The Myth of the Bloated Greek State

The Real Problem Is the Private Sector

A municipal worker dressed in a traditional costume protests against the government's plan to layoff thousands of public sector workers as part of its austerity reform program, April 26, 2013. John Kolesidis / Reuters

From Athens to Berlin to Washington, there is one thing about Greece that many seem to agree on: The country’s main problem is a bloated, overpaid, and corrupt state, which is suffocating the private sector.

This diagnosis is only half correct. Some parts of the story are right, but some are factually wrong and others mistake consequence for cause. Greece’s root problem is the concentration of power in the private sector and vested interests, and the social inequality these bring. These conditions have stymied market growth, the creation of the kind of civil service that forms the backbone of all advanced economies, and the social justice that enables political stability. Greece’s maligned state is a symptom of all these problems, albeit one that only makes the outcomes worse.

As acknowledged by many liberal Greeks and outsiders, a group of oligarchs holds disproportional power given the small size of the country (about 11 million). About four business families control the Greek media, and they still receive massive loans for their loss-producing companies. Corporations use connections to channel funding into over-leveraged firms or even personal accounts. The Agricultural Bank of Greece, for example, is mired in criminal proceedings because of 5 billion euros ($5.5 billion) worth of illegal loans. This climate facilitated the credit boom of the 2000s and the laxness that now burdens the economy with 164 billion euros ($179.4 billion) of bad private loans.

A man walks inside the Athens' stock exchange in Athens, April 28, 2010.
A man walks inside the Athens' stock exchange in Athens, April 28, 2010. Yiorgos Karahalis / Reuters
These patterns are longstanding, and for decades, Greece has had the second-highest level of inequality in Western Europe (after Portugal)—and that is only counting declared income. Tax evasion is rampant. Greece’s underground economy is estimated to equal 30 percent of the country’s GDP, and is probably higher. The self-employed are major tax evaders. By one estimate, professionals have failed to declare upward of 28 billion euros ($30.6 billion). Wealth has traditionally been used more for consumption than investment.

Moreover, small and medium enterprises account for 86 percent of employment (one of the highest in Europe), many in the retail, manufacturing,

Loading, please wait...

To read the full article

Related Articles

This site uses cookies to improve your user experience. Click here to learn more.