The stipulations of the May 2010 memorandum between Greece and the troika overseeing its 110 billion euro bailout are patently useful and necessary. Completing a limping privatization programme, reducing the state’s million-strong workforce and improving public transparency in major areas of expenditure such as healthcare are long overdue. So are a slew of development measures such as the opening of closed professions and markets and the parting of a Red Sea of bureaucracy.
But more than the obvious is needed. One of Greece’s greatest assets is its intellectual potential coupled with a national obsession with education. Drawing ideas from as many people as possible, something the government has tried to do by airing bills on www.opengov.gr, is a potential source of strength and innovation.
The country now needs the most imaginative, forward-looking and prescriptive ideas for policies it can generate, which could be implemented over the remaining two and a half years of the government's term and could boost competitiveness at relatively low cost. Here are a few to start with.
Bonds for taxes: The government wants to secure a level of funding from its shrinking tax base that will persuade the troika to release vital loan instalments. But its tax measures are becoming increasingly shrill and desperate. While it has refrained from raising income tax, its capitulation to higher consumer taxes (VAT has gone from 19 percent to 23 percent) penalises the poor.
The government will be under increasing pressure to be strict about tax collection. Already it has sent audit papers to thousands of businesses and self-employed professionals, reassessing their obligations as far back as ten years. Putting the squeeze on a shrinking tax base will only encourage flight and discourage business. The government, which no longer returns VAT as it is obliged to do, will only appear unpopular and unfair if it persists in being strict on tax collection and lax in cost-cutting and meeting its own obligations.
This is being done to create a steady income on the basis of which the government can borrow. It could instead tie a carrot to the stick of tax collection by allowing taxpayers to divert a proportion of their tax obligations, say 15 percent to begin with, to government bonds. This would turn taxpayers into investors, giving them a return on their money, and could encourage many people to declare their full earnings. In this way the government could actually increase government revenue, while offering the benefit of interest payments to its own subjects rather than foreign bankers. By entering the Greek economy, those interest payments would then boost Greek banks’ liquidity and help loosen up credit. The plan would also send a signal to money markets that the Greek people are backing up their faith in their future, encouraging others to do the same. In short, by selling more of its debt to its tax base, Greece could better control its credit history, repatriate capital and boost national solidarity, a vital component of credibility. Financial health begins at home.
A further annex to this plan could be to emulate Ireland’s recent pension reform and make third pillar retirement insurance mandatory. Greece’s 13 major funds are either tottering or in danger of doing so. It is inevitable that they will at some point shift from defined benefits to defined contributions schemes, meaning that benefits will vary according to funds’ abilities to pay. People under 50 will have to boost their retirement with a private plan in which the government will have no guarantor role. Making such a plan mandatory – to the tune of, say, two percent of salary earnings - would effectively introduce a limited 401K plan to every company Greece and create new growth in the banking and insurance industries.
Charter schools: Secondary education in Greece is, by the common consent of both parents and academics, where the system founders. Outdated textbooks, lack of critical thought, poorly funded computer and science laboratories, serial strikes and student sit-ins are the major problems plaguing public education. The private sector has flourished, to some extent, but it is still beholden to a poorly designed national curriculum, and also creates a divide between those who can afford good schooling and those who can’t.
One answer would be to allow charter schools, a regime unknown in Greece. These would be recognised by the education ministry and offer national diplomas, but would have a degree of freedom to hire and fire their teachers according to ability. They would also be able to veer away from state textbooks and towards better courses produced by independent publishers, and mould their curriculum outside a core of mandatory courses.
The benefits of such a system would be manifold. A well-governed school could become a paradigm of meritocracy, teaching students by example; legitimising non-state textbooks would galvanise nonfiction publishers and authors, an area where Greece has tremendous intellectual resources; and better educated graduates would be an enormous boon to the economy.
It is an alomst unnecessary addendum to say that the liberalisation of higher education would give the tertiary sector in Greece wings with which to turn education into an export industry.
Give the church a stronger social role: The Church of Greece has vast, unused real estate holdings dating back to revolutionary times. Many of these go undeclared by the 100 metropolitanates that make up the church’s constituency. A proper auditing of church property would strengthen the hand of the Holy Synod, and enable it to begin to put this property to good use.
Under Archbishop Christodoulos the church applied for a license to build a hotel on some of its land. But merely commercial use of church land lacks imagination and moral depth. Unlike the Catholic church, the Orthodox church has not, in recent history, made a name for itself in secondary or tertiary education. Church-sponsored schools in Greece are held in very low esteem for their tendency to indoctrinate rather than teach. The church could very well work with the state in co-financing a small number of secular, high-quality charter schools that could charge modest fees and command tax-deductible, corporate social responsibility contributions. These could in turn become feeder schools for a church-owned but secular campus university. Should the church enter the fray of Greek secondary and tertiary education, it could strengthen the role of other non-state schools in trying to break a culture of mediocrity that condemns generations of students to uncompetitive and uncreative ways of thinking.
