Well, if there is one overriding argument in all the posts I have written, then it is the argument that Greece needs to chart a different course, a "comprehensive change in its operating model".
And who is making a case for this now? After having, in previous posts, criticized him for belonging to those who only talk about the abstract financial economy and not about the real economy, I was very much (and positively!) surprised by the recent article of Mohamad El-Erian in the Huffington Post.
It is totally obvious that the Greek economy can't work in the present Euro-structure because the strong Euro makes imports so cheap that it becomes less and less worthwhile to produce in Greece. However, this process works only as long as foreign funding is freely available to finance all of this, and such funding is coming to a halt.
To proclaim that "Greece must become competitive" is a wonderful slogan. However, it's a bit like sending a talented but not yet fully developed Greek soccer player to Real Madrid and, once he has gotten used to the way of life there, telling him that he has to improve his game in order not to be kicked out of the team. "Becoming competitive" is a process which takes time; it cannot be mandated.
A return to the Drachma would automatically self-correct this situation: imports would go down, exports would go up, tourism would improve and --- domestic economic activity would expand. However, there are those very negative consequences associated with a Grexit which have been discussed at length.
In consequence, if Greece can't make it with the present Euro-structure but wishes to stay in the Eurozone, then it can indeed not avoid having to become more competitive; the question is how to get there. It's sort of like being at "A" now and knowing that once one has reached "B", everyting will be fine. But how can Greece get from "A" to "B"?
If it stays in the Eurozone, Greece must - during a transition period - simulate a situation as though it had returned to the Drachma: special taxes on imports with the objective of starting import substitution; Special Economic Zones for new production at internationally competitive terms, also for exports; and some form of capital controls to stop the drain of financial capital.
This will require temporary changes to the EU freedoms of free movement of goods and capital, but there is no way around it if Greece wants to stay in the Eurozone. Everyone says "the EU will never agree to that because other countries will cry foul play". Well, include everyone else who is in a similar situation as Greece (i. e. the Southern Periphery) and you will soon find out that it is a lot cheaper to amend some treaties than to keep sending money.
Obviously, as domestic economies in the Periphery do more value creation on their own, they will need to import less. In consequence, current exporters to the Periphery will export less and have a bit less economic growth on their own. Perhaps they will cry foul play, too. Message to those: you can't have the cake and eat it. Either keep sending your products to the Periphery or you let the Periphery do some value generation on its own. If you prefer the former, make sure that whenever you ship your exports you send the money along for payment.
To return to the example of the soccer player: delevop his talents; send him first from a local club to a regional club and then to a top national club and once he is a star there, then open the borders and let him fly to Madrid.
And who is making a case for this now? After having, in previous posts, criticized him for belonging to those who only talk about the abstract financial economy and not about the real economy, I was very much (and positively!) surprised by the recent article of Mohamad El-Erian in the Huffington Post.
It is totally obvious that the Greek economy can't work in the present Euro-structure because the strong Euro makes imports so cheap that it becomes less and less worthwhile to produce in Greece. However, this process works only as long as foreign funding is freely available to finance all of this, and such funding is coming to a halt.
To proclaim that "Greece must become competitive" is a wonderful slogan. However, it's a bit like sending a talented but not yet fully developed Greek soccer player to Real Madrid and, once he has gotten used to the way of life there, telling him that he has to improve his game in order not to be kicked out of the team. "Becoming competitive" is a process which takes time; it cannot be mandated.
A return to the Drachma would automatically self-correct this situation: imports would go down, exports would go up, tourism would improve and --- domestic economic activity would expand. However, there are those very negative consequences associated with a Grexit which have been discussed at length.
In consequence, if Greece can't make it with the present Euro-structure but wishes to stay in the Eurozone, then it can indeed not avoid having to become more competitive; the question is how to get there. It's sort of like being at "A" now and knowing that once one has reached "B", everyting will be fine. But how can Greece get from "A" to "B"?
