Debt and Corruption in Greece–and Europe

The European Union is obviously more than willing to make demands, and keep making them, of Greece, regardless of who is in charge of that country. But as Columbia University’s Gregory Mantiatus argues in a New York Times op-ed today, EU authorities are not making one demand–or indeed, even accepting it as a consideration in the current disputes over debt–the new Greek government and the Greek people would welcome: an assault on the past corruption in Greece that did as much to cause the debt crisis as the over-generous public benefits or mismanagement the Germans love to talk about.

Conventional wisdom has it that the radical-left Syriza Party was elected by voters fed up with austerity. But this is just the lesser half of the truth. What Greeks most desire is justice and jobs. The European Union, obsessed by debt repayment, ignored both aspirations.

To understand Syriza’s success, it’s critical to know that corruption by elites siphoned off countless billions. Practically every time Greece made a purchase — be it of medicines, highways or guns — a substantial cut went into the wrong hands. Banks issued tens of billions in loans without sufficient collateral. As a result, monopolies and oligopolies led by politically connected families choked competition and controlled much of the country’s banking, media, energy, construction and other industries….

This is not to dismiss other problems, such as tax evasion, a bloated Civil Service, suffocating regulations and rife petty bribery. But high-level corruption has generated huge losses: The Brookings Institution in 2010 estimated that 20 billion euros ($22.8 billion) were lost every year to such corruption. The kleptocracy also set a tone of impunity that enabled lower-level graft — the fish rots from the head. And the cycle became self-perpetuating, as oligarchs tightened their stranglehold over the political system (a trend evident elsewhere in the West, too).

EU officials haven’t addressed this issue for unsavory reasons of their own.

[W]hy has the European Union turned a blind eye to corruption in Greece?

One possibility could be that in order for someone to receive a bribe, someone else has to pay it. Of the few cases prosecuted in Athens, most have involved European companies like Siemens, Daimler and Deutsche Bahn being accused of bribing Greek counterparts. If Greece were to vigorously pursue prosecutions, many blue-chip European companies could land in the headlines. With anti-establishment forces resurgent, this could eat away at support for mainstream parties in the Franco-German heartland.

Another reason might be that central banks were perhaps complicit in corruption as well. Rather than carefully monitoring the quality of loan issuance, for instance, the Greek central bank seems to have failed to prevent lenders from issuing billions in sweetheart loans. Pursuing such cases could undermine the credibility of Europe’s central banks and pose an existential threat to the euro project.

Whatever the reason, European elites prefer to ignore the corruption problem and portray the Greeks as culturally incapable of fiscal responsibility, adding insult to injury:

Most Greek people are incredibly hard-working, a fact borne out by statistics from the Organization for Economic Cooperation and Development. It is therefore especially galling to be portrayed as lazy by the world’s media. The Greeks have suffered for the misdeeds of a few tens of thousands, perhaps, of their fellow citizens. Now, if Syriza and the European Union cannot reach a compromise, they risk being kicked out of the eurozone, a fate that would condemn another generation.

Greece is the symptom of a broader European problem. The European Union should revive its own fortunes by focusing on its real deficit — justice. This is the debt it owes to future generations.

A default on this European debt is unfortunately more likely.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.