“Why should the European taxpayers bail out the profligate Greeks?”
That’s the mantra I’ve been hearing for some time now, even though a way bigger, and darker, cloud slowly builds up on the other side of the world.
As almost all mantras there is a small nugget of truth in here, even if things are not at all as some want us to believe. wrote this almost prophetic article for Reuters, more than two years ago.
So?
First of all I’d like to quote the definition proposed by Investopedia.com for ‘moral hazard’:
“The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.
Moral hazard can be present any time two parties come into agreement with one another. Each party in a contract may have the opportunity to gain from acting contrary to the principles laid out by the agreement…..
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Moral hazard can be somewhat reduced by the placing of responsibilities on both parties of a contract….”
The way I understand this definition is that it is the job of both parties who enter into a contract to perform every diligence they see fit before committing to that contract and to assume the responsibility afterwards.
Let’s see if this definition sheds any light on today’s subject.
The Western World tends to act as if all countries were functioning as communities. If we don’t like what Putin does in Ukraine we impose sanctions that hurt the entire Russia in the hope that people will do something about the situation. That tactic works very rarely – see what happens in N. Korea and in Iran. Even more, sometimes it even backfires. Look at how popular Putin has become after the sanctions have been put in place.
Coming back to Greece we have become fed up with the shenanigans of the Greek politicians – right, left and middle – and now we insist on harsh ‘austerity measures’ in the hope that the Greek voters will somehow find among themselves an honest knight in a shinning armor that will appear from somewhere and teach them to pay their taxes – and by doing so they’ll dully repay the entire debt that has accrued over the time.
After all it’s their responsibility, isn’t it?
It was them, the Greek voters, that have elected the corrupt politicians in the first place. It was them, the Greek voters, that didn’t do anything when they noticed that their Government was corrupt. Even more, some of the ordinary Greeks must have helped the corrupt politicians – nobody can be corrupt by it’s own, somebody must be at the other side of the deal. On top of that dodging taxes was, and still is, a national sport in Greece – well, that’s actually a rational thing to do: ‘who in it’s right mind would willingly pay his taxes, knowing that most of the money would be squandered away’?
After all it’s their responsibility, isn’t it?
It was them, the Greek voters, that have elected the corrupt politicians in the first place. It was them, the Greek voters, that didn’t do anything when they noticed that their Government was corrupt. Even more, some of the ordinary Greeks must have helped the corrupt politicians – nobody can be corrupt by it’s own, somebody must be at the other side of the deal. On top of that dodging taxes was, and still is, a national sport in Greece – well, that’s actually a rational thing to do: ‘who in it’s right mind would willingly pay his taxes, knowing that most of the money would be squandered away’?
Does that mean that the Greeks should be made to reimburse, in integrum, what their creditors demand of them?
OK, lets forget for one moment that this not possible and that if Greece defaults not only the Greek people will have to endure harsh conditions for a while but also the creditors will loose a considerable amount of what they are due.
Let’s presume that a completely different Tsipras somehow convinces the Greek people to accept pension cuts, tax hikes and, lo and behold, to pay their taxes in an honest way.
Let’s presume that a completely different Tsipras somehow convinces the Greek people to accept pension cuts, tax hikes and, lo and behold, to pay their taxes in an honest way.
Then we’ll still have a fine example of ‘moral hazard’.
We have just established that in a democracy the voters have the final responsibility for the actions of those elected/hired into meaningful positions.
And what did the elected officials, from Brussels as well as those from the rest of the EU capitals? Turned a blind eye when Greek politicians ‘cooked the books’ before Greece was admitted into the EU and, after that, into the Euro zone? Then, when the private banks that had unwisely extended credit to the profligate Greeks had troubles recouping their money, the same elected officials said nothing while Jean Claude Trichet, the then president of the ECB, helped transfer the entire burden – mind you, no ‘haircuts’, unto the ‘wider’ shoulders of the European tax-payer? Who said absolutely nothing!
We have just established that in a democracy the voters have the final responsibility for the actions of those elected/hired into meaningful positions.
And what did the elected officials, from Brussels as well as those from the rest of the EU capitals? Turned a blind eye when Greek politicians ‘cooked the books’ before Greece was admitted into the EU and, after that, into the Euro zone? Then, when the private banks that had unwisely extended credit to the profligate Greeks had troubles recouping their money, the same elected officials said nothing while Jean Claude Trichet, the then president of the ECB, helped transfer the entire burden – mind you, no ‘haircuts’, unto the ‘wider’ shoulders of the European tax-payer? Who said absolutely nothing!
Only now some of the elected politicians, afraid that their constituents might finally protest, have started to notice the irresponsible attitude of Greece, to demand harsh austerity measures and to refuse even the idea of any debt relief.
So how come we can speak of moral hazard when we describe what the Greeks (governments, tax dodgers and general public) did but never mention in this context the lack of financial responsibility displayed by the investment bankers that helped the Greek governments cover up their shenanigans, the European officials who turned a blind eye to what was going on and the wide European public who didn’t care about what was done with their money by those hired to take good care of the European finances?
What is going to happen from now on?
Before trying to gouge that we need to understand what sets Greece apart from the countries that have dragged themselves out of the worst phases of the latest crises – Ireland, Spain and Portugal: Greece is a country deeply divided by rampart corruption.
In most of Europe corruption is a cancer that reaches across the entire social organism, in Greece it divides the population in two almost equal parts: those who work for or do business with the Government and all the rest.
The situation is made worse by the fact that Greece has become independent rather lately, specially compared with the Western Europe. Furthermore, the process was a lengthy one, it started in 1821 and ended right after WWI, only to recommence during WWII. Add to that the long list of authoritarian leaders and you’ll understand the deep mistrust between the people and the Government – which is not at all ‘their’, despite Greece calling itself a democracy. I have a distinct impression that even those who work for or do business with the Government doesn’t really trust it – they know too much about what is going on there. Small wonder, in these conditions, that dodging taxes is a national sport…
The situation is made worse by the fact that Greece has become independent rather lately, specially compared with the Western Europe. Furthermore, the process was a lengthy one, it started in 1821 and ended right after WWI, only to recommence during WWII. Add to that the long list of authoritarian leaders and you’ll understand the deep mistrust between the people and the Government – which is not at all ‘their’, despite Greece calling itself a democracy. I have a distinct impression that even those who work for or do business with the Government doesn’t really trust it – they know too much about what is going on there. Small wonder, in these conditions, that dodging taxes is a national sport…
What we have now is, on one side, some European leaders who were elected on a conservative/popular ticked and who have already introduced some austerity at home and, on the other side, a leader who has promised to end austerity.
For these people to reach an agreement both sides have to admit failure: the European leaders must accept the past errors and take responsibility for them and Tsipras must convince his constituents that they need to change their attitude. Completely.
For these people to reach an agreement both sides have to admit failure: the European leaders must accept the past errors and take responsibility for them and Tsipras must convince his constituents that they need to change their attitude. Completely.
Does any of this have any chance to come true?