If it stays in the Eurozone, Greece must - during a transition period - simulate a situation as though it had returned to the Drachma: special taxes on imports with the objective of starting import substitution; Special Economic Zones for new production at internationally competitive terms, also for exports; and some form of capital controls to stop the drain of financial capital.
This will require temporary changes to the EU freedoms of free movement of goods and capital, but there is no way around it if Greece wants to stay in the Eurozone. Everyone says "the EU will never agree to that because other countries will cry foul play". Well, include everyone else who is in a similar situation as Greece (i. e. the Southern Periphery) and you will soon find out that it is a lot cheaper to amend some treaties than to keep sending money.
Obviously, as domestic economies in the Periphery do more value creation on their own, they will need to import less. In consequence, current exporters to the Periphery will export less and have a bit less economic growth on their own. Perhaps they will cry foul play, too. Message to those: you can't have the cake and eat it. Either keep sending your products to the Periphery or you let the Periphery do some value generation on its own. If you prefer the former, make sure that whenever you ship your exports you send the money along for payment.
To return to the example of the soccer player: delevop his talents; send him first from a local club to a regional club and then to a top national club and once he is a star there, then open the borders and let him fly to Madrid.
Why should it only be troubled EZ states that are given dispensation to "break the rules".
ReplyDeleteWhy not non EZ states like Bulgaria, Latvia, Romania, Czeska etc, who economies are just as distressed as Italy, Spain etc.
Would that be because they don't pose the same threat to strong EZ countries like Germany, Austria, Finland etc.
If the problems are due to intra EZ trade, how come Asian's exports to EU have been in sharp decline for the past several years. Its not because the EU is making its own stuff, its because the Southerners (spendthrifts) are broke and have stopped spending, and the Northerners (skinflints) never bought much anyway. BTW I put the UK in the Southerners camp.
CK
have anyone in thought that Chineses, who actually accepted the investment of Germans and friends in their country, need somehow to sell their products in Europe and without consumption in EZ, Chineses are in trouble?
DeleteThe measures I propose aim at giving a country which cannot devalue temporary mechanims where it can simulate devaluation and to use that time to accomplish all those things which a country does when it can devalue. Non-EZ states can solve their balance of payments problems simply by devaluing.
DeleteObviously, all actions are driven by the amount of threat a country poses. To think anything else would be naive. If Greece had all its sovereign debt placed domestically with Greek institutions and savers, there wouldn't be all that much excitement between Paris, Brussels, Frankfurt and Berlin.
I make zero emphasis on intra EZ trade (even though as a matter of habit I use the expression North/South). The current account balance of the EZ as a whole is interesting information but not much more. What matters are the current account balances of each country and they have to be brought back into balance (also in the US!). Whether or not the c/a deficits are genereated by other EZ countries or Asian countries is more of political relevance rather than anything else.
BTW, who is the beneficiary of Greece's current account deficit? Perhaps Germany with 100%? Well, there are 2 beneficiaries of equal rank, Germany and China, each with about 15%. Another 35-40% got on the account of Italy, France and the Netherlands. From that standpoint, the Bank of China should be included in the ECB-financings of current accounts in the proportionate amount of their benefit.
Coming to think of it: almost all the bail-out costs (Fresh Money; transfer private to public; etc.) are presently borne by EZ tax payers. If I am not mistaken, everyone outside the EZ (for example: Swiss, American, British, Asian banks) has gotten away so far free of charge and must be having a ball. Of course, I may be mistaken on that.
Mwandishi
DeleteI don't have the figures for the EZ or EU but I would venture to say that exports to the US are quite a big factor in China's enormous growth in recent years/decades. If someone argued that, for decades now, the consumption-addicted no-fear-of-debt-having American consumer has done an awful lot of good for the rest or the world, I could not disagree.
Regarding trade I referred to Asia, not China, I also spoke in historical terms.
