Hidden indoor factors underlying Greek crisis

17-02-16_greek-crisis

Greek  government has  a long  history  of problems  with  its  public  debt—it has  spent  more than half  the years  since 1832, when  it gained independence  from  the Ottoman Empire, in default. Deep analysis on Greek history point to several deeply  entrenched  features of  the Greek  economy  and Greek society  in general  that have  prevented sustained economic growth and created  the  conditions underlying  the current  crisis. Chief among these are :

  1.   State ownership of majority of resources  – As recently  as  1990,  the Greek state controlled about 75% of  all  business assets in  the country and  tightly regulated other sectors of  the economy.  The state reduced its stake to  about 50%  by  2008; however, according to the report of OECD , much of  the  private  sector  continues to  “suffer from  weighty  and  complex  regulations  and from  the  lack  of  a  coherent  and systematic  approach  to  rule-making.”
  2. Hefty public expenditure – In  the  decade  before  the  crisis, a  significant  portion  of  rising  government  expenditures  was  allocated to  rising  public sector  wages and  benefits.  As  recently  as  2009,  Greek  government  expenditures  accounted  for  50%  of  GDP,  with 75% of  (non-interest)  public  spending  going  to  public  sector  wages  and  social  benefits.  However, there was no critical evidence for ‘improvemnet in quality of services’.
  3. Political stereotyping –    Greek  politicians  have  traditionally  viewed  the  provision  of  public  sector  jobs  and benefits  as  an  important  way to  grant  favors  and  thereby secure  electoral  support.
  4. Tax evasion & Political clientelism-  Clientelism may also  be  an  important  factor  behind  pervasive  tax evasion and  a  complex tax code  that  grants exemptions  to  numerous  professions and income brackets.  According to  Greek government  officials,  until  the debt crisis, the  state  taxed only  one-third of  officially  declared  income, at  an  average  rate  of  about  30%.  This  excludes profits  from  an  unrecorded  economy  that  some  value  at  upwards  of  30%  of the  official GDP.
  5. Widespread corruption –     According to 2010 Corruption Perceptions Index,  Transparency  International  ranked  Greece  as the  most  corrupt  country  in  the  EU,  just  behind  Bulgaria  and  Romania.    
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