-From the economic point of view, what is the situation like in Greece now, after the instatement of the new administration and the severe storms that the country is passing through?
Greece is in a deep recession. It is moving very slowly towards a balanced budget, a target that keeps sliding away due to the contraction of the economy and the resulting decreasing tax revenues. It is a very tough situation that has dramatically enlarged the number of people living in or close to poverty and is severely stressing the social fabric.
-What would you say is the mid-term and long term perspective? What is mostly expected to happen and what is more likely to happen in the long term?
I tend to always view the glass half-full. I think that we are looking forward into an even more economically stressful 2013. After that, we should start to see improvement, mostly due to the fact that people’s mood will start improving after the shock of the disaster has passed. The balance in Europe seems to be tilting towards keeping Greece in the Eurozone, something that many people consider a necessary condition for the improvement of the long term prospects of the country. These prospects are mostly depending on Greece implementing structural and institutional reforms. Despite the natural inertia of the system, it seems that many Greeks as backing these reforms, so I think that their implementation is approaching.
● The Greek crisis has definitely not been confined within its borders, how would you evaluate the regional impact of it? How has it affected neighbours in the Balkans?
● How will it continue to affect them in the near future?
● What about the specific case of Albania? Given the very high number of Albanian migrants in Greece as well as other links between the two countries in terms of investment and trade, how do you see the impact of the Greek crisis on Albania?
I spend most of my time in the US, so I can only offer a very broad perspective on the regional impact of the crisis. As business in Greece contracts, many Greek companies will have to put more emphasis on stabilizing their home base. Since prices in Greece are falling, we will see fewer migrant workers and more tourists from the Balkans. Given its close ties with Greece, Albania is seeing fewer remittances from its migrant workers as well as reduced levels of investment. I expect Greek investment in the Balkans to recover ahead of the Greek economy in general, since becoming more outwards looking is the only way for sustainable growth.
From a broader social perspective though, Greece is loosing a lot of its appeal as a model country for the Balkans and that can have a much more severe effect on the future prospects of the region, compared to the short term economic decline.
● From the theoretical point of economics, what exactly happened in Greece? Did something specific go wrong? Which combination of factors brought Greece to the critical point in which it finds itself now?
I am not an economist so I can’t offer a theoretical view. I believe, rather strongly, that the economic crisis in Greece is more of a symptom and less of a cause. What I can say as an involved citizen, is that Greece suffers first and foremost from a chronic shortage of civic capital. Economists define civic capital as the set of values and beliefs that support cooperation in a society. Given my background, I tend to view societies as networks of people and civic capital is what allows for the establishment of high quality links between the nodes of these networks. In the recent years, Greece was able to lift its economic level without concurrently improving the necessary institutional infrastructure. When the rule of law is often very weak, when the state can’t collect taxes while at the same time doubles its expenses in the course of a few years, when legal disputes often take 10 years or more to go through the legal system, you can’t sustain a Western European living standard. And there is no bigger detriment to your future prospects that the decline in the quality of your learning institutions.
-The talk of economic and financial crisis had started as early as in 2008 with the situation in the USA. Can we still talk about the crisis as such or is it in its own way a change?
In general one can see many parallels between the US and European financial crisis. Both had to do with the issue of bad debt from the banks, who were able to hide their exposure by mixing different debt risk levels in complex financial instruments. In the case of the US, the debt was mortgages while in Europe it was sovereign debt. In both cases, the motives where the same and the tax payer ended up paying up most of the bill. We do need to make sure that proper controls are being instituted and that we move away from financial institutions that are too big to fail.
● What is your perception of the crisis in the Eurozone? What are its roots?
The Eurozone is an incomplete project. Most European insiders knew that and many expected a crisis to provide the incentives to work towards its completion. That line of thinking didn’t take into consideration the magnitude of the current crisis.
– Do you think the euro (as currency) and the Eurozone will survive stronger or will be ultimately weakened by the troubles they are undergoing now?
I think that the saying: “Whatever doesn’t kill you, makes you stronger”, applies perfectly to the euro.
● How would you grade the approach that the EU and most of financial institutions have adopted and advocated as a response to the crisis in particular the austerity advocates? Do you think this is till the right approach? What kind of corrections or changes would you suggest?
I think that in hindsight, it is very easy to see how weak, late and unjustly biased towards austerity was EU’s response. On the other hand it was unrealistic to expect a radically different response, given the weakness of the European “federal” institutions. Imagine a parallel situation, where the US president had to get an agreement from all 50 state governors before extending federal help to Louisiana or California.
● In a previous interview about Greece you mention the fact of third world category institutions as one of the leading roots of the crisis. Could you elaborate on what you mean by third world institutions? What were the weaknesses of Greek institutions?
If one looks at specific things like trust between Greeks or between Greeks and foreigners, the length of time it takes for a case to go through the court system, how many laws are broken on a routine basis, the size of the informal economy and the size of tax evasion, corruption and effectiveness of the public sector, one sees Greece measuring closer to third world countries than the Western European countries that its overall development index puts it close with. When credit is cheap, one can use it to temporarily plug the holes. When the credit runs out, you sink.
● If we could exercise your theory in the region, what would be your judgment on the institutions of countries in the Balkan, for example Albania? If Greece has third world institutions than what would you say about the institutions in these countries?
I think that it is pretty safe to say, that institutions in the Balkans are often lagging behind Greece.
– You rightly mention completive education as the right investment to make for the future. What would you advise for a country like Albania, which despite not suffering a full fledged financial crisis still needs strategic investments in education and competitiveness?
If there is one lesson that we should all take from the crisis, is that there are no shortcuts to development. Despite the acceleration that the information revolution has brought to human activities, societies still move slower that individuals and there can’t be sustained creation of wealth without parallel development of civic capital. Civic capital is the direct result of education. Unfortunately, investments in education have a much longer returns horizon than the average elected official’s term, so politicians find it easier to look for short term plugs that would carry them through the next election, instead of investing in the future.