Liberalise energy: The other great potential export industry is energy, but not on the model of centralised, large generating plants. In order to have the green energy revolution the Pasok government claims to want, Greece needs to go into micro-generation. A revolution in solar water heaters popularised green energy in the 1970s. The same can happen today with solar panels on roofs, but only if the finance ministry offers tax incentives.
Power is worth 10 percent of Greek GDP today. With the right incentives and, above all, liberalisation, it can become an export industry worth much more. There is also a security reason for micro-generation. With generating capacity spread over roofs across the country, it is much more difficult for power supplies to be knocked out by earthquakes, floods or bombs.
Give parliament’s audit committee the power to check political parties: A 2001 constitutional revision introduced representatives of the country’s three top courts – the Supreme Court, the Council of State and the Court of Audit – in a parliamentary Audit Committee that checks the annual financial declarations of parties and their deputies (previously it was peopled exclusively by party appointees).
A law the following year obliged “political parties and coalitions in receipt of state funding [to] publish annual balance sheets showing income and expenditure.” These balance sheets, published in summary form in the first two months of each year, are subject to review by parliament’s Audit Committee, which employs the services of chartered accountants.
Yet the system remains vulnerable to massive fraud. The Audit Committee may only work on the basis of documents submitted by the parties and MPs; lacking prosecutorial powers to raid offices and open bank accounts, it can only check the internal consistency of what it is given. A second weakness of the Committee is that it may not prosecute legally.
George Papandreou came to power on a commitment to unprecedented transparency in government. He should now prove his commitment by giving the Audit Committee the legal teeth to act independently of political power, and act as a check. The committee should be given power to initiate raids and investigations, solicit documents and follow money trails. Merely the provision that the auditor’s report, and possibly its minutes, should become a matter of public record would provide a powerful bulwark against mollification.
The parties that have molded the political scene since democracy was restored in 1974 are increasingly seen as the architects of Greece’s crisis through their nonchalance and corruption. Casting out of those who are demonstrably corrupt is now necessary to their survival. Failure to shore up principle and build institutional depth will have greater costs for the socialists and conservatives than all the upheaval of change. If the inducements of high office are irresistible, they are also self-destructive.
But more than the obvious is needed. One of Greece’s greatest assets is its intellectual potential coupled with a national obsession with education. Drawing ideas from as many people as possible, something the government has tried to do by airing bills on www.opengov.gr, is a potential source of strength and innovation.
The country now needs the most imaginative, forward-looking and prescriptive ideas for policies it can generate, which could be implemented over the remaining two and a half years of the government's term and could boost competitiveness at relatively low cost. Here are a few to start with.
Bonds for taxes: The government wants to secure a level of funding from its shrinking tax base that will persuade the troika to release vital loan instalments. But its tax measures are becoming increasingly shrill and desperate. While it has refrained from raising income tax, its capitulation to higher consumer taxes (VAT has gone from 19 percent to 23 percent) penalises the poor.
The government will be under increasing pressure to be strict about tax collection. Already it has sent audit papers to thousands of businesses and self-employed professionals, reassessing their obligations as far back as ten years. Putting the squeeze on a shrinking tax base will only encourage flight and discourage business. The government, which no longer returns VAT as it is obliged to do, will only appear unpopular and unfair if it persists in being strict on tax collection and lax in cost-cutting and meeting its own obligations.
This is being done to create a steady income on the basis of which the government can borrow. It could instead tie a carrot to the stick of tax collection by allowing taxpayers to divert a proportion of their tax obligations, say 15 percent to begin with, to government bonds. This would turn taxpayers into investors, giving them a return on their money, and could encourage many people to declare their full earnings. In this way the government could actually increase government revenue, while offering the benefit of interest payments to its own subjects rather than foreign bankers. By entering the Greek economy, those interest payments would then boost Greek banks’ liquidity and help loosen up credit. The plan would also send a signal to money markets that the Greek people are backing up their faith in their future, encouraging others to do the same. In short, by selling more of its debt to its tax base, Greece could better control its credit history, repatriate capital and boost national solidarity, a vital component of credibility. Financial health begins at home.