ReplyDeleteAccording to the following, in 2006, EU imports from China exceeded US imports from China.
http://us2.mofcom.gov.cn/aarticle/chinanews/200701/20070104328822.html
Today of course US imports from China exceed the EU's imports, in fact in unadjusted dollar terms, US imported more from China in 2011 than in 2006.
But the point I was wanting to make was that the Europeans (and not only the elites, but also the media, the blogosphere, commentators...) rarely look beyond their own shores or former colonies. Europe should look to how the Asian Tigers recovered from their 1996 crisis, there was no one size fits all solution, Malaysia imposed currency controls, apparently the Korean people gave all their gold jewellery to the government, as a result Korea repaid their IMF bail-out debt after 3 years!!
Can countries that have pegged their currencies to the Euro as part of their agreements to join the EZ (Bulgaria & Romania 2015) devalue? I am 90% certain that Slovenia couldn't in the period between signing up for the Euro and adopting the Euro.
You've advocated 'special case' dispensations for Greece for a year or more, now you suggest widening the net to other distressed EZ states, but rules you're seeking to waive are EU wide rules. IMO a country like Latvia, which has reformed its economy of its _own volition_ and suffered the consequential high unemployment etc, would be justified in applying a veto.
The Asians didn't force Europeans to buy there goods and services by sending gunboats up rivers of Europe, why should they be responsible for European economic mismanagement.
Europe wants its bread buttered on both sides. On the one hand the rest of the world is expected to deal with the EU as discrete countries when it comes to bailing them out of their self inflicted economic malaise. But on the other hand the rest of the world should deal with the EU as a block when it comes to trade matters, and their subsidies and sanctions.
The Euro is a failure. The best thing would be for Germany to leave and allow the other states to find a balance between themselves. Only Germany has the economic and national strength to withstand the shock of reverting to a national currency.
Just as the US and China are the elephants in room globally, so is Germany in the EZ. The US and China can't exit the planet but Germany could exit the Euro. By doing so it would be making the sacrifice everyone wants. After a decade it would become "Greater Switzerland", which is what most Germans want.
CK
I can join you in your general critique of Europe, even though I would hasten to add that I mean "old Europe" in the sense of Donald Rumsfeld.
DeleteI had returned to Austria in late 1990 after 23 years outside of it (and mostly outside Europe as well). I thought I had landed on a different planet. Wherever I looked, entitlement mentality. Everyone felt owed something by someone - by their parents, by their teachers, by their employers, by society, etc. However, no one seemed to feel that, first of all, everyone owed something to himself.
Had I not had a family, I would have left again right away. A societal culture ruled by consensus. Consensus that everyone who stepped out of the preprogrammed line was suspicious and, consequently, entering “risk”. Everyone who stayed in the line was “secure”. And “security” was the determined as the greatest value of all.
Add to that the somewhat extracting cultural habits, a somewhat vertically structured society where the ones higher up are indeed “higher up” in all respects and the ones “lower down” are the opposite. A feeling of intellectual superiority versus the rest of the world, particularly versus the US, of unbelievable proportions.
Intuitively, I was sure that such a system would sooner or later break down under its own weight. However, I lost out in all the many discussions because the ultimative discussion-stopper was always: look around and see how good we have it! After a few years, I read – by chance – about a competition called “The 1st International Gary S. Becker Prize” where papers were requested on the subject “The unintended consequences of the welfare state”. Well, that was the time for me to unload all my criticism and, surprise, surprise, I wasn’t chastised for it. Instead, my paper won first prize. You can see it under this link.
http://tinstaafl-kleingut.blogspot.co.at/2011/07/prologue.html
To get back to your points: yes, from the standpoint of down-to-earth Americans and probably Asians, etc., the elitist European societies must come across as a joke. Somewhere I recently read a study where the rest of the world looks at Europeans as spoiled brats, the laziest people in the world, etc. etc. Many of the societies of Old Europe have been indoctrinated by the welfare state that feeling saturated is something good. Still feeling “hungry” or ambitious and to behave that way was something for the lesser minds of the world.
