Evangelos Venizelos: the new minister of Finance

The first thing to note is that the speculation about proposals to Lucas Papademos, Vice-President of the European Central Bank, and other “experts” to assume the Ministry of Finance are almost certainly untrustworthy Firstly, Papademos would assume the Ministry only if he were given clear assurances that he would be allowed to follow policies based on his personal judgment, and that these policies would be implemented. Given that Papademos is known to be in favour of structural reforms, it is obvious that he would assume the Ministry only if he knew that he would be allowed to go ahead with such reforms. This would have been a major shift of policy for PASOK and there is no indication whatsoever that they were ready to make it.

Moreover, the party has been pressuring Papandreou for some months, Greece’s Prime Minister, to follow a policy closer to the party’s heart. At the very least, Papandreou had to give some ministrial posts to more people from PASOK (many ministries were and still are held by people who were virtually unknown until Papandreou made them ministers. Papakonstantinou is one of them.) Bringing a person close to what old PASOK members call “the Simitis modernizers” to the most critical ministry of the Government would have been a political suicide for Papandreou. I am sure he knew it and I am sure he never made any proposals to Papademos.

The reason these speculations are circulating is an effort of the Papandreou clique to say “at least we tried to bring a serious economist to the job”. It is not true.

But there is no reason to dispair with the actual choice of Minister. On the contrary. Evangelos Venizelos is a lawyer,and professor of constitutional law who first entered politics in the early 1990s. After the electoral defeat of 2007, Venizelos competed with Papandreou for the leadership of the party. He was widely considered as the more able candidate at the beginning of his campaign and he only lost after Papandreou used some really dirty tricks, mobilizing against him the whole party mechanism. It must have been really hard for a professor of law to see that rules of fairness did not apply to his own party.

But he survived unscathed. That he became to be Minister of Finances means essentially two things. First, he really wanted this to happen. I really doubt that Papandreou offered him the post. It is almost certain that Venizelos must have asked for it persistently. That Papandreou had to yield, removing Papaconstantinou, his own personal choice, means that the balance of power within PASOK has changed. Second, Venizelos must think that he can make a good appearance there: if he thought that Greece was doomed he would not have assumed this Ministry. I trust his judgement since he must have inside information that no journalist or junior politician can have access to.

Venizelos is in no position to form his own personal judgement of the Greek financial situation. He is not trained in economics and there is no sign that he understands anything about complicated financial issues. But he is a keen rhetorician, one of the very few who can persuade the Greek public to make a sacrifice in the name of the common good. He is also a shrewd political manipulator, the kind of man we need right now.

So, what should one expect for the coming two-three months? I do not think that the Greek fiscal policy will change substantially. They will rely on increasing their tax income while trying to touch as little as possible the powerful public sector trade unions. But Venizelos should have a trick or two in his hat to impress the public at the beginning of his term.

Moreover, Venizelos is very likely to play the “patriotic card”, ie “Greece is a proud country and will not submit to foreign interests.” He will do it because it will give him some popularity (Venizelos is certainly no saint), but he is the kind of person that knows when to stop playing with fire.

In short, the future of Greece still looks very bleak, but this last development improves somehow the country’s chances.

What’s happening in Greece?

The short answer is a political crisis. And this is what was happening from the beginning.

The economic situation is clear and well-known. And the same is true about what Greece needs to do to get out to fix its economic trouble. Stefanos Manos has been saying since the early 1990s that Greece needed a smaller public sector, balanced budgets, and deregulation. The Memorandum of 2009 said the same things. The Financial Times and most of the respectable financial analysts say the same thing.

But it is not happening. And the reasons are political not economic.

Greek politics are suffering from three major problems. And they are leading the country to an economic dead-end:

The key problem is clientellism. Politicians offer to their voters material rewards: appointment to a desired job, favours related to the military service or other obligations to the state, and access to power networks.The result is that the voters are trapped in a perpetual prisoner’s dilemma: if they vote according to their conscience they know that that their neighbour won’t do the same and he will extract favours from the political system. And since the amount of favours a political system can offer is limited, this means that not getting inside a clientelist network means turning yourself to an “outsider’ of the Greek political system.

The second problem is populism. If the government says A the opposition will automatically say non-A. There are cases when the government adopted the agenda of the opposition, only to see the opposition opposing its own agenda. If clientelism highlights the responsibilities of the politicians, populism shows the problems of Greece’s electoral body. Voters will buy anything as long as it sounds nice and painless. The problem here is a generation of people (today’s 50 and 60 year olds) who got accustomed to a culture of ‘protest’ and think that opposing the state is always the right thing to do.

Indeed the key cause for populism  is that people do not trust the state: they know that every law can be bended, any tax can be evaded, every unfairness realized as long as you have the right kind of access to power. Any message of collective sacrifice for a greater good uttered by the government is automatically interpreted as “the weak will have to pay, whereas the governing party’s clientelist network will continue to prosper.”

Of course given this set up, the distinction between government, governing party and the parliamentary representation of the governing party is blurred. Essentially it is the party that governs the country in the name of the party.

In the end the problem is the parties themselves. On the one hand, they are very badly manned: their cadres are for the most part people who emerged through the clientelist networks: friends, relatives or aquaintances of current politicians. Greek parties lack the sort of well-educated cadres that run most European parties. Their policies are not really discussed and decided inside the party. Rather a small elite within the party negotiates with the media and pollsters about what would sound more popular at the current moment.

On the other hand, parties have been efficient at guaranteeing themselves all sorts of privileges. Greek parties receive proportionally much higher subsidies from the Greek state, than say German ones. And they have of course effectively colonized the Greek public sector. No wonder it is hard for them to resist the demands of the public sector’s trade unions.

In short, what you have is very large mechanisms dedicated at two aims: winning elections and extracting money from the state.

No wonder then that Greece is in this mess. The situation will not change unless the political causes of the financial mess are removed.