Corruption and the Greek Debt Crisis

Nov 19, 2011

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Most of the articles about corruption that we read tend to focus on its prevalence in Indian society and its economy. It is after all a big problem in this country. On an international corruption ranking known as the Corruption Perception Index, where a lower rank indicates a greater level of corruption, India comes in at number 87 out of 178 countries.

The countries that rank worse than India for corruption include Russia, Pakistan, Bangladesh, and various African countries. Most developed economies are ranked in the top 20 (i.e., have the least corruption), as we would expect. There is one big exception to this, and this is Greece. Greece's ranking in the same index is number 78, very close to our number 87. ---------------------------------------- Have an enriching Saturday! ----------------------------------------

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What this means is that Greece has almost as much corruption as India does, and it also has the highest level of corruption for any developed economy. Corruption in Greece was one of the major causes of the debt crisis. It caused wasteful public expenditure and widespread tax evasion, ultimately leading to a bankrupt state. Let's look at some examples of this. These are all examples of policies before the debt crisis and before the subsequent austerity measures.

Due to political lobbying, the retirement age in Greece for public sector workers and a large number of private sector workers was 53. Upon reaching that age, individuals could receive a state pension equal to 90% of the previous salary for the rest of their lives. So an individual who lived for 80 years would only work for around 30-35 years of their lives. Early retirement and generous pension schemes were one of the primary factors that drove the Greek government into bankruptcy.

Public sector workers also received many additional perks and subsidies. For example, individuals would get bonuses simply for turning up to work on time. A result of this was that public services were inefficient and costly for the government to provide. A study of the costs of the metro service in Athens showed that it would have been cheaper to send each individual passenger to their destination by taxi, rather than paying to run the metro!

A lot of public expenditure was devoted to policies that simply existed to buy votes for politicians. Much like the various subsidies that the Indian government gives out to gain political favor, the Greek government did exactly the same thing. And now they are being forced to reverse many of these policies due to austerity measures, and this is proving to be a difficult task.

While public expenditure was wasteful, tax collection was as much of a problem. Many wealthy businessmen and professionals in Greece would not declare large portions of their income, thereby avoiding tax. A survey of doctors in a wealthy neighborhood in Athens, Greece, indicated that one-third of the doctors had reported income levels low enough that they did not have to pay any tax at all! And a large portion of them had reported income levels that would be equal to the average income of a taxi driver in Greece. Clearly, a lot of income goes unreported and thus tax is not paid on it.

The consequence of widespread corruption in the Greek economy was one of the major causes for the state going bankrupt. Currently, they have cut some of the generous salary and pension packages for public sector workers, but still face large tax evasion and corruption in general. Corruption in Greece was one of the important causes of the debt crisis.

The lesson from all of this is important. Corruption can have large negative impacts on the economy, and in particular the government's ability to finance itself. The impact of corruption is not just a long-term phenomenon that lowers growth over time; it can cause a debt crisis too.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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8 Responses to "Corruption and the Greek Debt Crisis"

Bakul Haria

Nov 21, 2011

Arent we facing the same problem here in India.



Nov 21, 2011

Paying 90% of salary as pension for rest of their life would have worked well in a depreciating currency.But since Greece gave up its own currency when it joined the euro, that no longer was an option. Hence this problem. Lesson learnt is very simple...governments that don't have their own currencies should not make out of this world promises, since it is more difficult to break it. India is in a much better position in this area since it has its own currency which it can depreciate as much as it wants.


Ganesh K

Nov 20, 2011

Is the Govt. listening , or Please send this to the finance ministry at least.

Like (1)


Nov 20, 2011

As a retired Income tax Officer in a meeting with our Director General of Income tax I heard him telling all of us what we failed to achieve in eradicating corruption, system would one day do it. If u look at it closely you would realise that there were days when a railway ticket reservation at every station u had a big ledger which would be opened to find out availability of seats or berths on a given date and there were lot of manipulations and resultant corruption. Advent of system by a Govt. of India eneterprise CMC made it possible to do away with corruption in railway booking to a large extent. We Indians are capable of achieving results but where to begin this is to begin it at onself not to give/accept bribe come what may. See the gap between the rich and poor in India wealthy people making more wealth not realising the danger of the entire empire lost in case of revolution. What is needed is attitude before we fall a pray to debt crisis like Greece.

Like (1)


Nov 20, 2011

Thanks Asad for a good article.
Points to stress on India, is the quantum of policitical corruption and very low expenditure efficiencies through political systems, making India worse than Greece.

To me India is surviving still with rogue politicians because, it has domestic production and consumption to-gether, off-course working class who pay taxes transparantly.


Like (1)

sunilkumar tejwani

Nov 19, 2011

unlike Greece, India doesn't have problem of large scale tax evasion, in our Country tax kitty is overflowing with funds, Tax guys have been hounding tax evaders & tax compliance id quite high in India. It is only the wasteful expenditure of the government (called admin expenditure) which includes blotted bureaucracy & politicians splurging public money for their own comforts. This constitutes almost 75% of the total expenditure. Remaining funds go down the drain (washed away in the maze of corrupt system). In reality hardly any benefit flows to the intended beneficiaries. This was the system created by Nehruvian policies, and sadly till date it hasn't changed.
What we need to improve our economy & infrastructure is to reduce wasteful expenditure & make politicians accountable for any every penny spent or ill spent, make corruption a heinous crime punishable with capital punishment.

Like (2)

Tikam Patni

Nov 19, 2011

India is on the same track as Greece. Going forward on the same track of vote catching economics, India will become a basket case.

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R S parolia

Nov 19, 2011

Very good information for democratic counties like us. We need to work towards good governance, rather, go on increasing salaries for not doing. though I am govt servant, I feel rise of salaries during last pay revision should not have been done so much, now Govt trying to limit inflammation, by raising interest rate, caught ?

Like (1)
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