My own country, Austria, was very lucky to be surrounded on half its borders by countries of the former communist East Block. That was an invaluable reminder after 1990 that there are other societies that are still “hungry”, who still want to achieve something. Societies which – God forbid – might become competitors. That woke up Austria a bit, too, and led to very positive changes in society. This is why I don’t want to put “Europe” into one bag. I can’t draw a line between the Old Europe and the others but I would guess most countries of the former Eastern Bloc belong to the “others”; perhaps Scandinavia and certainly Switzerland. And to give an example of the other extreme: certainly not the Grande Nation France which by all measures is headed for greater trouble than Greece except that because of its status of the Grande Nation might get away with silliness for a longer period of time.
If you interpret my writings as supporting preferential treatment for some, then I have expressed myself poorly. My entire focus is on finding solutions by giving countries in trouble the tools so that they can help themselves. If countries really don’t want to help themselves, I see no point in trying to do it for them.
Mr. Kastner,
ReplyDeleteI fully agreek on the measures you describe that are necessary for Greece. But, what you describe, is in essence, the return to the drachma.
Once more, the issue is political. Special economic zones is something doable, Poland has them too. Taxes on imports and capital control would violate basic EZ regulations, that i don't think would be accepted, since, anyone could raise hand and say "me too!". Before you know it, there would be nobody willing to adhere to any rule he didn't like.
Also, from the first contacts with the troika and Mrs Lagarde's comments, it seems that:
- The "renegotiation" bubble, as expected, is about to be bursted, since the troika has no such will.Mrs Lagarde was more clear about that. Mr. Tsipras already commenced attack about it too.
- The troika, again, as expected, asks for new reductions in salaries in the private sector. This has the potential to make the goverment fall. Democratic Left for starters has very much political room to vote that. Most probably will leave the coalition. Then ND and PASOK will have little life ahead of them.
- Mr. Horst Reichenbach, admitted, that the situation is critical and even with the reforms taken, the growth will take a long time to return.
For me, it is always more clear, that it is a matter of time, before the population says "enough with this salvation with no tomorrow, let's take the other way" with Mr. Tsipras - sadly- at the helm. Well, after Mr. Tsipras fails, there is hope someone with more sense will take over.
This is too long to translate, but it is the best analysis i have seen so far about what went wrong with the memorandum in Greece. It is written by Reza Lahitzi, OSCE expert on Greece, who has worked on the greek problem since 2011 (when he gave his report "Greece:revision of the state). This is his more recent article "What are the mistakes we made in Greece".
If i had to make a 2 line summary, he puts more of the weight, into the failure to concentrate since the start to the reforming of pubblic administration and to the too violent asjustment of the finances, that led to pure depression, in order to all costs persecute absurd fiscal targets.
His last paragraph is describing reality:
"These ideas, which have been presented for 20 years as "shock therapy" had the well known conseguences in some ex communist countries and since then, economic theory stresses the importance of institutions. Meanwhile, Greece is sinking into a dangerous social crisis and political instability. All this does not seem to have caused any doubt to the responsibles who dictate the pace of the changes. It is urgent that today they acknowledge their mistakes and in conseguence adjust their actions".
http://www.tovima.gr/finance/article/?aid=465498&h1=true
In greek newspapers, after the news about "new reduction in salaries", the usual replies are from "anti-memorandum" people who say "Morons, you wanted the memorandum and believed in renegotiation, eh? Now take it and shut up". Or "Only those who voted for memorandum parties should pay for their idiocy, not all of us".
(continues)
(continues here)
ReplyDeleteMr. Tsipras, at the "good news" of the troika, has immediately formed a "shadow goverment". Mr. Tsakalotos is at head of economy sector. Mr. Dragasakis was put in a "memorandum watch committee".
