Sat, Jul 18, 2015 page8

• Greek crisis caused by ineffective governance

  • By Luo Chih-mei 羅至美
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  Prior to granting Greece’s request for a financial bailout, EU leaders held a summit to deliberate on the ramifications of a potential Greek exit. To determine whether Greece is worthy of an EU bailout, it is necessary to first clarify the nature of the Greek crisis.

  Unlike the crises in Ireland and Spain, both of which were dragged down by the US subprime mortgage crisis, or the crises in Italy and Portugal, which are long-term structural developmental problems, the Greek crisis is the only one in Europe caused by the public sector. In essence, it is a governance crisis resulting from a lack of fiscal discipline and lax governance.

  Even before joining the eurozone, Greece had serious debt problems. To meet the eurozone’s debt-to-GDP ratio entry requirement, Greece’s statistics agency made inflation and its public deficit “disappear,” according to a BBC report. After a change in government in 2004, the financial deception was disclosed, but because Athens was to host the Summer Olympic Games, the new administration decided to conceal the truth by borrowing more money. As a result, Greece’s debt reached 160 percent of its GDP within 10 years.

  The scale of the debt was one reason why the problem was difficult to solve, but the Greek government’s lack of efficiency and credibility is the reason why the country has failed to capitalize on the huge EU bailout and effectively manage and address its debt problems.

  Some observers have attributed Greece’s poor governance to the endless stream of protests in the country, the enormous public pressure on the administration and the government’s need to appease the public. However, protests against austerity measures also occurred in every nation involved in the European debt crisis. Changes in government also took place in Ireland, Portugal, Italy and Spain. The pressure to appease voters cannot be the only reason for the Greek government’s inefficiency. Unlike other eurozone countries, it is the Greek government’s inefficiency that should take the biggest responsibility for causing and sustaining the debt crisis.

  The core of the Greek government’s incompetence lies in deficiencies in its governing system. It lacks coordination and control mechanisms. Moreover, embezzlement and bribery abound, making it impossible to effectively manage and monitor public spending. A Transparency International report showed that Greece topped the Corruption Perceptions Index in the eurozone.

  Simply put, the Greek crisis is caused by ineffective governance, but the only solution the EU offered was austerity, which does not address the core of the problem: governance. In the end, it is the minority and the poor that are paying the price, for they rely on the public sector to provide social welfare and public service expenditure.

  Without economic growth and career opportunities, austerity means unemployment and no subsidies for their living necessities, resulting in a sense of deprivation. As such, many voters rejected the EU’s bailout requirements in a referendum on July 5, rendering the austerity measures democratically illegitimate.

  Before any essential change takes place in Greek governance, its debt problem is not worthy of an EU bailout. However, judging by the EU’s decision, the EU apparently is also mistaken about whom the responsibility falls on.

  To paraphrase the Tao Te Ching: Unsympathetic politicians treat their people as worthless animals. The Greek crisis clearly exemplifies that. Taiwanese voters believe in democracy and the omnipotence of elections. How can they not be mindful?

  Luo Chih-mei is an assistant professor in the Department of Public Administration and Policy of National Taipei University.

  Translated by Ethan Zhan
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