The Greek Crisis, Austerity, EU Integration, and a Disrupted Future: An Interview with Nikos Passas

This is part of our special feature on The Crisis of European Integration.

A renowned expert on corruption, illicit flows, UN sanctions, informal fund transfers, terrorism, white-collar crime, financial regulation, and organized international crime, Professor Passas is a scholar whose criminological research in the area of human rights is globally respected. The Editor-in-Chief of the international journal Crime, Law and Social Change, he is the Chair of the Academic Council of the Anti-Corruption Academy in India; and the Organized Crime Observatory Representative to the UN. He has more than 220 publications in 14 languages, regularly serves as expert witness on all continents and consults with international organizations such as OECD, OSCE, the IMF, the World Bank, the UN, the European Union, and FinCEN. 

Nikos is also a member of the Athens Bar. An intellectual, and a dedicated academic activist, he cares deeply about Greece.  He is convinced there are strong indications that facts and reality are at odds with what is depicted by media and talking heads influencing public opinion and public policy in Europe and beyond. 

He argues that the handling of the Greek debt, and the best way out of the downward spiral for Greece, is to analyze the crisis in terms of violations of human rights, and through the prism of the role of institutional corruption.

—Sherman Teichman for EuropeNow

 

EuropeNow How did Greece arrive at this moment?

Nikos Passas The European Monetary Union’s structural flaws played an important role, as this was a political project lacking a well-considered economic architecture and strategy. Hurriedly bringing together asymmetric economies without a plan for convergence and violations of the rules by the biggest economies widened the gaps and planted the seeds of crises.

But there was far more. Oft-cited sources of the Greek collapse include tax evasion, corruption, and an oversized civil service fed by nepotism practiced by conservative and socialist governments over many years. Yet, these undeniable problems cannot account for the bulk of the debt nor its steady growth from 1980 up to this day. The Greek government actually spent less than other Eurozone countries and was not alone in violating fiscal rules, which were openly breached by the biggest economies such as Germany, France, Italy, and the Netherlands. German, French, and other banks knew the risks but jumped into a supply driven frenzy: while domestic banks held 85 percent of the debt in 1994, foreign banks had 75 percent of it in 2007. Greek military spending was excessive and partly fueled by bribes for orders to mainly German and French companies. Billions were allocated to tanks (without ammunition) and submarines (occasionally defective), which were needless as the country has been a member of NATO and was not in conflict. Finally, illicit financial outflows added to tax revenue losses.

EuropeNow What allowed this to happen?

Nikos Passas In 2001, Greece entered the Eurozone, even though it did not meet the essential economic criteria. The practical non-compliance with Eurozone entry requirements was known and accepted in Brussels. Some legal but questionable debt-obscuring transactions offered by Goldman Sachs were approved as consistent with Eurostat rules. Goldman Sachs created loans at fictitious exchange rates and made hundreds of millions not only out of this deal but also by selling the debt short. Other countries and financial institutions played similar games. Questionable and inaccurate accounting kept things going in several countries until the financial crisis in 2009.

EuropeNow How was this treated? Who benefited, and who lost?

Nikos Passas These problems were swept under the carpet until no space was left between the carpet and the ceiling. The global crisis led to a transfer of risk from private banks to states. This could be handled by the Federal Reserve or the European Central Bank for some countries. But the weakest links buckled and Greece reached the edge of bankruptcy. The response to the crisis by the European Central Bank, the European Commission, and the International Monetary Fund, the Troika, was wrongly described by media and official discourses as a “bailout.” The truth is that about 90 percent of the new loans went to pay interest and the private financial institutions (primarily French and German banks) that had knowingly assumed that risk, while Greek bondholding pensioners lost about three quarters of their investment.[1] The German Treasury also made 100 billion euro out of the Greek crisis, because its bonds were in higher demand and the interest rates dropped substantially.[2]

EuropeNow What factors exacerbated this crisis?