A further annex to this plan could be to emulate Ireland’s recent pension reform and make third pillar retirement insurance mandatory. Greece’s 13 major funds are either tottering or in danger of doing so. It is inevitable that they will at some point shift from defined benefits to defined contributions schemes, meaning that benefits will vary according to funds’ abilities to pay. People under 50 will have to boost their retirement with a private plan in which the government will have no guarantor role. Making such a plan mandatory – to the tune of, say, two percent of salary earnings - would effectively introduce a limited 401K plan to every company Greece and create new growth in the banking and insurance industries.
Charter schools: Secondary education in Greece is, by the common consent of both parents and academics, where the system founders. Outdated textbooks, lack of critical thought, poorly funded computer and science laboratories, serial strikes and student sit-ins are the major problems plaguing public education. The private sector has flourished, to some extent, but it is still beholden to a poorly designed national curriculum, and also creates a divide between those who can afford good schooling and those who can’t.
One answer would be to allow charter schools, a regime unknown in Greece. These would be recognised by the education ministry and offer national diplomas, but would have a degree of freedom to hire and fire their teachers according to ability. They would also be able to veer away from state textbooks and towards better courses produced by independent publishers, and mould their curriculum outside a core of mandatory courses.
The benefits of such a system would be manifold. A well-governed school could become a paradigm of meritocracy, teaching students by example; legitimising non-state textbooks would galvanise nonfiction publishers and authors, an area where Greece has tremendous intellectual resources; and better educated graduates would be an enormous boon to the economy.
It is an alomst unnecessary addendum to say that the liberalisation of higher education would give the tertiary sector in Greece wings with which to turn education into an export industry.
Give the church a stronger social role: The Church of Greece has vast, unused real estate holdings dating back to revolutionary times. Many of these go undeclared by the 100 metropolitanates that make up the church’s constituency. A proper auditing of church property would strengthen the hand of the Holy Synod, and enable it to begin to put this property to good use.
Under Archbishop Christodoulos the church applied for a license to build a hotel on some of its land. But merely commercial use of church land lacks imagination and moral depth. Unlike the Catholic church, the Orthodox church has not, in recent history, made a name for itself in secondary or tertiary education. Church-sponsored schools in Greece are held in very low esteem for their tendency to indoctrinate rather than teach. The church could very well work with the state in co-financing a small number of secular, high-quality charter schools that could charge modest fees and command tax-deductible, corporate social responsibility contributions. These could in turn become feeder schools for a church-owned but secular campus university. Should the church enter the fray of Greek secondary and tertiary education, it could strengthen the role of other non-state schools in trying to break a culture of mediocrity that condemns generations of students to uncompetitive and uncreative ways of thinking.
Liberalise energy: The other great potential export industry is energy, but not on the model of centralised, large generating plants. In order to have the green energy revolution the Pasok government claims to want, Greece needs to go into micro-generation. A revolution in solar water heaters popularised green energy in the 1970s. The same can happen today with solar panels on roofs, but only if the finance ministry offers tax incentives.
Power is worth 10 percent of Greek GDP today. With the right incentives and, above all, liberalisation, it can become an export industry worth much more. There is also a security reason for micro-generation. With generating capacity spread over roofs across the country, it is much more difficult for power supplies to be knocked out by earthquakes, floods or bombs.
Give parliament’s audit committee the power to check political parties: A 2001 constitutional revision introduced representatives of the country’s three top courts – the Supreme Court, the Council of State and the Court of Audit – in a parliamentary Audit Committee that checks the annual financial declarations of parties and their deputies (previously it was peopled exclusively by party appointees).
A law the following year obliged “political parties and coalitions in receipt of state funding [to] publish annual balance sheets showing income and expenditure.” These balance sheets, published in summary form in the first two months of each year, are subject to review by parliament’s Audit Committee, which employs the services of chartered accountants.
Yet the system remains vulnerable to massive fraud. The Audit Committee may only work on the basis of documents submitted by the parties and MPs; lacking prosecutorial powers to raid offices and open bank accounts, it can only check the internal consistency of what it is given. A second weakness of the Committee is that it may not prosecute legally.
George Papandreou came to power on a commitment to unprecedented transparency in government. He should now prove his commitment by giving the Audit Committee the legal teeth to act independently of political power, and act as a check. The committee should be given power to initiate raids and investigations, solicit documents and follow money trails. Merely the provision that the auditor’s report, and possibly its minutes, should become a matter of public record would provide a powerful bulwark against mollification.
The parties that have molded the political scene since democracy was restored in 1974 are increasingly seen as the architects of Greece’s crisis through their nonchalance and corruption. Casting out of those who are demonstrably corrupt is now necessary to their survival. Failure to shore up principle and build institutional depth will have greater costs for the socialists and conservatives than all the upheaval of change. If the inducements of high office are irresistible, they are also self-destructive.
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