The two dominant political parties in Greece (PASOK and NEA DIMOKRATIA) are the real culprits of the current state of affairs.  It is true that politics reflects society but that does not mean that society is corrupt.  Only that it has been corrupted.  In the case of post 1974 Greece, political parties have been closely associated with a state of widespread populism and clientelism.

The most important recent development is that a number of serious political commentators are pointing at the causes of the malaise.  This is a promising development and a break from a year ago, where Greeks had equated introspection with navel gazing and conspiracy theories with reality.  Foreign interests were believed responsible for their predicament which implied they generally distanced themselves from all responsibility for support (or lack of objection) to widespread corruption and nepotism in political life.

Political parties have been feeding off clientelistic relations that before 1967 were most closely associated with localism and parochialism.  Since 1974, populism and the distribution of the spoils of government have been systematised to encompass all aspects of public life. PASOK (socialists) under George Papandreou led the way in populist manipulation of the public at unprecedented proportions.

Membership to the EEC/EU only widened the potential for clientelistic redistribution.  In the formative years of the Greek EEC (and later EC/EU) membership in the early 1980’s the Greeks were instrumental in spearheading a call from southern Europe for substantial transfers.  These commenced with the ‘Integrated Mediterranean Programmes’ in 1987 that were supposed to underwrite the creation of new physical and socio-economic infrastructure for southern Europe.  At its height transfers to Greece from the EU amounted to 6% of GDP a year (or 4% net to take account of Greek contributions to the EU budget).  This represented over 10% of government spending, but more importantly, it tied-in matched funding from the Greek state (EU projects to the weaker economies match-fund at typically 50% of national projects).  Most discretionary infrastructural spending of the Greek state was for the first time tied to feasibilities of wider economic impact and a vision beyond those of micro-political gain, since the EU projects prescribed new levels of probity.  Greek governments managed to contravene the impact of those projects by blowing-up public sector employment.  Development and an increase in per-capita income was underwritten by construction projects and subsidised tourist development.

The negative side effect to public finance was that the steady transfer of funds over 15 years (1987-2003) made successive Greek governments complacent.  Nea Democratia (conservatives) came to power on the eve of the Athens Olympics of 2004, which has become a model case of how not to run an international event.  The cultivated euphoria of holding the games and winning a number of international sporting events (European football championships in 2006) sidetracked public attention from the fact that public finances were worsening.  The ‘circus and bread’ economy had a reality check when international conditions changed.  EU funds have been largely re-directed to the 12 new members and the international competitiveness of Greece has been slipping.  Growth for Greek businesses has been strongly dependent on investments in the Balkans that proved very sensitive to the recent international crises. The conservatives, chose not to deal with the underlying weaknesses and since loosing power in 2009 have resorted to old-style populism, so that they would not have to account for their failures.

EU transfers have now dwindled to just under 25% of allocated funds!  The Greek state does not have the resources to provide match-funding for projects.  Presumably, a state in disarray is also loosing capacity to devise projects that can be allocated funds.

Both the conservatives in 2004 and the socialists in 2009, on taking power, declared that state finances did not represent the true picture of the balance of payments and revised figures downwards. Not exactly a vote of confidence on the economy, the political elite or public finance.  Yet when the government debt ratings drop it is invariably the hand of evil speculators.

But back to the political parties.  They are the culprits because they have engineered the corrupt exchanges of which they have been the beneficiaries. However, since there is no serious chance of a more direct and inclusive democratic system in Greece and since alternative political movements and fringe parties represent worse populism and possibilities of corruption than the ones that held power the last 35 years, Greeks are stuck with the current political arrangements.

Economic change is also unlikely to happen in a political system where the public purse is considered a free for all.  Slowly Greeks start to recognise that economic transfers work within a ‘zero-sum-game’.  It starts to dawn on them that the largesse of the state towards specific economic groups (or entrenched interests) implies a net contribution by all citizens and therefore reduces the public good.

What is required of contemporary Greeks is probably too much to consider feasible.  There is an obvious requirement for a dramatic change in their dealings with the state, where they are expected to take control of their fate.  The state with its regulatory and tax authorities cannot be beyond citizen accountability.  These authorities as well as public sector companies should operate for the public interest construed as the good of at least the majority if not all citizens.

In this context a serious public debate is required that can lead to a realistic evaluation of what constitutes a social good and its defense through the support of the social fabric and the economically weak, instead of a state that serves the interests of those that have corrupt it or are politically connected.

There is an interesting idea I have been gestating for some time on a dynamic overhaul of Greek politics.  I will blog on this later.

As a parting shot, solutions do exist that do not involve a gloom and doom default scenario (which without structural change is a short term solution anyhow).  It was recently suggested that Greece should be allowed to supplant guarantees on its public finances with funds it has been allocated but not been able to claim.  If estimates of the absorption record of the country are correct this could amount to more than €30bn on the current budgetary cycle (2007-13).  Even though less than 8% of current debt levels, potentially a shot in the arm that could provide a year’s respite.