Nikos Passas Allowing populist myths about hard working Northern Europeans paying for lazy Southerners to proliferate in the media has been divisive, and ended up painting politicians into corners that constrained rational policy-making. What is lost in public discussions is that leaked documents published by the Wall Street Journal revealed the IMF’s awareness in 2010 that the debt was unsustainable – as the IMF can only participate in sustainable programs, it apparently violated its own rules by going along with the Troika plan. Another leak revealed that the real objective was to save the euro currency rather than help out the Greek economy.[3]

New loans that came with strict austerity measures and the essential surrender of national sovereignty represent practices that fit the concept of “lawful but awful” practices: the effects of Troika’s “remedies” have been massive unemployment (more than 60 percent of the 19-25 age group), continuous drop in GDP, growth of debt ratio, brain drain, severe cuts in education, public health and other services and an unprecedented humanitarian disaster made worse by capital flight and lack of foreign direct investment.[4]

Pressures on the Greek government to raise more revenues have been inconsistent and criminogenic on their own. A Greek study found that higher tax rates have led to lower revenue collected, so the point of diminishing returns has been reached long ago. The creditors insisted that unnecessary military orders and payments to creditor countries continue to be honored, while squeezing pensioners and minimum wage earners. The blanket prohibition to hire civil servants made it impossible to get people to use a software program the government had introduced to redflag tax and duty evasion. Also, anyone appearing on the “Lagarde list” is treated as a tax cheat even if s/he migrated long ago to countries with dual taxation treaties, leading to new abuses.

EuropeNow Who has been most affected by this crisis, by the policies of austerity?

Nikos Passas The effects of austerity have been particularly severe for the older and youngest parts of the population. 43 percent of pensioners live on $778.00 per month, less than half that of the income of people over 65 in other Eurozone countries; many of them also have to support other unemployed family members, whose benefits have been cut drastically. Public health and education budget have been cut to nearly a third of the euro area.

The rate of Greeks unable to meet medical needs has risen to more than double that of the other 27 EU Member States.

EuropeNow What schisms have appeared?

Nikos Passas A (DiaNeosis) think-tank study found that 15% of the population (1.647.703 people) in 2015 earned below the extreme poverty threshold. By contrast, in 2009 that number was lower than 2.2 percent. Bank of Greece data show that the net wealth of Greek households fell by 40 percent in the same period, with many households becoming severely deprived.

According to Eurostat, 35.6 percent of the population (3.8 million) are at risk of poverty, up from 28 percent in 2008.

Unemployment is still around 22 percent, by far the highest in the EU. The figures for those under twenty-five years has risen to catastrophic levels (reaching above 65 percent)!

Additional measures made economic conditions even worse for young workers. For example, the European Committee of Social Rights (ECSR), the main monitoring body to the European Social Charter, has found that legislation implementing austerity measures during the 2010-2014 period violated several articles of the European Social Charter protecting

  • the right of workers to earn their living;
  • to provide reasonable daily and weekly working hours, and the working week to be progressively reduced;
  • the right of workers to remuneration affording them and their families a decent standard of living;
  • the right of workers to a reasonable period for notice of termination of employment;
  • the right of employed persons under 18 years of age to at least four weeks’ annual holiday with pay; and
  • the right of workers and their representatives to determine and improve their working conditions

To make things worse, the austerity measures imposed on Greece by the creditors reduced the minimum wage for workers under twenty-five. The ECSR has found this measure to be “excessive,” “discrimination on grounds of age” and contrary to the Council of Europe’s European Social Charter.

EuropeNow What have been the core repercussions?

Nikos Passas As a consequence, the youngest and most talented Greeks have turned elsewhere for a decent education, career and life. Unsurprisingly, Greece’s Central Bank (BoG) data suggest that 427,000 Greeks, mostly the young and educated, have emigrated in the 2008-2015 period. This out of a total population of about 11 million.

The problem is that the pain imposed on the Greek society has neither reduced the debt burden (debt as percentage of GDP) nor stabilized the economy:

Rather, the economy shrunk by 26 percent

EuropeNow And the human and societal consequences?

Nikos Passas The humanitarian crisis produced and aggravated by the austerity, did not do much to address the debt and grow the economy. On the other hand, it has stripped people of their dignity, demoralized and deprived them of hope, thereby undercutting the future of the economy and society. Disaffecting the youth and removing the most promising members of the society effectively condemns Greece to a much longer period of crisis and recovery. Brain-drain must be reversed on the basis of evidence-based hope; facts and data showing sign of better governance, sustainable economic growth, higher quality of life and a promise of a better future through meritocracy and hard work.

