This blog is no fan of Theodoros Pangalos, currently the Deputy Premier - for reasons too disparate to be put down here at length. However, it does enjoy his sporadic outbursts of truth, like his statement, yesterday, that the whole political system is complicit in the creation of Greece's huge public debt, as administrations by both major parties hired too many people to work at the public sector. That admission was, moreover, a direct answer to the question "Where did all the money go?", which is brandished against the political establishment by populist morning-TV-show presenters - the implication in that question was that the money was pocketed by corrupt politicians. And while it seems that many politicians did indeed enrich themselves at the expense of the public purse, a calm look at previous years' budgets would reveal that that salaries and pensions for civil servants were approximately equal to the government's tax revenues (and anything in excess of that would constitute our high annual deficit). Let me rephrase this: government expenditures on salaries and wages for the public sector are so large, as to consume all the taxes we pay. Or, to put it otherwise, those of us in the private sector work almost exclusively for the sake of those in the public sector (the inefficiency of which is almost of legendary status in Greece).
So, we now know, and the administration admits that it knows too, where "all the money" went. It also knows that it must produce, pretty shortly no less, surpluses, in order to start repaying its foreign debt. There are two ways to turn a deficit into a surplus: reduce costs and increase revenue. Cutting costs, insomuch as it would entail redundancies in the public sector, is out of the question in a political culture like the one in Greece. The Deputy Premier has presented a plan for many public agencies to merge, but any redundant personnel will be transfered to other services - the cost of their wages will still be borne by the government (a notable exception is a public-sector corporation, supposedly created for the digitalization of farmland maps, which was manned by hairdressers, professors of Theology, and other unrelated specialties, although each one of the hires could be traced to parliamentary deputies affiliated with the previous administration of the New Democracy party). Moreover, public enterprises, typically publicly-held corporations, in which the government owns the shares, have their debts guaranteed by the government. They are also hugely overmanned. The government has announced that the employees of the state-owned enterprises made redundant by its purportedly cost-cutting measures will not lose their jobs, since they will be hired by the government. Thus far, the only actual cost-cutting has come through a drastic reduction in monthly salaries for civil servants across the board.
Things don't look so good in the field of increasing revenue, either. Diminished turnovers lead to diminished tax revenues, despite a significant increase in tax rates. Furthermore, the government has done nothing to make Greece attractive to investors (the increased tax rates only further discourage potential investors) and any money poured into the market comes from government (or E.U.) coffers. The government is all in favor of development and growth, but the path it has taken to reduce deficits is, in effect, stifling growth. It has become by now abundantly clear that the only way for the reduction of deficits, which would be consistent with any potential for growth, is actual redundancies in the public sector. To put it bluntly, the government needs to get rid of all redundant personnel - to get it out of its payroll. It has to reduce the bill it pays for salaries each month; not by across-the-board cuts, though (since there are civil servants who are compensated all too well for their services, while, at the same time, a number of them receive only meager wages), but by simply not paying for people, whose services it does not need. That goes for both the central government and for the local governments (municipalities, prefectures, areas, etc.). And, it goes without saying, to completely change the atmosphere for investments in Greece - but, more on that (and how Greece managed in in the '50s and the '60s), in a next post.