White Paper: “Greece: The way forward”

On 14-15 October 2011, a group of senior policy makers, practitioners and academics met at the London Business School to exchange views on the reforms that Greece should undertake to exit the crisis. The discussion focused mainly on four areas: tax evasion, public administration, privatizations, and the financial sector. The main proposals, developed in the White Paper below, were: (a) Establish new independent authorities with a clear mandate, evaluated based on focused performance indicators, staffed with technocrats, and accountable to the Greek Parliament, (b) One such authority should be responsible for the collection of taxes and customs duties (and the current mechanisms should be abolished), a second should be in charge of healthcare procurement, and a third should be monitoring the execution of the reform program, (c) Privatizations targets are unrealistic; the privatization fund should be given more resources to increase the value of the assets it manages; and it could employ a modest amount of leverage, (d) A recapitalization of Greek banks should happen in a way that prevents political interference in their management;  financial supervision by the relevant authorities should be strengthened.

The White Paper has been written by Michael Jacobides, Richard Portes and Dimitri Vayanos. The views in the paper are their own, as informed by the discussions at the meeting. The White Paper in Greek here. A summary of the White paper in Vima newspaper here, in Kathimerini newspaper here, and in the VoxEU blog here.

About D_Vayanos

London School of Economics

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9 Responses to White Paper: “Greece: The way forward”

  1. Maria says:

    Dear Dimitri,
    It is very hopeful to read that there are ways for Greece to get out of the ‘dump’ as I read in your publications since 2010. Pity though that brilliant ideas, from brilliant minds are not being listened to. Although both papers (the first one published in August 2010 and this one) are very comprehensive I have two questions that I would like to ask you: 1) In the first paper you and your colleagues mention as the major factor contributing to the huge public debt the tax evasion. Is the impact of tax evasion bigger than the money lost each time public officials supported by politicians gambled with public money (e.g. structure bond, 2007, 280 m) and 2) In this paper you recommend abolishing from the state budget the liability of 700 m towards the electricity company (dei). As far as I know this is an obligation based on an exchange of assets between the state and the company years ago. Is this valid?
    Thank you
    Maria

    • Dimitri Vayanos says:

      Dear Maria,

      Many thanks for your encouragement, and apologies for my delayed reply. Concerning your questions:

      1. Tax evasion is massive: As we mention in the White Paper, it is estimated at 15-20bn Euros annually. This is probably larger than the annual losses incurred due to possible malpractice in public pension funds. Indeed, Greek pension funds hold currently about 29bn Euros of Greek government bonds, and this is their major investment. So the size of the sector should not be exceeding 50bn Euros (I cannot find the exact data), which means that annual losses due to possible malpractice must be much smaller than the tax evasion figures. Of course, the costs of malpractice and corruption in the public sector more generally could be much larger, but is hard to estimate. In any case, in one of my next posts I will elaborate on the problems with financial malpractice (including in public pension funds) and on the need to strengthen financial supervision.

      2. The obligation of the state to contribute to the pension scheme of the public electricity company (DEI) was agreed during the company’s privatization process, and as a way to sell the company without having to burden the buyers with the liabilities associated to the pensions. The problem was that the state agreed to a huge payment for the pensions that was not commensurate with the true pension liability. This can be seen by the fact that the present value of the promised contributions by the state exceeds the market value of the company! Given that the true pension liability at the time of privatization was probably not so large to cause the company to go bust, the conclusion is that the state overpaid, most likely because of the lobbying by the politically powerful union of employees, GENOP. For more information, you can read the following exchange between economist Miranda Xafa and a DEI pensioner:

      http://news.kathimerini.gr/4dcgi/_w_articles_economy_2_18/07/2010_408391

      http://news.kathimerini.gr/4dcgi/_w_articles_columns_2_29/09/2010_416715

      http://news.kathimerini.gr/4dcgi/_w_articles_economy_2_17/10/2010_419019

      http://news.kathimerini.gr/4dcgi/_w_articles_columns_2_04/12/2010_424676

  2. Maria says:

    Dear Dimitri,
    it is very hopeful to read the ways out you and your colleagues suggest both in the first document published in August 2010 and this one. It is a pity though that brilliant ideas coming from brilliant minds are not listened to. Although both documents are very comprehensive I would like to ask you two questions: 1) In the first document you mention as the major factor for building up this high public debt the tax evasion. Does tax evasion have more impact than the public money lost each time that public officials supported by politicians gambled huge amounts of public money (e.g. structured bond, 2007, 280 m)? and 2) In this article among other measures you recommend abolishing from the budget the amount of 700 m registered (and not paid -but owed) to the electricity company (DEH). Do you happen to know upon which agreement this amount is owed to the company? I was under the impression that there was a specific obligation for the state to compensate the company on a yearly basis due to an agreement between the two parties some years ago, when the company was registered in the ASE, so I would like to hear your point of view about it.
    Thank you,
    Maria

