Wednesday, August 01, 2012

FISCAL DISCIPLINE IN EUROPE, a.k.a. austerity, while necessary, won't solve the problems of the continent's peripheral problems by itself. That's because their problems go beyond that:
The European project risks becoming a zero-sum game edging towards disaster, and all seem to be forgetting an important point: The problems of the south are structural rather than fiscal. Government administration in Southern countries are bloated and hopelessly bureaucratic, unable to reform themselves.

Caricatures of lazy southerners and disciplined northerners gloss over this distinction. If we consult the OECD's statistics on hours worked per worker, we see that the country with the highest national average in Europe is none other than Greece. The Netherlands comes last, with Germany just ahead.

How can this be? Don't Greeks sip ouzo on the beach while the virtuous Germans build cars? According to the statistics, that is entirely wrong. If we look closely, we see that the real problem for Greeks — at least, those with jobs — is not that they're work-shy. It's their monstrous public sector, which is inefficient, often corrupt, and prone to meddling with the allocation of productive effort in the private sector. In other words, Greece's problems are fundamentally structural. The story of Greece is the story of a failure in governance.

These structural problems, which cause tax evasion (and are often seen to justify it), are not unique to Greece. Spain's massive banking mess with the Cajas de Ahorros is due to local politicians' influence on banks, and their iniquitous links to property developers. Italy, too, suffers from nepotism, political clientelism and corruption. It is precisely this endemic southern European disease (most acute in Greece) that the EU can fix.
I don't have much faith in the latest bit, however.