Eurozone Crisis. Theoretical Case Study of Greece's Political Corruption

Table of Contents

1. Abstract

2. Introduction

3. Defining ‘political corruption’

4. The Ottoman Empire

5. Political Violence in Greece

6. Local Corruption and Tax Mentality

7. Bureaucratic Corruption

8. Present Day Greece

9. Conclusion

10. References:

1. Abstract

The focus of this thesis entails the sociological assessment of political corruption within Greece’s culture and how it has influenced the nation’s present economic status. This investigation is important in order to assess the political and societal causes of Greece’s economic crisis in accordance with the state’s survival in the Eurozone. The research approach adopted in this dissertation includes theoretical evaluations of political corruption, an analysis of the democratic groundwork in Greece, and an extended review of the Ottoman Empire’s taxation methods. The findings of this analysis provide evidence that the governments of Greece reciprocally influenced the fiscal disposition of the private sector, which in turn nominated the governments based on individual preferences. This cycle is a result of the public sector’s mismanagement and the inability to establish an efficient structure upon with the society can fully rely. Thus, the main conclusions drawn from this study are that the Ottoman Empire and its tax ratiocination is a precursor for the nation’s current tax evasion norm, the democratic foundation upon which the political sphere was built caused incentive for bureaucratic corruption, and through the undermining of the society during unorganized government transitions emerged local corruption practices. This dissertation found that these factors contributed heavily, if not caused, the recession in Greece during the Eurozone crisis.

2. Introduction

“Die im Dunkeln sieht man nicht.” (Those in the dark are unseen)

- Bertolt Brecht, German poet

This thesis will investigate the acts of political corruption, throughout Greece’s history, which have significantly influenced the nation’s present economy during the Eurozone crisis. This will be done by examining theoretical framework, defining concepts regarding the term ‘corruption’, media analyses and corruption reports, and assessing the culture of tax evasion practiced by civil society as well as high income earners.

Firstly, to create a foundation for the theoretical framework regarding corruption, the phenomenon of lower class exploitation during the Ottoman Empire will be considered in depth. Here, the methods of the government’s influence upon the peasantry will build the case for the developed cultural norm of tax evasion. The fall of the empire will then be pursued analytically to pin point the first occurrence of government mismanagement and the type of civil society that emerged as a result of practiced clientelism.

The transition from Greece’s military dictatorship to a democratic state will depict the second important event in the history of corruption in the public sector, and the impact on its people. It will be considered that the acts of political violence plaguing the unstable, changing government further established incentive towards political corruption. At the same time, individualism and weakening of public solidarity will be shown as a by-product of the people’s suffering through this democratisation process.

Theories connecting Greece’s culture and clientelistic practices will provide substance for the issue of local corruption in the private sector and the present-day mentality towards tax evasion. Furthermore, political corruption scandals involving significant former prime ministers and the entrance into the European Union will be discussed in relevance to corruption theories. In doing this, the dissertation will unveil the connection of bureaucratic grand corruption and the civil society’s illegal exchanges in order to illustrate an accurate summation of events leading up to the Eurozone crisis, influencing economic deprivation.

Finally, an account of current events in Greece will present the result of the extensive, corruption escalation. The different media portrayals will shed light on the social reaction to the implemented austerity measures, the public sector’s methods of dealing with tax evasion and their collaboration with EU member states to lift the recession.

3. Defining ‘political corruption’

In order to suggest political corruption as a primary cause to Greece’s current budget deficit problem, it needs to be clear how the term will be used throughout this paper and what it entails. Philp defends the philosophical concept to basic corruption referring to the changing of something natural, functioning adequately, and pure, into something tainted (Genaux, 2004). However, in applying this broad concept to politics, there is no actual consensus. It must be asserted that as well as the different perspectives and definitions one can pin to the concept of corruption, it just as much varies cross culturally as it does textually. The behaviour and actions of government officials in Greece may seem natural to the civilization which has consistently been exposed to nothing else, but may seem tainted in Western comparisons. Philp goes on to explain that the meaning of ‘political corruption’ depends on the commitment of the political actor in their position, their commitment to the functions of politics, and their interest in the public (Genaux, 2004). In Greece, political corruption is a recognized problem. The society generally frowns upon any scandals or corrupt dealings happening in the political sector at their expense, yet they never cease to exist because the political sphere is not shaped by the political actor’s initiative, but by those citizens selling their support. Heidenheimer suggests that corruption can be seen in terms of ‘institutional decay’ by accepting money for favours, however this is a moral issue and corrupt officials may still exist in a political system who are not seen as morally corrupt by the society (Genaux, 2004). The corruption taking place on a local level between the citizens and authorities are an accepted cultural practice and a means to make ends meet. Paying money under the table in the form of ‘fakelaki’ is a short cut to better treatment, better job prospects, as well as avoiding fines and penalties. To move forward in the society it is of both parties’ interests to appeal to material reward and payoff, one agent achieves what they need and the other gains the cost.

