Greece as a Failing State

Are some of Europe’s Mediterranean countries failing states? Spanish Prime Minister Rajoy’s recent comment that “Spain is not Uganda,” suggests that many southern Europeans don’t grasp the depth of their challenges. Nowhere is this truer than Greece. That ancient home of democracy is, in fact, a failing state.

One need not be an expert on Greek politics to support this claim. Once again, we only need to follow the money. Or, in this case, we need to ask what happened to the money (i.e. taxes).

Tax evasion is a universal game, but it has long been a massive problem in Greece. Non-payment of taxes – mostly orchestrated by under-reporting income – is a deeply ingrained culture that cuts across Greek social classes and regions. And this problem with tax collection is a key reason why Greece continues to teeter on the brink of fiscal collapse. Brad Plumer sums up the recent damage:

But why did Greece have such a massive budget deficit in the first place? One factor … was rampant tax evasion, which had starved the Greek government of funds. As it turns out, this was a very big deal indeed. The Wall Street Journal’s Justin Lahart points to a new paper (pdf) by three economists who estimate that the size of Greek tax evasion accounted for roughly half the country’s budget shortfall in 2008 and one-third in 2009.

The problem of Greek tax evasion, though, is about more than public finance and accounting. When journalists and researchers probe deeper into the country’s fiscal mess, they find systemic corruption, an incompetent tax collecting bureaucracy, and a breakdown in civic virtue.

When citizens routinely disregard the tax code, they undermine public finances, the rule of law, and a shared sense of civic purpose. And, though it is premature to call Greece a failed state, the country is now reeling from institutional and cultural decay (and its disadvantageous position in the Eurozone). It can recover, but the road to recovery will require more than adherence to an externally-imposed structural adjustment plan. Greeks must reconsider what citizenship means. In particular, they must re-instill a respect for the responsibilities of the governed.

*** Did you like what you read here? You might be interested in the new book by this blog’s author, Failed States: Realities, Risks, and Responses.

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