The culprit in Greece

Bad choices in history and bad examples among other countries should offer good lessons.

Korea was under the so-called “Japanization” spook throughout last year. Both inflation and growth were low, and snowballing public debt cast a gloom over the economy. Leaders, including the president and deputy prime minister for the economy, joined the frightening mantra that we were heading for decades of stagnation. Despite all the alarms, no substantial actions were taken. Instead, we could not hide our envy as we watched Japan come out the other side of the depression tunnel.

Another specter is taking shape. This year, we may hear a lot about “Hellenization” - or the prospect of becoming another Greece. With much anticipated and needed reform in the public employees’ pension program stumbling, the possibility may not be entirely overblown. We were utterly disappointed at the outcome after all the cries and promises of reform from the president.

What has led to the economic mess in Greece? Some point to the deficit-ridden 2004 Athens Olympics and others to a slack and rash monetary union or rampant corruption. A myriad of dysfunctions and problems led to its crisis. Some also cite excessive social welfare as one reason, but that is not entirely correct. It is more of a plethora of preferential welfare. At the heart of the Greek problems lie government employees.

Greece’s spending on social welfare was 20.6 percent of its gross domestic product in 2007, before the global economy was swept up in a financial crisis that took a heavier toll on countries with high public debt. Greece’s share of welfare spending was higher than ours (10.4 percent), but sharply lower than France (34.9 percent), Britain (25.9 percent) and the average of 27 eurozone countries (26.9 percent). Its spending pales when compared to northern European countries that set aside a third of their budgets for social welfare. So it is wrong to blame Greek troubles on excessive social welfare. There is a deeper cause.

Government employees are the culprit. The Greek legislative body is comprised of multiple parties. Political power is divided among two major ones and three smaller ones. The political landscape changes after every election. Due to longstanding apathy and distrust of politics, voter turnout hovers below 50 percent. Whoever has the most loyal and organized voting base becomes the winner under such a weak structure. And who better fits that category than government employees? It is why Greek politicians mostly campaign to win the votes of government employees.

Greek government employees enjoy the best perks and working conditions in the world. They report to work at 8.30 a.m. and go home at 2:30 in the afternoon. Because people rarely come to work on time, those who do are entitled to additional pay. Monthly salaries to 850,000 government employees take up over 50 percent of the country’s GDP.

One in 10 working people is on the state payroll - five times the number in Britain. They get the equivalent of 14 months pay a year and enjoy a paid break for at least a month. At 58, they retire and receive pensions amounting to 98 percent of what they earned when working.

Greece joined the ranks of welfare states because of its generous pension system for government employees. But the benefits are strictly limited to government employees. The European Union and International Monetary Fund demanded a scaling back of the number of government employees and pension system as a condition for bailout funds.

If the compensation for government employees is not corrected, no bailout can save Greece. The opposition to reform plans largely comes from government employees. The country is in disarray because government employees and general masses are forever blaming each other for the fiscal mess.

Are we any different? There are 1.1 million government employees, about 6 percent of the working population. Some may argue that the number is an affordable size. They do not enjoy benefits comparable to those of their Greek counterparts. But history repeats itself because lessons are not learned. If there is enough money in the coffers, extra spending might be permissible.

But the problem is that Korea cannot afford such extravagance. If the universal welfare programs that sprawled during the last elections are sustained, Korea will exceed Greece’s welfare spending in two decades. If the government employees’ pension scheme is kept as it is under the feigned redesign outline, it would demand 1,654 trillion won ($1,518 billion) from tax funds to make up for the losses over the next 70 years. Korean taxpayers could go poor trying to support retired government employees. Going down the Greek path will lead to a doom of our own.

JoongAng Ilbo, May 7, Page 34

*The author is an editorial writer of the JoongAng Ilbo.

by Yi Jung-jae