But, at the end, a Mr. Tsipras that may, give hope in a drachma Greece, even if temporarily, may be better than a growing social division or worse. Because already, there are too many the people that can't live on their own means (while the successful tax evaders have been virtually unscratched). The more you press on those same people, who see their salaries drop and drop and prices going up and the economy sinking and sinking and sinking, the more you ask for troubles, which are much worse than the drachma.
It just proves, that Greece will suffer now twice. One hit through this vicious circle-failed plan and another when the Grexit will occur. It would have been, under this prospect, much better, a Grexit in 2009.At least the country would have been hit once and now it would have started the way to recovery, with a more united society. Now we will have double blow with a high risk society.
Mr. Reza Lahitzi, maked one mistake though. It is not that the troika was blind or something. There were plenty of voiced inside and outside Greece that had promptly warned that this plan was unrealistic and destructive. The thing is, the troika didn't care all that much, because the primary goal was to gain time for the euro banks. I still remember Mr. Tomsen of the troika (IMF), on greek tv, being very optimistic about the plan at the beginning, even though it was obvious that it was targeting the wrong things.
But, such is the course of things, when there is a conflict of interest, i.e,when your savior is also the one you owe money to and who, if possible, would like to have you reduce the defict by 10% in 1 year, because he would spend less money.
Greece is in a boiling point socially, this goverment will have to work miracles for the population to believe that it's worth keeping this way.
The return to the drachma may bring social unrest, but the current path will bring civil war.
The return to the drachma may also have something politive, like political catharsis. And also a lesson: "Once out of the euro, stay out of it!".
The mantra "reduce salaries,so you become competitive", isn't working. Before you become competitive, you will have a revolution and no youth left to the country to be competitive.
Today's news: 100.000 new working posts were created by 3800 greek companies... in Bulgaria.Out of them, only a few hundred were there before the crisis. They went not for the lower working cost, but for the tax stability and the security that the country won't change currency after 3 months.
http://www.protothema.gr/politics/article/?aid=208824
How many more must they leave before we become "competitive"? The funny is, the president of greek industrialists comes out every now and then and says that working cost isn't their problem. Also in various studies, enterpreneurs have ranked (before the crisis), the working cost as 12th in order hurdle for their business. And who will reconstruct the country? The young that will have all fled by 2020?
The EZ is set with rules that suit best the economies of the big countries and they way THEY want to compete, with products THEY produce.
The sad part is that i doubt the greek gov has made any contingency plan on how to default and return to the drachma. I am sure it will be yet another blunder. Maybe there is some old plan with the basics left for them by some older goverment.
When you are unable to fix first things first, you have to start all over again (drachma), no matter how disastrous it may be at first.
Bandolero.
Things would have been different, if the internal devaluation had actually caused deflation and hence, a uniformed lowering of product prices. But alas, it didn't...
ReplyDeleteFrom the first leaks of the troika visits, it seems that the troika's solution to that is: "more internal devaluation - which accidentally hits always the same people - so that eventually, prices will start dropping". Fact is, there have been 2 suicides in the last 3 days, so, i think something else will happen before prices drop.
And when you have 1 out of 2 youngsters without a job and 1 out of 2 with a salary he can't live with or create a family, insisting on hitting him more, is something that a psychiatrist should address maybe.
One of Mr. Tsipras' slogans before the elections, populist, but successful with the youth was "We didn't need foreign expertese to chinesify the youth, we could have done that on our own". Of course, with Mr. Tsipras, chinesification would remain, since his reform "plan" is on the wrong way, but, you can't expect a population to adhere forever to a policy that has brough 20% loss of GDP in 3 years and 7% recession, insisting that with more cuts salvation will come. They simply WON'T BELIEVE you anymore. They will want to "try" the alternative too.
Bandolero.