4. The Ottoman Empire

To fully understand the premise upon which Greece is facing economic troubles, the very first accounts of political corruption must be sought out. The Ottoman Empire is known for its very active tax base and economic turnover since the 14th century. The peasants during this period were generating the revenues by paying extensive taxes and fees, eventually the generally negative treatment by the bureaucracy set the foundation of Greek civil society today. During the Ottoman regime, every economic activity was a tax opportunity for the state (Genc p. 83 cited in Kus, 2006). A notoriously used method of collecting revenue from the peasantry was tax farming, known as the ‘Ilitizam’ system. This procedure was designed for short periods of time when the treasury was depleted from funding war expenses or economic deprivation. However, in the long-term, this eventually led to the erosion of the Empire’s complete tax base (Fleet, 2003).

The Ilitizam system was implemented because the Timar system was not taking advantage of the potential profits between the production and consumption of goods. Based on socio-economic military efficiency, the Timar system proved ineffective for the growing demands of the state (Islamoglu-Inan-Gilbar, 1997). Therefore, government agents, often notables and major wealth holders (Karaman & Pamuk, 2010), became tax collectors and acted as the intermediaries between the farmers and the consuming population (Islamoglu-Inan-Gilbar, 1997). As the population of the empire grew, mass pressure was exerted on the agricultural regions to increase their production of goods. Simultaneously, toward the late 16th century, the rulers of the Ottoman state were deemed absolute and could impose any taxes on the public without their consent (Barkey, 1991). This means that the Empire’s lands and people were “considered the Sultan’s patrimony (Karaman & Pamuk, 2010 p.599)” and the population was expected pay rent, taxes, labour fees and other charges. Meanwhile, with such power came the incentive to collect commission; tax collectors demanded larger sums than otherwise authorized by the state (Islamoglu-Inan-Gilbar, 1997). Their interest was to profit as much as possible during their contracted terms, pay off debts, and renew their contracts (Fleet, 2003) to continue the process. Peasants had no way of acquiring real protection against these methods mainly because of the lack of patron-client relationship. In the provinces of the Empire, collaboration “between peasants and the landholder was not the norm (Barkey, 1991 p.699)”. The contracts for the tax-farmers required them to move to new land very frequently, and this short-term exposure and inability to build relationships increased exploitation (Barkey, 1988 cited in Barkey 1991). Without a coherent personal or remotely social relationship between the peasants and the collectors, the tax-farmers merely saw the agricultural realm as a monetary resource. When the ‘avariz’, or the extraordinary tax, (Inalcik, 1980 cited in Barkey, 1991) was then implemented on the wealthy citizens to finance wars in the 17th century, they reimbursed their payments by taxing the peasants. Through this, the Ottoman state “developed a growing deficit (Barkey, 1991 p.702)”. Generally, the tax collectors of the 18th century are seen as the main element to economic decline because any effort to effectively control tax farmers failed, as the power of the central state declined and bureaucratic loopholes increased (Fleet, 2003).

An effort to eradicate tax corruption was made between 1839 and 1876. The reform sought to prevent the state from pressing the peasants for money; the total tax burden would be shifted to the urban, or otherwise wealthy, citizens and the collectors would be salaried government workers (Shaw, 1975). The Tanzimat, literally meaning “reorganization” (Aytekin, 2012), promised to “establish a regular system of taxation and abolish the tax-farming system (Aytekin, 2012 p.196)”. This reform happened relatively slowly and regionally during Mahmud II’s reign (Shaw 1975), and when he passed away the reform was paused. Though the urban areas were thriving and benefitting from trade and commerce, the rural areas were suffering due to the few collecting bureaucrats who accepted the salary and turned collection over to the treasury (Shaw 1975). Massive debts accumulated as the bureaucrats merely accepted payment without doing the work. As a solution to the debt the treasury resorted to the old habits of tax farming and this brought back old problems. The tax farmers again collected surplus to make a profit, however newly instated provincial armies and a reformed administrative system pursued protection for the peasants (Shaw, 1975). The collectors had to loan money to the cultivators at an interest rate less than one percent to buy agricultural tools and animals, and they were not allowed to force the farmers to pay taxes before the harvest came in. The collectors’ contracts were shortened to two years, to burke this the tax farmers added their own taxes to make up for their short term. This went on until tax farming was “abolished in 1839 (Shaw, 1975 p.425)” when other agents of the government were available to collect taxes, and properties were taken back by the treasury to fund tax reforms.

