in Frankfurt" is something I would certainly not be proud of if I were you.

    6. Dear Martin,
      I am a different anonymous, who has read this discussion, and I feel I have to comment on this. I am German, and I happen to live in Frankfurt. As a non-smoker I never go to smoking corners, but I have access to a number of corridors and meet a lot of people. There is indeed often a feeling of frustration and even anger about the way Greek politicians have falsified statistics, made empty promises and failed to stick to agreements, but I have not met a single person here that wants the Greek population to suffer.
      I don't know with whom you talk in Frankfurt, it must be rather strange people.

    7. As a German, I have no interest in making the Greeks suffer. But I am very much aggravated that huge amounts of my tax money is being spent to prevent the Greeks from suffering.

      I'm paying my taxes to be spent for the wellbeing of my own country. If the rich in Greece don't pay taxes, if the Greek government squanders whatever is being paid: not my problem! Who are we to interfere with Greek sovereignty, or dignity?

      Whenever my tax money is being used to bail out Greek, or Portugal etc. (and most certainly Spain and Italy) tax collection in Germany is being deligitimized.
      It would certainly not surprise me if the same hostile attitude towards the government, which you find with the Greek population would begin to take root in Germany too, if our government (or more precisely, in a paradoxical way similar to Greece, our political class as a whole!) keeps squandering our money for the benefit of other peoples (and, of course, for the benefit of international finance).

  10. If only there were one single Member of Parliament who thought this rationally.

  11. Nikos, since you are an expert in the energy industry, what do say to people who are going on that Greece is going to be the next energy power in oil and gas?

  12. Martin, with all due respect, defence and security is an urgent thing to focus on. Just a few days ago a Turkish warship cruised unauthorized around Greek waters. Click here:

    And Greek and Cypriot security is even more critical right now as they make tentative steps to explore, extract and transport gas and perhaps oil. This would benefit their economies as well. You should know that Turkey deliberately makes provocations in order to create an uncertain environment for non-Greek exploration and extraction companies and investors. However, the Cypriots have cleverly used American companies so far.

    Russia and Japan have not had any serious military incidents for years. However, Greece and Turkish jets skirmish weekly and some Greek pilots only died a few years ago from a mid-air collision. The comparison is simply not valid.

    Finally, as a Eurozone member you should be happy to pay for our tanks. It is those tanks which help to contribute to your own security.

    1. Your situation with Turkey sounds very familiar to me, Estonia has a border with Russia, a country that just couple of years ago attacked Georgia. They also are violating from time-to-time our airspace. But I still stand by the opinion, that being member of NATO and EU and many more organizations, makes these situations quite table. Defense is important, no question about that, but I don't see Greeks paying for our tanks, so you should at least understand my frustration. You must understand, that Eurozone members are only willing to accept your overspending to some extent. And I also think, that yours defense costs are much more important, than for example public sector salaries, that should be slashed much more than its already done. But that's another issue.

    2. Greece is the epicenter of the European debt crisis and is struggling to balance its budgets, with a fast shrinking economy, rising unemployment and protests.
      Nevertheless, its military probably doesn't feel it. Not at all.
      According to Bonn International Center for Conversion (BICC), Greece is ranked 9th in the world in the Global Militarization Index. 149 states are ranked in this survey. Greece is ahead of oil rich Saudi Arabia, which has tension with neighboring Iran.
      Greece has historic tensions with Turkey, also over Cyprus. Recent discoveries of natural gas around the Mediterranean island have elevated some tensions.
      Nevertheless, Greece and Turkey are members of NATO and a war isn't in sight.
      With Greece overwhelmed by heavy debts and reliant on external aid, it's quite amazing to see Greece so high in the list.
      The unemployment rate in Greece is constantly on the rise, yet most of the job seekers come from the private sector. The public sector, and especially the military, seems to be exempt from the influx of austerity programs.
      Greece is negotiating a Private Sector Involvement deal with its creditors these days, as part of a second bailout package. It's clear that it cannot pay all its debt, but can it continue the significant funding of the military in these troubled times?


    3. Martin, again some of your comparisons are invalid. Russia does not currently occupy a part of a territory which is inhabited by Estonian people like the Turkish army in Cyprus. In fact, Russia has genuine rights to intervene in Estonia as over 25% of the Estonian population is Russian and a far higher percentage a Russophones. Estonia has systemically denied these people language rights and other cultural rights. As for NATO membership stopping conflict let me list a few things. First, Cyprus was, which is arguably a de facto part of Greece, was attacked by Turkey. Third, Turkey landed commandos on a Greek islet in 1996 which resulted in the death of three Greek officers. Fourth, Turkey has systematically attempted to Turkify and radicalize the Muslim minority in Thrace through their embassies and consulates – which is a violation of the normal rules of diplomacy and the Treaty of Laussane. Fifth, Turkey has a cassus belli towards Greece if it extends its territorial waters which it is allowed under international law. It is quite clear membership of NATO has not stopped Turkey encroaching on Greek sovereignty? Lastly, Russia did not attack Georgia, Georgia attacked Russia sponsored by American and other foreign powers.

      Again, this is not the site for these matters. Nikos deals quite adequately with the relationship between the domestic politics and the economy. But, he does not deal with the relationship between the economy and external politics. Perhaps there is another blog for that.

    4. Wow.. lot of strong opinions in your post. I'm not going to give you a history lesson here, but when you brought this issue out then I must correct you. Russia is occupying some parts of Estonia from 1940.

