UPDATE: I’ve been made aware by a reader that it’s doubtful whether the anecdote mentioned here is true. See the comments for details.
Megan Greene from Roubini Global Economics shares a Kafka-esque anecdote from Athens which illustrates what the real problem is in Greece:
A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.
In the light of such challenges, it is not very hard to understand why Greece has been suffering from low growth for the last many decades. The reason is not the populist charge that the Greeks are lazy or unwilling to change, because as the recent Give Greece a Chance campaign is trying to remind us, they are neither.
Nor is it – as the Eurosceptics like to assert – the fault of the Euro itself, although the lax oversight and enforcement of the Stability and Growth Pact certainly allowed an unsustainable situation to go on for longer than it should have.
No, the fundamental problem is the Greek political system, which in order to protect a large number of minor special interests has created an economy that on the whole is extremely inefficient: Cafés that aren’t allowed to sell coffee. Taxi drivers who have to spend thousands of euros to buy a taxi license on the black market. Nationally-owned companies that operate at a loss, but can’t be privatised because unions are stonewalling negotiations. And of course, there’s such things as corruption, tax evasion, and an extremely ineffcient central government and administration. All of these and other problems combine to give Greece a rank of #100 on the World Bank’s 2011 Ease of Doing Business Index, by far the lowest rank in the EU and below countries like Yemen and Vietnam, and of #90 on the World Economic Forum’s Global Competitiveness Index. Under such conditions, rather than criticise, we shold frankly applaud the Greeks for doing as relatively well as they are.
So what can be done about it? It’s obvious that the economy has to open up and become more flexible and competitive. At the same time, the government has to fight corruption and reduce the dependence of the political system on special interests in order to restore its legitimacy. Easy enough to say – but extremely hard to carry out in practice. However, it’s something that only the Greek people themselves can do, and if it turns out that they can’t, it’s very hard to see what the rest of us in the EU could do to help them.