The organization of the state played a major role in the lives and interests of the peasants. The Ottoman state itself benefitted from the tax farming arrangement and has been collecting revenue using this method since the 14th century (Fleet, 2003). However, too many agents of the government had “regional power and privilege, too many conflicts among them, and too many ways of bypassing the state (Barkey, 1991 p.700)”. As the regime started dispensing power to the local notables to collect from the peasants, the government lost its influence over them. Then, when the tax farmers created loopholes to accumulate profit as well as adding their own taxes, it became nearly impossible to regulate their actions. The wars against the European powers, the Habsburgs, Poles and Russians in the 17th century generally depleted the treasury, and where tax-farming alone was inefficient during severe economic deprivation, currency debasements were made (Karaman & Pamuk, 2010). It was clear that, rather than increasing or devaluing payments, institutional reforms were necessary to increase revenue. Therefore, the Malikane system was instilled and allowed the revenues to be used as collateral for the state to borrow for longer amounts of time. The tax contracts were extended as well “in the hope that tax farmers would take better care of the tax source (Karaman & Pamuk, 2010 p.602)” and therefore increase production in the long-term. However, because of the inabilities of the individuals who purchased government revenue, the treasury’s contents merely declined (Karaman & Pamuk, 2010). This is because acquiring government assets became a more desirable prospect than to actively invest in agriculture or manufacturing. The convenience of using public funds for personal interests and expenses instead of stimulating economic growth can thus be dated before Greece was an independent state.

Aside from the state’s structural problems, Ottoman citizen Sarantis Archigenes blames inadequate enforcement of property rights as the reason for poverty and ignorance (Ozgur & Genc, 2011) beyond the regime’s public sector. Though the farmers claimed the land they worked on as their own, the government used it as an economic asset (Jelavich, 1987). During this era most of the economic livelihood depended on the agricultural environment, meaning property rights “were the basic foundation and requirement of this society (Ozgur & Genc, 2011 p.333)”; any infringements or violations to laws and regulations regarding property, or products of the property, could lead to social unrest quite easily. This is because the farmers not only used the land for production, but to also feed their families. If the ruler pressured the landowner to extreme taxation measures, the people’s trust would dismantle immediately at the thought of the ruler’s decisions only benefitting the ruling class. Resentment would spread infectiously around the villages if the peasants assumed their interests were neglected and could lead to resistance. A significant example is the agrarian conflict in Canik between 1840s and 1860s (Aytekin, 2012). The population was mainly Greek Orthodox, whose primary economic activity was farming. As one noble family, the Hazinedars, replaced the original magnates, the Caniklizades, tax farming was excessive. The Hazinedars foresaw the new profit-limiting regulations of the Tanzimat and pre-emptively decided to collect double the amount of the regular tithe (Aytekin, 2012). As the peasants resisted, the noble families attempted to force the payments by imprisonment. Then, as the peasants petitioned to the central government with complaints, an envoy was sent to collect the accumulated debt owed by the peasants through acts of cruelty which lead many farmers to abandon their villages. The peasants were constant pawns to the magnate’s fiscal greed and were treated as opportunities for material enrichment. This occurred either through direct taxation by the collectors to create a profit, or using the peasants’ stored revenues for selfish means at their expense.

