Why Greece is a failed State, but why we should continue to support it.
My last month setting up a business to trade with Greece has answered both of those questions, and done so in the clearest fashion possible. I now fully understand why Greece has the problems it has, and the magnitude of the task that Greek Premier, George Papandreou, has to face. And, it is all to do with systemic corruption, which starts at the very top of Greece’s administrative system. My experience also tells me that unless the central issue of corruption in the Greek system is tackled head-on, any money that Greece gets to support its bankrupt economy is just money down the drain, or perhaps more correctly, money in the pockets of a elite class who completely control the country’s economic mechanisms.
Greece is essentially a Mafia State, but by mafia I don’t mean it is run from Sicily, but simply it follows the business principles originated by the mafia. This is a system of patronage that starts, most worryingly, with the Greek Tax system.
Let me explain how it works.
In Greece you need a license to do just about anything. If you want to open a shop, you need a special license. If you want to open a travel agency you have to have a special license. If you want to drive a coach or taxi you need a special license. This licensing system is the focus around which corruption can thrive, because it centralizes power to control all Greek enterprise, and places it in the hands of a small number of elite and unaccountable, but powerful government officials.
In successful western democracies there is a Front Office - Back Office management model that prevents the concentration of power ending up in the same hands. In the UK if you want to start a registered Company and you meet the legal requirements, you register at Companies House and are issued with a Certificate of Incorporation that both registers you onto the corporation tax system, plus protects your trading identity. With this you can open a business bank account, and you are up and running. The process takes just days. If you need to register for VAT you apply to HM Customs and Excise and get a VAT number. These separate processes automatically tie you into the UK systems for tax collection, the rules of which are the same for everyone. In other words, it’s a level playing field, but a playing field in which the roles for the various administrative bodies are separated and clearly defined. If you seriously break the rules you will be investigated and charged by the police, then prosecuted through a separate and independent judicial system.
In Greece it is very different, in fact almost the opposite. The tax office issues everything. They issue the license to trade (equivalent to a certificate of incorporation); they issue the tax number for VAT (equivalent to Customs and excise). They are also responsible for policing businesses and issuing fines if they consider you have broken any rules. In other words, all the functions of business creation, tax monitoring and policing are under the control of the same organization, and this is how it has operated for decades.
One would assume that with this integrated function Greece would have the most cost-effective and efficient tax collection system in the world, but it doesn’t work because it promotes corruption. Putting so much power in the hands of so few people and making them self-policing and self-accountable means that they completely control the Greek economy. It’s obvious by Greece’s current economic situation that these taxes are not being collected and ending up to support the economy. So a good question might be, where exactly is this money going?
This concentration of power doesn’t really become apparent until a situation arises when a company from another EU state, which operates outside the Greek tax system, wishes to do business in Greece, or to go into partnership with an existing Greek business. Greece uses the EU as a personal piggy bank to dip into when it needs cash. They don’t adhere to the concept that this is a two-way street and it’s necessary for them to observe the rules of membership of the club, so when it comes to observing EU directives Greece simply cherry-picks the ones that benefit it, and ignore the ones that don’t.
This all came to a head recently with the world financial crash that began in the US. Until this time while money was easy to get, Greece, as a Eurozone state could rely on access to vast amounts of borrowing to support its cash-flow, plus disguise the fact that the country was living way beyond what their tax income could support. Of course, following the crash, when the loans dried up, this became apparent very quickly, because they were unable to borrow more money in order to service the interest on their debts. At this point they turned to the piggy bank of the ECB and the EU to top up their failed economy, but of course their economic partners were all suffering from the same lack of cash-flow funded by borrowing. Everyone was in the same boat, but because the administrative mechanisms of the other EU states were open an honest, the road to recover was reasonably clear. However, in the case of Greece it was, and still is, hidden behind a fog of confusion and corruption.
So that’s the problem. What is the solution?
Actually, it’s not as difficult to solve as would be thought. Greece has an educated young population eager for change, who in a commercial world are being suffocated under the piles of paperwork and red tape specifically engineered to keep them under tight control. This abusive official process stifles innovation and is the key element that is holding back Greek recovery. These dynamic people with ideas and energy will never be able to pull the country out of the economic doldrums unless they are given the chance, and a level playing field to do it. Even if only for this reason we must all continue to support Greece in its recovery efforts. As a community of European nations we should all pull together to help each other out, and Greece definitely needs our help.
The system must and will change. This is being made very apparent, to be a condition of propping up the Greek state, by both its EU trading partners as well as the European Central Bank and the IMF. In order to do this, though, Greece must change its administrative structures and weed out the systemic corruption, by adopting similar checks and balances that keep the whole system honest in partner EU states.
Until this happens, and is seen to happen, Greece will continue to slide further and further down the poverty ladder. And, if this does not happen, especially the factors centred on observing EU Directives, consideration should be given as to whether any further financial support should be provided; whether Greece should remain in the Eurozone; and indeed even whether Greece should be permitted to remain a member of the EU.
In summary, these are the tasks that George Papandreou, the current Greek Premier, has to address in order to get his country back on a recovery track. I don’t envy him one bit. It will be a huge challenge. Cleaning out decades of corruption and turning Greece back into a trusted trading partner will be a real uphill task, but one which I hope he succeeds in achieving. This clean-up must start at the top and work its way through the whole administrative system if it is to be permanently effective, and the starting point must be to reform the Greek Tax system, by splitting up its administrative responsibilities, since this is both central, and essential, and the single most important blockage to getting economic recovery under way.
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