      But I also have one simple question for you. Why Russians in Estonia should have "language and other cultural" rights and Turks in Greece shouldn't?

      And I also think we can drop the "suffering" issue. We clearly have heard different opinions from different sources.

    5. Martin, clearly you are not well informed. Muslims in Greece, the ones that are not Pomaks and Roma, have Turkish language rights protected by the Treaty of Lausanne. However, this is unrelated to the discussion and it clearly shows you are not interested in dealing with the issue at hand.

    6. Greece seems to have cut back on its stated military expenditures during the last couple of years but this sector is responsible of racking up at least Euros100B over the years. Adding to this the cost of maintaining, upgrading plus cost of rolling over the expiring debt plus interest(which is usually included in non-military expenditures)...I would make a guesstimate that this sector has racked up somewhere between 150 to 200b over the years.
      Of course the media likes to focus on gardners and state car drivers paid 80k a year. They should certainly crack down on those gardners tending the gardens in Zappio for Euro 80k a head or the 35year old state pensioners with a "fake" doctors report that he is disabled and those doctors filling in 3 prescriptions per visit. But even if these drain on resources were 5b a year ( the overpaid portion of state and other quasi state employees) this would only equal to about 75B over the last 15 years(I could be vastly underestimating since there are no figures).
      On top of the grass root level cut backs Greece needs to overhaul its whole political, legal and economic fabric of society. Unless this happens whether or not greece defaults, stays in the euro or goes back to the what you will it will finds itself in the same drama.

    7. Dionysis. I'm not informed by Turkish language rights at Greece at all, but I also never said I am! It's you that brought out comparisons with Russians in Estonia, which were very incompetent and probably influenced bu Russia's propaganda.

      What I said was, that the Greece has very strong army already and is also reasonably well protected by being member of NATO, EU, eurozone etc. So the current situation may not be righteous, but I still stick by opinion, that it is pretty stable. I also don't see massive purchase of tanks (attack weapons) to change this situation remarkably.

      I also wouldn't have any problems with you tanks, if you wouldn't want me to pay for them.

    8. Actually Martin, if you read the previous posts, it was you who first brought up the comparisons between Estonia/Russia and Greece/Turkey.

      And I have also pointed out that Greece (including Cyprus) has NOT been protected by NATO.

      Of course, you choose to ignore my arguments.

      In regards to NATO and EU protection, let's just see what they do as Russia encroaches on Estonian sovereignty. I would not be so complacent. But then again, the Estonians have never been known for their fighting spirit or high principles. Let's not forget they gladly did the bidding of Hitler.

    9. I brought out these comparisons in context of the stability of situation, which I consider comparable. We are very afraid of Russia, and therefore must rely on our partners, which also means fighting in Iraq and Afghanistan + other similar brown-nosing measures. We are not complacent at all, but we also believe, that the best protection is having a lot of strong allies and ties, both political and economical. These may of course prove not sufficient, but are best we have. Your situation is not the same as yours, but comparable.

      When it comes to our fighting spirit, principles and co-operation with Nazis, then you are either idiot or just trolling.

    10. Look, Dionysis, your logic is the following:

      You would prefer to play with some plastic war ships in your bath tube when your house is burning and you could use the water to fight the fire instead.

      Why do I say "plastic"? Well, if you have additional tanks but you cannot afford their maintenance, ammunition and fuel to run them... and if Turkey's army is still much bigger and functioning well, then the whole idea does not make sense. And that's what the situation is like.

      So if the Turks invade Greece - and they will not for sure - you would impress them more with bending down and showing them your naked ass instead of having useless tanks.

      Spend the money for the poor people and for your economy instead! Here in Germany people are willing to help whoever asks for our help but we would like your politicians to make progress and stop fooling us so that we all can see some light in the end of this long tunnel...

  13. As for the Sovereignty issue once any country joins a political and economic union like the EU you give up some of your ability to manage your country in support of the common "good"...via treaties like the Maastrich Treaty or any other EU treaties. In this sense the EU needs a budget commissioner in every member country.

    The media's line of "German Tax money bailing out Greece" can be valid if the funds raised were used directly to pay interest or eliminate Greek debt. This is not the case. The money has been raised to invest in funds which support lending facilities of ECB and some quasi banks which ends up lending Greece and others more money at longer maturities and below market interest rates. In effect they can buy time and save more money which will have to be summoned if a domino effect materializes from a default from several countries.

    Finally, the whole issue needs to be negotiated in some form of European "Bankruptcy" Court instead of being mediated only by IIF. This looks similar to a situation of getting in trouble with the mafia and then getting the trouble resolved by a court whose judge and jury is on their payroll.

  14. "Greece is under heavy pressure from its creditors to implement further austerity and structural measures if it wants to get a second, €130 billion ($171 billion) bailout, and avoid bankruptcy."

  15. A most sober analysis, as we readers of Greekdefaultwatch are accustomed to.

    Let me add, however, another aspect that would speek against installing something like a European High Commissioner in Greece.

    Sooner or later, the Greeks would use this fact as an argument for futher payments:
    "Now that you are ruling us, you are responsable for our well-being."

    And with the Greek beaurocracy and society as a whole being as they are, a foreign High Commissioner would meet the same obstacle that even the Greek politicians themselves (those who are genuinely striving for reforms) are facing: their decisions and orders are simply being sabotaged by the beaurocracy.

    So most likely a budget commissioner would not achieve neither savings nor reforms, and in the end the whole operation would even be more expensive.


Note: Only a member of this blog may post a comment.