E.P. Thompson developed the term ‘moral economy’ in characterising the urban poor (Aytekin, 2012), however it is James Scott’s assertion of peasant moral economy which will be referred back to later when the responses to the austerity measures are analysed. Scott claims that peasant mentality holds the elites responsible for sustaining their existence (Aytekin, 2012). Since peasants typically have no influence in the political environment with an absolute ruler, their first priority is stability. It is preferred to be protected with sub-par living standards, than to accommodate change where their position and security might be uncertain or even threatening to their subsistence. Using the Canik peasants as an example, they refused to pay taxes because their stability was threatened. Not only would they be unable to benefit from the Tanzimat reforms because of the nobles’ persistence to keep the new regulations at bay, the peasants had a serious disadvantage to their original tax-situation through the pre-emptive double-taxing. Another element to the peasants’ moral economy is their notion of fairness. Because of this mentality, most forms of lower-class protests were deliberate tax strikes. In the case of the Canik peasants, for 12 years they “were able to withhold payment of taxes which they regarded as illegitimate (Aytekin, 2012 p.213)” before action was taken by the state. Refusal to pay taxes as a peasant was a very important form of protest because the landowners claimed to receive rents and taxes based on their ownership of the land. By refusing to pay, the peasants asserted their own ownership of the land and rejected the magnates’ (Aytekin, 2012). The moral economy determined from the agricultural living standards thus developed the form of resistance regarding their social status; tax evasion.

This lack of individual rights is a precursor for the vast cultural differences between Greece’s development and the West. The majoritarian rule seen during the Empire was a contradiction to the notion of individual freedoms therefore the concept was never introduced. Unlike in the West, where the establishment of the state and nationalism brings with it doctrines of liberties and rights, there are strict religious connotations with the underdeveloped concept of rights in Greece. For example, the Orthodox practices prevented The Enlightenment movement to be received as it was in Western societies. Accompanied by the failure to instil a doctrine to protect the public is the history of the nation’s political culture (Michas, 2011). The Ottoman Empire was a patrimonial regime; generations of inheritance and family constituted the political makeup for 400 years and from there emerged a generally weak civil society. Weak in the sense that the lack of individual rights helped clientelistic practices emerge (Michas, 2011) between the public and private sectors.

After the empire fell, the same people who collected under previous rule (Jelavich, 1987) continued to collect from the peasants. Although tax collection was still the primary activity, without the Ottoman regime to fund the village notables leading the state could keep the revenues for themselves (Michas, 2011). Since they composed the head of state they also had the power now to grant social and economic privileges as well as bypass local regulations. In regular circumstances the state is associated with individual rights to private, protected property. However this landholding class was composed of elites in Greece, and the individual peasants made up a tax farming industry. The state, therefore, was not capable of protecting any previous assets carried over from the Empire, but was source of income for the regulators (Michas, 2011). This is how the Greek state became a mechanism of distributing benefits and material wealth as well as serving power to ambitious citizens; through the revenues collected from the people. This means that from the outset of Greek independence, and through the lack of suitable structure with which the state could establish a healthy relationship to its citizens, clientelism was allowed to grow. Bika (2011) defines clientelism as the “method of mutually beneficial socio-economic transaction between unequal parties that is played out by collective or individual actors”. It has been established that agricultural workers were used as pawns in economic expansion however, with a new government, new opportunities were made available to the recently oppressed. Through clientelism, and the responsibilities of the term ‘citizenship’; what it means to be a citizen of political involvement and social acceptance, those who acquired citizenship were promised economically equal opportunities and a platform connecting them to the elite. By having these connections, the rural villagers became connected to the rest of society (Bika, 2011). Beneficial to the state, this relationship between the farmers and the bureaucracy allowed the state to intervene in agricultural activities. However, clientelism inspires general competition and the rural solidarity faded as the heads of the villages no longer were able to adequately represent the farmers because the political class became directly involved to help individual interests. This trend is ultimately responsible for shaping Greece’s national leaders and will be discussed later in relation to the political corruption scandals.

To create a profit for itself and for those hired in the expanding public sector, the post-Ottoman government taxed the private sector immensely. In fact, through heavy taxation, Greece’s revenue accounted for 31% of GDP by 1866 (Economou cited in Michas, 2011). Michas confirms that “the largest part of public expenditure was not invested in public works or infrastructure (1989:5 cited in Michas, 2011)”, but in paying government salaries. This became a problem since the benefits being distributed to supporters and family mainly entailed positions in the government. By 1870, 25% of urban workers were paid by the state (Michas, 2011). Through needless expansion, public sector jobs were seen as a career with minimal obligations and minimal effort to acquire, as well as opportunity for personal gain.

5. Political Violence in Greece

As Greece’s culture of tax evasion becomes more defined, it is important to delve deeper into the establishment of the public sector. In looking at the past accounts of political violence to further political campaigns, the pervasive undermining of the people during the establishment of Greece as a democracy provides the foundation for its problems today.