Well, I guess one day many PhD dissertations will be written on the question why internal devaluation did not occur more when so much money was taken out of the purchasing power of Greeks. I certainly don't understand it. I can only guess that the non-official economy which is not directly affected by official measures is large and a powerful counterforce to anything the government intends to achieve.
DeleteMr. Kastner,
DeleteMr. Papaconstantinou,the first crisis finance minister, had PhD from LSE. Probably most of the "troikans" too. The problem is, that a market reality isn't taught on universities, specially if it is a weird market like the greek one.Mr. Papaconstantinoy for example, had to withdraw a law on tobacco taxation withing few days, because he had made a blatant mistake.His second tax reform was cancelling his first tax reform in good part, after he saw that, tax evaders, where getting tax return!!! He actually made a tax law in the first year, which was giving free money to the tax evaders!
Mr. Kastner, there is no mystery. It is a combination of high tax evasion for decades on only a specific part of professions+ cartels ruling the gross distribution of goods+ intermediaries who raise prices+ closed profession in truck drivers+ increased fuel taxation (the highest in EU)+ big increases in electricity and other bills.
- 80% of the imported goods in Greece, is handled by 6 import companies, who run as a cartel. The only way to effectively hit such a cartel, is strike them without mercy with fines.
- Good part of free professionists and good part of large farm owners, paid no taxes for decades. These, have a) stockpiled a LOT of money , b) are accustomed to make huge profits and don't like the idea of this changing. To give you an idea, a very wealthy elder man, who owes many appartments and large farming surface, in all this crisis, asked for raise to a friend of mine who rents an office from him. This friend of mine on his turn, given the other increases in running costs, doesn't drop his fees much.
It's a chain reaction. PhDs, can't understand a simple fact:
A country has 80% of tax income on persons, coming from pensioners and those on salary.The others pay little or NOTHING for decades. An internal devaluation based on horizontal tax increase, will, AGAIN, make those who were already paying to come down to their knees and those who weren't paying anything, to pay very little. For example, when on average, night club owners in Mykonos, declared for 30 years 5000 euros income, how much can you possibly hit him by simply raising generally the taxation? You will hit him minimally. But you will destroy the one who was always being honest.
Either you have to made different taxation according to the profession(probably this would fail at the Constitutional court) or hunt down the professions which well known high tax evasion rates and strike the shadown economy (they are afraid to do that, because of the large number of illegal immigrants that are employed there and would become dangerous without a job).
- The modernization of tax offices, with computers and internet connections should have been the first priority.
- The request to submit to the tax authorities complete assets statesment should have been done since day 1. Now it's too late.
- Increase of fines to corrupt tax collectors, to something that would territy them, as temporary seizing of their assets, if they are under trial for bribery. But tax collectors are PASOK loyalists, so it was out of the question (imagine that PASOK managed to win easily in their worker union elections).
(continues)
- Since they are corrup, substitute them with private sector tax collectors, paid with scalable bonus depending on their "success".
Delete- Make a team of investigators that will investigate tax collector's properties. If they can't explain how they became rich, send them to Court.
- Increase the number and fasten the procedures of tax courts. By the time you will have to pay a fine, you may be dead.
- The public sector has some thousands of useless servants.Many thousands were moved to another service during the crisis, where they kept being useless.For example, air hostesses, moved to local offices of high school education, where they don't know anything and their work is "would you like some coffee" and "would bring me a file called 2nd general high school?". Instead, they could employ them as tax controllers outside Mykonos' night clubs or doctors' pricate practices, asking "could you please show me your receipt for the drinks you 've been drinking all night?" or "where is the receipt the doctor gave you?" and to make sure they won't be bribed, pay them with scalable bonus and put a minimum success target or else fire them.
- Put property tax on the farms over a certain extent. It's ridiculous treating the same a small farmer that barely comes by with some big farm owners.
