Greece: the Paradox of power

by Kevin Featherstone & Dimitris Papadimitriou

LSE
July 31, 2015

Why doesn’t Greece reform? Over the past few years the inability of successive Greek governments to deliver on the demands of international creditors has been a key feature of Greece’s bailout drama. Frustrated observers have pointed to various pathologies of the Greek political system to explain this underperformance: the lack of political will; entrenched sectoral interests resisting change; and the irrational allocation of resources skewed by clientelism and corruption. There is, of course, a significant element of truth in all these assertions. Yet, for many outsiders the real elephant in the room remains unnoticed. The endemic weaknesses of the Greek public administration are indeed crucial in understanding much of what has gone wrong over the past 5 years (and before). Back in 2010 the beleaguered Greek government had very little input into its own ‘rescue’. Lacking basic capabilities and running out of time, it almost entirely ‘sub-contracted’ the design of the bailout programme to the IMF, who, by its own admission, grossly overestimated the capacity of the domestic system to deliver. Unrealistic expectations were built on the assumption that an F1 driver will steer a Ferrari to perfection. In reality, it wasn’t a Ferrari but a rusty Trabant.

Since then there has been a depressing list of blunders that has exposed both the limits of Greece’s governability and the naivety of its creditors. Privatisation targets (set at 50 billion Euros) were pulled out of thin air, only to be discovered that many state assets were marred by legal uncertainties and bureaucratic blockages which greatly diminish their value. Some of the pension and salary cuts (particularly in the public sector) were so poorly implemented that their legality was subsequently challenged in court, resulting in huge bills for the Greek treasury. The control of central government over the finances (and staffing practices) of local authorities still remains sketchy. More worryingly the quality of the legislative process in the Greek Parliament has suffered greatly under the suffocating deadlines of ‘prior actions’ that accompany the release of funds by Greece’s creditors.

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