Between 1967 and 1974 Greece was ruled by a military dictatorship. The repression of the authoritarian rule during, what is known as, the ‘Junta’ and the inflexibility of the regime to meet the demands of radical groups as well as violence between sub-state organizations and the state, all contribute to the emergence of violence seen as recent as 2003 (Xenakis, 2012). It is important to mention that the organization of extremist political actors stems from the deep rift between the right-winged and left-winged parties. Most of the governments have been right-winged in the past (Xenakis, 2012) and suffered through multiple periods of instability regarding civil wars and military revolts. Thus the far right’s interests have, for decades, taken priority over others’ and any effective form of social protest was immediately shut down with more repression from the state. This eventually caused the far leftists to increase their demands, betray their representatives in parliament and seek attention by violent means. These actions were greeted with state-authorized violence for the right-winged side, leading to reciprocal turns of animosity, fuelling each other until the end of the dictatorship. After the Junta fell many underground resistance groups rose up, and organized violence was used in a new democratic environment to further campaign recognition (Xenakis, 2012). This time civilian supporters and institutions were targeted with physical attacks and bombings. The far-right launched the first program of violence, targeting journalists and trade union offices with explosives (Xenakis, 2012). Far-left organizations felt ignored by the government and the violent struggle continued until the Panhellenic Socialist movement (PASOK), founded by Andreas Papandreou, came into power in 1981 (Xenakis, 2012) promising to completely reform and unite the nation.

In light of this period, there exists evidence that stronger democracies generally have less corruption, but that the process of democratization may invite corrupt influences (Hung En Sung, 2004). By suddenly embracing democratic features, without properly dismantling authoritarian ideology and practices in all institutions, the political system is suspended in a state of instability as previous values and regulations collide with new ones, including the sudden access to public funding. Previous social scientists have asserted that prospects for corruption occur naturally in government transitions and not just economic and political realms are influenced by democratization, but the culture and mentality of the society are exposed to the change as well (Hung En Sung, 2004). However, it should not be assumed that the process of democratization is solely responsible for political corruption in former communist/socialist states. The social and political foundations upon which a democracy is to be built, determine the characteristics and severity of the corrupt behaviours and practices in the public sector for the future. Greece’s post-Junta era of political violence and social unrest is a strong example of the consequences of democratization. With the repression of the regime lifted, many different political orientations struggled for the power of representation and stability. Extremist far-left and far-right activists used violence as a legitimate means of making their needs and ideologies known. The people suffered through this period of instability as the political parties attacked citizens and institutions to further their cause. By using force to ensure and broadcast political dominance, the foundation upon which the democracy was being built was flawed from the outset. With the clientelistic practices having established themselves as reasonable transactions between state and citizens during Greece’s initial independence, further incentive to the corruption seen today is clearly found in the political turmoil that characterized Greece’s democratic transition.

The generations of anti-dictatorship struggles from right and left orientations peaked in the recent decade when the power struggle was exposed to a more advantageous socioeconomic environment after Greece accepted the Euro (Della Porta cited in Xenakis, 2012) in 2001. The government closed itself off to radical demands, but organized violence took on a broader form. Della Porta explains that socioeconomic strains contributed to the existing struggles between extremist parties and the people became sceptical of their public sector as household debts escalated and unemployment increased (cited in Xenakis, 2012). Furthermore, emerging political scandals as well as the deepening of the financial crisis fuelled social anxieties. According to pan-European surveys, the Greeks have significantly lower trust levels regarding their public sector than the rest of Europe (Xenakis, 2012). This is indisputable, given the repressive right-winged dictatorship accompanying its own interest followed directly by the onslaught of attention-seeking violence by sub-state groups. Political recognition and establishment in the post-Junta era has been based on physical force and egocentric principles rather than the interests of the public and the construction of an efficient democracy. The priority was to establish power as a political orientation, and the people were neglected or attacked if they proved to support the opposition. It can thus be determined, because of this tumultuous time that the people were made vulnerable by their very representatives and as a result lost faith in them. Tax evasion will play a crucial role throughout this dissertation, used as a form of resistance during the era of the Empire when the peasants were exploited, it can be assumed that the political violence did not encourage the people to fund their government further. Furthermore, clientelistic practices play an important role in Greek society. In order to make their interests known, especially during times of political turmoil, economic instability and social uncertainty, the public may appeal directly to the civil service officials to alleviate problems or achieve favours. This type of local corruption has developed over time as a result of the weak civil society that first emerged after the Ottoman regime, and is still prevalent today as part of the cultural norm.

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