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To restore its credit, Greece's first problem is credibility

To its credit, the new administration, which has been in power for only five months, recognises the need for accountability and transparency.

A brief snapshot of Greek government spending, circa 2000: Greece's navy orders four submarines from a German defence contractor. Ten years on, the completed submarines remained anchored in the German port of Kiel because Athens has not paid the $744 million bill. Why? As one analyst put it, Greece "can't pay, won't pay or has other priorities". In 2008, a report by Transparency International estimates that 13 per cent of Greeks paid officials in the public and private sector $950 million in bribes during that year. The bribes are called fakelakia, or little envelopes - a misnomer belying the total sum if there ever was one.

Never mind the fact that the amount of money paid in bribes in one year more than covers the cost of a 10-year defence contract dispute. Let us instead focus on the fact that these two examples highlight a problem that has long plagued Greece: its credibility. It is this asset, which has been further damaged recently by revelations that Greece underreported its debt, that lies at the heart of the country's inability to take its place alongside other western states as a responsible member of the European Union.

The country gained something of a respite yesterday when the European Commission approved prime minister George Papandreou's economic reform plan - while at the same time chastising the government for its failures to report reliable statistics. Markets quaked last year when it was revealed by the new socialist government that Greece's budget deficit was closer to 13 per cent than the 3.5 per cent it had previously reported. Speculation floated that the country would be the first among other ailing European states to default or seek a bailout. Also worrisome was the implication the debt had for other ailing economies: did they too have skeletons in their closets that had escaped scrutiny?

Along with Portugal, Italy, Ireland and Spain, Greece will be watched closely in the coming months as the European Union seeks to curb a domino effect that, if set in motion, could have ripple effects beyond its borders. Rebuilding Greece's credibility (more than just its credit), is thus not only a domestic priority, but an international necessity. Financial ministers of the Eurogroup gave Greece a dressing down last October that, while restrained, made their irritation clear. "We are putting at risk the credibility of all the figures, of all the frameworks," said Jean-Claude Juncker, the Luxembourgian president of the Eurogroup. "The game is over, we need serious statistics."

Greece's new administration admitted as much after presenting its findings to the EU body. "We have suffered a complete loss of credibility," said George Papakonstaninou, the newly appointed financial minister. "Many of our problems have less to do with the absolute figures as with the fact that nobody believes us because our statistics are not correct." Yet it is not just the numbers that have provoked the furore; rather, it is the sense of déjà vu. According to Eurostat, the European statistics body, in 2000 Greece fudged data in order to enter the Eurozone by downplaying its budget deficit to meet the EU's strict single-digit Maastricht criteria. After publishing false numbers to meet the EU's requirements to adopt the euro - a move it later admitted - it seems to not have learnt its lesson this time around.

To its credit, the new administration, which has been in power for only five months, recognises the need for accountability and transparency. Mr Papandreou's reforms include a public hiring freeze and fuel tax hikes as part of the new plan to squash the deficit. However, the administration will have to do more than simply number crunch to restore its reputation. In order to restore faith both at home and abroad, the new government will have to establish accountability in its own house. Corruption at all levels must be rooted out - from the back-room deals conducted by small-town politicians wanting a cut of the local infrastructure project to the double-standard prices business owners impose on non-Greek tourists to the unregulated labour market of domestic servants and unskilled workers clinging to the lowest rungs of the workforce.

Greece's shadow economy also has to be addressed. Estimated at about 25 per cent of GDP by the Organisation for Economic Co-operation and Development, it is a thriving alternative economy that will continue to boom as conflict in the Middle East and Africa drives migrants across fortress Europe's eastern border. Aptly called paraoikonomia in Greek, which describes its function as a parallel economy, its magnitude also speaks to Greece's inability to conduct its affairs as one coherent political and economic entity. Debtors may be wringing their hands over the government's empty coffers, but the streets are full of economic activity that continues to thrive. And with new taxes set to extract even more from the private sector, squeezed business owners will be looking for more ways to circumvent measures imposed by the new government.

A staunch socialist, Mr Papandreou has focused on corruption within Greece's political system and the need to empower citizens through a political process that is more transparent and equal. But with both the citizenry and government are known to bend the rules, the prime minister has a long way to go to root out entrenched practices - both in and out of the statisticians' office. Despite its litany of problems, the people of Greece have enjoyed some tangible effects of EU accession in infrastructure, tourism and shipping. Perhaps modern politics might draw upon Aristotle, that shrewd Athenian observer of human nature, who said: "We are what we repeatedly do. Excellence, then, is not an act, but a habit."

mmetallidis@thenational.ae

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