Greece Needs Software and Time « Euro

Greece Needs Software and Time

February 8, 2012 by

By Nikos Chrysoloras

A common narrative in both Greek and international press is that the Greek economy is contracting so sharply because of the ridiculously high taxation imposed by the IMF, over the last two years. Journalists and commentators who support this view do not, obviously, bother to look at data. If they did, they would see, for example, that, at the end of 2010, when the EU-IMF austerity programme was already in full force, tax revenues in relation to GDP in Greece were much lower than the EU average (33.2% as opposed to 39.6% in the EU, according to Eurostat). Even after the steep tax rises, the typical company tax rate in Greece is 20%, VAT is at 23% and the highest personal income tax rate is 45%, all of them high indeed, but still falling within the EU norm.
On the other hand, the World Economic Forum’s Global Competitiveness Report, ranks the Greek economy in 90th place worldwide, mainly because of the dire ‘macroeconomic environment’ (140th place, in a total of 142 countries ranked) and minimal ‘access to financing’ (Greek banks and the Greek state have long lost access to international capital markets). In other words, although austerity measures imposed by Greece’s international lenders certainly have an adverse effect on growth, the fact that the Greek economy is in such comatose state is mainly due to the macroeconomic uncertainty and the lack of credit lines (which in turn, is also a symptom of macroeconomic uncertainty). It should have been common sense: no Greek or foreigner will invest and create jobs in an economy which, for the best part of the last three years, remains at the brink of collapse. For as long as no convincing guarantees are provided that the country will remain a part of the eurozone and it will not relapse into the developing world, investors will remain wary.
Hence, if the EU, the IMF, the ECB, the Greek authorities and the Private Sector finally agree on a definitive deal, which will ensure the medium term financing of the Greek economy and the meaningful reduction of public debt, so as to bring it down to sustainable levels, then uncertainty will disappear and the Greek economy will rebound. Besides, a successful resolution of the Greek crisis will help restore confidence on the prospects of the eurozone, hence enhancing growth in the continent as a whole, hence helping pull the Greek economy out of the mud as well. Moreover, labour costs in Greece have fallen significantly over the last year and a half, thus augmenting competitiveness.

Nonetheless, the rebound will be weak. Before the crisis, Greece enjoyed steady growth, averaging 4% annually, for 15 years in a row. This growth was based on five pillars: private consumption; public investment; housing and construction; tourism and shipping. For the foreseeable future, private consumption will not resume on the levels we saw back in the first decade of the 21st century  and public investment projects are now difficult to finance, given the size of the public debt (even after the haircut). Construction and housing have reached their limit and Greece only narrowly escaped a catastrophic bubble. Tourism and shipping are extremely volatile and depend entirely on global economy trends. So, what is to be done?
Obviously, the successful conclusion of the negotiations regarding the new bailout and the PSI would give Greece, as well as the region as a whole, valuable breathing space. Investment and public-private partnerships could also resume if the eurozone offers lines of credit to healthy and solvent Greek businesses. Most importantly though, Greek authorities should be pressured even harder by their European counterparts to lay the foundations for a solid production base in fields where the country enjoys competitive advantages, like renewable energy, tourism, shipping, sea and air transport hubs and organic farming. This reshaping of the economy will take time and it will require the expertise of the IMF and the EU as well as the active involvement of the Greek private sector. The same can be said for structural reforms towards the direction of competitiveness, productivity, transparency, openness, and efficiency. These reforms usually take years to bear fruits. In other words, time is what Greece desperately needs, in order to strengthen its democratic institutions and save its economy.
The other thing is software… Several studies and reports by Greece’s international lenders, international organizations (e.g. OECD), think tanks and NGOs have shown that the Greek bureaucracy and public administration are corrupt, inefficient and inept to change. Suggestions for reform have already been put forward and some of them are already being implemented. However, it will also take time before we see measurable results. Nonetheless, Greece needs to zero its primary deficit, limit healthcare expenses (among the highest per capita in Europe), and combat tax evasion now, not in five or ten years. Unlike structural reforms, the country’s international lenders do not (and should not) have to wait in order to see meaningful spending cuts and revenue increases. How can this target be achieved? Simply by bypassing Greece’s public administration through technology.
For the past two years, the Greek government has been trying to put an electronic pharmaceutical subscriptions system in place, so as to check oversubscription of expensive medicines by corrupt doctors and pharmacists. It hasn’t managed to do so, because procurement procedures take ages, due to the incompetence of the country’s public administration. Suffice to say that it took eight years for the completion of the upgrade of the Tax Service’s software system (taxisnet). The result is that before the new system starts functioning, it will already be outdated. Greece also lacks a land registry and its healthcare and social security systems are also not fully computerized. The country’s international lenders would do themselves and Greece a favour if they provided it with modern database software which would register the wealth, income and healthcare records of each citizen. It sounds like ‘Big Brother’, but such a system is absolutely necessary given the extent incompetence among the members of the Greek authorities entrusted with checking and limiting tax evasion. Given the recent advances in cloud computing, the cost of this ‘present’ or loan to the Greek authorities would be negligible and it would bypass lengthy procurement procedures in Greece.
Anyone who has visited the parking lot of a Greek hospital would appreciate the benefits of such software:  While the average net salary of a Greek doctor is around 2,000 euro a month, these places are full of Porsches and Ferraris. If the software I am proposing was running, it would definitely sound an ‘alarm’ each time a person declaring an annual income of around 30,000 euro and no other sources of wealth buys a car worth 150,000 euro. Similarly, the system would sound a warning if 20% of the population in a remote Greek island required social benefits because they are supposedly blind (real life example). Hence, a Big Brother software would be much more useful than the meaningless suggestions for the placement of a European ‘Commissioner’ in Athens.

Nikos Chrysoloras, PhD (LSE), is a journalist at the Greek daily Kathimerini, where he is currently managing the opinion pages. He has also worked as a columnist for the business news website www.reporter.gr and as a researcher for SKAI TV in Greece.The views expressed here are personal.
Contact: chrysoloras@ kathimerini.gr

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1 Comment

  1. Do you think that Greece will be able to make any sort of small recovery in the near future? Would you agree that spending to jump start the economy and cutting afterwards would be a better move than cutting now? Also, what do you think Greece’s first steps should be in handling their delicate financial predicament?

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