- Put a team of controllers that will do NOTHING else daily, other than opening bank accounts of "suspicious professions". They 've opened various bank accounts of doctors or dentists, with some 100.000.000 euros inside, but at the rate they 're doing it and the little manpower they have, it's like a drop in the ocean). If i remember, the "Unit of Economic Crime Persecution", which does these things, was reduced to 1200 people.
- Mass expulsions of illegal migrants, raid in the warehouse where the merchantise is kept, spraying of the merchantise on the streets. EU will protest for the mass expulsions, but Greece should ignore (once in the drachma, Greece must exit Dublin II and if they reply with ousting Greece from Shoengen, so be it.Greece must at all costs stop illegal immigration to Greece of those who want to go to Germany and get trapped in Greece thanks to Dublin II Treaty). Greece has the highest black economy in the EU. At least half of it, runs thanks to illegal immigration. The left screams at the idea of expulsions, the right doesn't dare, the EU doesn't allow. Troika's plan against black economy is part of the internal devaluation recipe: Once Greece also want to work for as low as an illegal migrant, then there were will be more shadow economy passing to the real economy, because employers will have less interest to risk hiring illegal migrant. But this doesn't quite address the fact that in Greece there is the highest volume circulation of chinese counterfeit merchandise in the EU.
- In a similar manner, in order to fight illegal import of gasoline from Balkan countries mainly, the troika's recipe is to increase the taxation of heating petrol to the levels of automobile petrol. Such an increase occured already, which is why 50% of flats in Athens passed the winter without heating. Next year, with more increase, will be worse. Instead, the solution is supervise the customs officials on the borders and an electronic in/out system in the distributors followed by regular controls. Again, the public sector has enough useless manpower to have an army of "on the street" controllers, but they don't want to use them.
DeleteThe troika in general, has the idea, that all this is fought in this way: You lower the tax free level for everyone and tax more. By doing this, you have homeless people having to pay 156 euros of tax this year and unemployed people who happened to have inherited a house and a small car, much more. While the usual tax evader will pay a little, but not much to hurt him really. Those who do hurt are the very poor and those who were always paying taxes and are taxated much more now because they appear as the "very rich", while they are not.
Bandolero.
An internal devaluation in order to work, you need to have more or less equal pressure everywhere, so that in a chain of events, one lowers the price after the other. When you have parts of the chain that are VERY resistant, this kind of reaction can't happen and you must get down and dirty to strike the problem at its source.
DeleteIf you simply try with horizontal measures to flaten things, you will fail. You will only lead the poorer and the honest to desperation, while you will have only scratched the surface of the problem. And insisting on doing more of the same won't help. If anything, as Einstein said, idiocy is repeating the same thing over and over again, hoping to get a different result.
The "closed professions" alone, are part of the distorted chain. To give you an example: civil engineers is on paper an "opened" profession. Then the goverment, to give them a "treat", forced all new rents and sales of real estate, to make previously an "energetic certification". But, the fee of the civil engineer isn't open... The ministry has fixed minimum fees. For example, if you want to rent an apparment over 50 m2, you have to pay to the civil engineer that will prepare the certificate, at least 150 euros+VAT, as per ministry's law. What kind of "open" profession is that? At the end, what happens is: The civil engineer will tell you: "Listen, you pay me 150, i don't give you a receipt, you don't get to pay the 23% VAT".
How do you stop this? Either by removing the minimum fee of 150 or by having a centralised group of controllers who examines the certificates and sees if the civil engineer has submitted the VAT for every single certificate.
Greek pubblic administration needs:
- More networking, digitalizing everything. There are mountains of paper dossiers in every tax office, only rats can find something useful in there.
- Cut the direct contact between the citizen and the one who decides the fines, to avoid corruption.
- Put privates into the game.
- Increase controllers using the wasted manpower from other sectors.