  3. I know its not easy to trust them but what choice do we have ?

  4. Dear Dimitri,

    I have just read your white paper. This is the closest I have seen to a new “social contract” that I have been advocating for. While I certainly believe that this is a the way to what you have named the “institutional bail-out”, and certainly an important beginning, in my view every single one of us needs to understand that we have an important share in the blame. The average Greek person will say that the country is “starved for reform”. At the same time, it is the same person that campaigns against loosing his/her monopolistic rents (regulated professions), or seeks a permanent position in the public sector, or simply does not pay taxes as there are no consequences. Deep down there is a fundamental distrust for the state, the roots to which go back many centuries. What the country is in great need of is a new political elite to renegotiate a new social contract regarding the Greek citizens’ rights and obligations. The new model for growth that McKinsey discusses is very important for greasing the wheels of the Greek economy. But it will not succeed if the institutions are not sanitised and people continue to perceive their interests to be perpendicular to those of the state.
    While I think that your views go a very long way in terms of sanitizing the institutions, I am a firm believer that we should put an equal amount of effort in understanding that our individual best interests and that of the state are one of the same. Changing the “nootropia” that everybody complains about, should be a crucial objective and an integral part of our efforts forward. I do not have a “white paper” for this, and I certainly think that we should start with the institutions. But we should campaign for the need for change; if not for our sake at least for the sake of our children, whose future we have shamelessly mortgaged.

    Kind regards

    Maria

    • MAF, Zurich says:

      Maria, I agree with your comments. I have not read the White Paper, but look forward to doing so. Personally, I think the Troika is also ruining Greece: They were happy to let Greece join the Euro zone with doctored books and to let Greece borrow money like there was no tomorrow; where are the control mechanisms? The Euro itself is fatally flawed, and it is turning Europe into a Monopoly money zone. Let’s throw more money at the symptoms, ignore the cause. Who talks billions anymore, now we’re onto trillions, so what. Some of the chickens are coming home to roost, but the worst is still to come. How is it possible that such a small economy can bring the global (or at least European) economy to its knees? Greedy bankers, spineless & dithering politicians, a badly designed currency, and also a Greek people who refused to face problems and deal with them, and just carried on voting for a corrupt breed of (generations of) politicians regardless to which party they belonged. And now the average citizen is being punished because they can be, they are accessible, or rather their bank accounts are. How many tax evasion prosecutions have been concluded in the past 18 months, how many tax debts have been paid? My heart goes out to the Greek people, I have friends in Greece who are really suffering and only see doom and gloom. But as much as we all hate (and I’m sure all of us do) paying taxes, we cannot expect a functioning state and infrastructure without making a contribution.
      So, keep piling up debt and interest? No, default and return to the drachma. Can it really be worse than the Troika’s imposed financial genocide?

    • Dimitri Vayanos says:

      Dear Maria,

      Thanks for your comment. I agree with you that Greece’s recovery requires both better institutions and a better attitude of the citizens towards the state. As economists we understand better how to design the institutions, but shaping cultural attitudes is equally important. A good example that shows both forces at work is Hong Kong’s campaign to eradicate corruption in the 1970s. From a very corrupt country, Hong Kong became one of the least corrupt in the world within a couple of decades. (See Paul Romer’s VoxEU article on this http://www.voxeu.org/index.php?q=node/5394, in which he makes a related proposal for Greece.) Hong Kong managed to drastically reduce corruption both by designing new institutions (a new agency to fight corruption, harsher penalties, etc), and through an education campaign aimed at changing social norms.

      All in all, I am in full agreement with your observation that institutional change should be accompanied by a change in attitudes. Improving the education system could help with the latter.

      Kind regards,

      Dimitris

  5. Gray, Germany says:

    Finally a sign that people outside of government are working on realistic reform plans and not simply engage in wishful thinking and demgoguery, like the oppostion, special interest groups and the unions! This white paper adresses all the major problems that are roadblocks on the way to recovery now. I don’t necessarily agree with all conclusions and plans, but I have to congratulate the experts for their impressive work. Kudos! Let’s hope these proposals receive the deserved attention in the public discourse and lead to real improvements.

  6. George says:

    I personally believe that “change” needs to happen at the top. You have 300 Parliamentarians on $10.000 euros (minimum) a month. Why does Greece need 300 Parliamentarians and why not 200? Secondly there are 470.000 illegal immigrants in Greece, this is a huge cost to the tax payers in free health care and other social services not to mention untaxed remmitances going the other way as well as a high crime rate.In recent surveys 85% of greeks want them out. Why isnt the PASOK Government taking a tough stance on this issue? These are just 2 examples that the Greek Government needs to sort out.

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