The Greek Tragedy - Chaos Beckons

A Hopeless Case?

The IMF has just released its most recent assessment of the 'progress' of its austerity program in Greece. As a reminder, Greece currently 'enjoys' an economic depression that is more and more reminiscent of the downturn of the early 1930s. Its GDP has been in contraction for 12 quarters running, most recently at an annualized rate of 5.5%. The rate of unemployment oscillates around the 18% mark – official unemployment, that is. Consumer confidence has collapsed, industrial production has been in decline at double digit rates since early 2008. The stock market is down by 90% from its 2007 highs and the government's one-year note yields an absurd 330%. The banking system is de facto bankrupt and subject to an accelerating flight of deposits.

You get the picture – these are the kind of economic data that normally indicate that the society concerned is only a small step away from major social upheaval and a descent into conditions of chaos. At the very extreme end of such a process it could experience what is essentially a collapse of civilization, with the division of labor increasingly breaking down and society transmogrifying into a collection of small islands of autarkic, primitive hand-to-mouth economic units that no longer even trade with each other.

To everybody's vast surprise, the IMF has just concluded that Greece once again 'failed to meet its targets' as per the austerity program imposed on it by its bailout lenders.

As Reuters reports:

“Reforms are running behind schedule in most areas, this is the main reason in our view why the economy is continuing to trend down," Poul Thomsen told a conference in Athens. "We need more structural reforms in the public sector to achieve deficit reduction."

“He added that the international bailout plan had overestimated the capacity of the Greek administration to reform and must be adjusted in a number of areas”.

Greece's GDP, annualized growth rate

Mr. Thomsen may need to take a look at the most recent OECD report on Greece. Anyone reading this report will come away with the firm impression that the country is an utterly hopeless basket case. Thomsen is correct that reforms are running behind schedule and the reason for that is that the country is at the moment simply incapable of implementing what its lenders want it to do.

As Der Spiegel reported in connection with the OECD's in-depth analysis:

“The need for deep structural reforms in Greece is well-known. But a new OECD report indicates that Athens may be incapable of such far-reaching changes. Ministries don't communicate, officials don't keep records and oversight is virtually nonexistent. The only thing that might help, it says, is a 'big bang.'

[…]

“Going by the rather bland title "Greece: Review of the Central Administration," the 127-page report can be quickly summed up: The government apparatus in Athens is virtually unable to implement reform.

"It is not clear how existing and new entities of (the government) will work together in order to secure the leadership needed for reform, including the necessary strategic vision, accountability, strategic planning, policy coherence and collective commitment, and communication," reads the damning report.”

[…]

“It found that communication among the country's 14 ministries was appallingly paltry. Furthermore, the huge number of departments within ministries — many of them consisting solely of a department head and others with just one or two subordinates — results in widespread inefficiency and lack of oversight.

"Administrative work is fragmented and compartmentalized within ministries," the report writes. "Ministries are not able to prioritize … and are handicapped by coordination problems. In cases where coordination does happen, it is ad hoc, based on personal initiative and knowledge, and not supported by structures."

“Were such coordination even to take place, the report indicates that administrators do not have access to the necessary data, nor does such data exist in many cases. "The administration does not have the habit of keeping records or the ability to extract information from data (where available), nor generally of managing organizational knowledge," the report found.

“The problems found in Greece's central administration, says the OECD, are the result of decades of clientelism and the sheer volume of the laws and regulations that govern competencies within the ministries. The report found 17,000 such laws, decrees and edicts.”

In other words, Greece has broken down under the weight of its statism and bureaucracy. “17,000 laws, decrees and edicts” merely for 'regulating competencies' within the ministries? Not even Brussels can hold a candle to that.

Naturally this vast bureaucratic labyrinth is an excellent breeding ground for corruption on a grand scale. One striking example was the discovery that a state-owned hospital in Athens had 45 gardeners on its payroll, but actually had no garden. The state-owned railway system has become like a black hole that attracts and destroys money at an astonishing rate. It was once calculated that if the government were to simply shut down the railway and instead pay the taxi fares of every single train commuter, it would actually save money. 

Greece's official unemployment rate has soared