Even if the Troika did not know the program was flawed at the start, they know it after seven years of great depression. Rejecting democracy and functional alternatives or reforms for economic growth is bad enough. The austerity and micro-management of Greece has now exceeded any known precedent. Anyone in disbelief at what has become of European solidarity and integration concerns should also read the MoUs and the terms of reference. Take note, for example, of a 2010 clause about complete control of current and future resources, such as discoverable offshore oil and gas energy reserves that studies estimate at hundreds of billions of euro. This kind of explicit and disproportionate deprivation of national rights takes us back to conditions reminiscent of the East India Company times.

Some may argue there are laws and conventions that must be observed. The first difficulty with this argument is that laws and conventions did not prevent the inaccurate statistics and pretense of compliance regarding countries’ economic conditions and eligibility to join the Eurozone. Secondly, and much more importantly, when laws and policies allow or impose such outcomes, these laws and policies must be changed. Dogmatically insisting on them amounts to regulatory fundamentalism that engenders security risks. Intentionally or not, humiliating the people that created the term “democracy” is perilous. The EU integration project must transcend the current asymmetric patchwork stitched together with ideals of democracy, respect for human rights, solidarity and peace. Because of the widening inequalities and deeper gaps between countries in crisis and stronger economies, European integration is undermined as some of these political threads are being pulled apart in ways that might prove too costly.

EuropeNow What is your objective at this moment?

Nikos Passas At this stage, my research cannot conclusively answer all of the questions raised above, but findings so far point to inconvenient truths about how manageable-at-first problems have been turned into a multi-generational humanitarian crisis victimizing millions of innocents. I am pursuing my scholarly duty to collect data, provide context and analysis, warn about likely consequences, remove plausible deniability, demand accountability and advocate for harm reduction and prevention. Contemporary Greece is victimized by disastrous measures, corruption and dogmatism calling for better policies and restorative justice. We need to find an alternative way of preventing and handling such crises. If the ideal of European integration and security are to be pursued pragmatically and seriously, the European Union can and must do better than this.

 

Nikos Passas is a Professor of Criminology and Criminal Justice at Northeastern University. He is also Director of Corruption and Leadership Courses at the Geneva Centre for Security Policy, and Distinguished Practitioner in Financial Integrity at Case Western Reserve Law School. He is the author of Informal Value Transfer Systems (IVTS) and Criminal Activities; Legislative Guides for the Implementation of the UN Convention against Corruption, and Implementation of the UN Convention Against Transnational Organized Crime; and co-author of Migrant Labor Remittances in South Asia. His next book is entitled Trade-Based Financial Crime and Illicit Flows. His degrees are from the Univ. of Athens (LL.B.), the University of Paris-II (D.E.A.) and the University of Edinburgh Faculty of Law (Ph.D.). In 2017, he was honored with the Dr. Jean Mayer Global Citizenship Award bestowed by the Institute for Global Leadership at Tufts University. 

Sherman Teichman is the Founding Director Emeritus, (1985-2016) of the Institute for Global Leadership at Tufts University. He is currently a Senior Fellow at the Carr Center for Human Rights Policy at the Kennedy School of Government at Harvard University, where together with Professor Passas he convenes a study group, “Confronting Corruption in Defense of Human Rights.”  He is a non-resident Research Associate at the Centre for International Studies in the University of Oxford’s Department of Politics and International Relations.        

 

References:

[1] Rocholl, Jörg, & Stahmer, Axel. (2016). Where did the Greek Bailout Money Go? Berlin: European School of Management and Technology; White Paper No. WP–16–02.

[2] Research, Leibniz Institute of Economic. (2015). Germany’s Benefit from the Greek Crisis. Leibniz: Leibniz-Institut für Wirtschaftsforschung Halle.

[3] IMF. (2013). Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement. Washington, DC: International Monetary Fund.

[4] Passas, Nikos. (2005). Lawful but Awful: “Legal Corporate Crimes”. Journal of Socio-Economics, 34(6), 771-786.

 

Published on November 2, 2017.

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