You don't need PhD. You need to understand how's working and start deductive thinking and acting accordingly. Up to 1980, the state was working with about 350.000 public servants. The rest only increased bureaucracy. At least use them as tax hunters. Bureaucracy takes 7% of GDP (average EU is 3,5%) and is the most evident hurdle to business.
http://www.nytimes.com/2012/03/19/world/europe/in-greece-business-rules-can-puzzle-entrepreneurs.html?pagewanted=all
Same thing happens in customs with the legislation. It took Mr. Horst Reichenback 2 years to state yesterday that there are 150 certificates that greek customs require, while in France there are 50. This makes greek goods delay and increase their final cost at the selling point.
These are no secrets. As i said, greek businessmen have since the beginning ranked labour cost as 12th in their rank of problems. But everyone seemed fixated with that and they still is. In the meantime, they prepare yet another new tax law (3rd in 3 years?).
Business come through:
- Bank financing.
- Pubblic investment
- Private investment.
The first 2 are dead in the water. The 3rd is FLEEING despite the lowering of salaries (40% less investments in Greece in 2011). Because a company needs above all to have stability. Needs to able to plan 5 years ahead, knowing what the taxes will be and the market enviroment.
The rest is ideological fixation, of a troika that came in Greece with an "one fits all recipe" and insists apparently to that to the bitter end.
Bandolero.
And a quick mention of how the signigicantly cheaper work force brought investments:
ReplyDelete- 40% less investments in 2011 (data of yesterday). Include:
- Coca Cola closed some of her production facilities.
- Barclays, NatWest, Bank of America, AmericaΕxpress, Barclays, ING, BNP Paribas and most recently Societe Generale and Credit Agricole left (the last two are selling now their greek affiliate banks).
- Thousand of greek companies leaving for the balkan countries (northern Greece is emptied of producing facilities)
- ΑLDI, Saturn and FNAC left.
- BP and Shell sold their network to greek magnates.
- Carrefour left, after selling the brand name to Marinopoulos.
- Pirelli, ENEL, Siemens, Goodyear, disengaged.
And there you have Mr. Paul Tomsen, saying that further reduction of salaries is what will bring investments. But if they dropped, why they leave?
Greece, is a complex country and an insanely underexploited economy on every sector. One can understand this and work accordingly or stick to his ideological fixations and further ruin it.
To give the most simple example. Only a few months ago, they passed a law to liberalise cruising in Greece. Cruise ships in the past, were only transit, because legislation was requiring them to hire about 20% of their crew greek sailors, if they wanted to operate from greek ports. Insane, pasokist things. Or, in a country with 200 islands, there are few and pittyful marinas, because leftist were prostesting of "ruining the enviroment". So most yatchs go to Turkey. Santorini, which each year gets ranked in the top 5 islands on the world, doesn't have a proper port or a quick way to allow cruise tourists to make a quick visit of the island.
Never mind about how agricultural cooperations function or how a country with sun,wind and geothermic fields at 10m deep, needs to burn lignite and use underwater cables to send electricity to the islands.
Bandolero.
A note: the only successful example of temporary lowering in prices i have seen, was the "potato movement". Potato producers, who are being robbed by the intermediaries, decided to come to direct contact with the final customers at 25 cents/kg. This forced a supermarket chain to lower the price of the same potators from 70 cents to 34 cents/kgr.
ReplyDeletehttp://news247.gr/eidiseis/oi_polites_poy_nikhsan_toys_mesazontes.1664293.html
The movement has been exhausted since the elections however. But it shows how some are doing a killing of the sales and the way the cartels work (it's not unusual in Greece to have a supermarket having an offer on a product and next week another supermarket having the exact same offer on the same product, not even with 1 cent of difference).
These cartels that have been working for years under the protection of PASOK/ND, are very hard to be hit as long as their protectors are in power. Because if you dare do it, they may expose your dirty laundry of the past... And yes, there is an "anti-trust authority" in Greece, but, "doesn't see" that there is something rotten...
Bandolero.
Oh, Mr. Venizelos said "we won't accept further reduction of salaries and pensions". Famour last words :)
ReplyDeleteBandolero.