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What’s the matter with Greece? It can’t run the clean and effective government necessary for a healthy economy.

- July 14, 2015

Tourists enter and exit the Parthenon Temple on Acropolis Hill in Athens, Greece, on Tuesday, July 7,2015. Photographer: Chris Ratcliffe/Bloomberg
Former Greek finance minister Yanis Varoufakis famously and repeatedly described the terms of Greek’s bailout agreements over the last five years as exercises of “extend and pretend.” By this he meant that the requirement that Greece dramatically cut public spending would only prolong the Greek economy’s recession and force further bailouts indefinitely. That is, the terms of the bailout packages only made sense if one pretended that their extension would solve the underlying economic problems that have stifled economic growth in Greece.
But there has been an even bigger game of let’s pretend in these bailouts. Everyone is pretending that the Greek government, political elite and citizens support the institutional reforms needed to create and maintain a vibrant economy. It’s not so. The bailout proposals discussed two weeks ago and the current proposal all list detailed commitments intended to protect the Greek national statistical reporting service from political pressure. Just the fact that that requirement exists — and that Greece must be in desperate need of a bailout to make the necessary commitments — tells you how incapable and unwilling Greece’s political parties are of running the clean and effective government necessary for a healthy economy.
A brief history of Greece’s suspect financial reporting
Recall that the current Greek financial crisis began with the fall 2009 public admission from then-newly-elected Greek Prime Minister George Papandreou that the Greek governments had been cooking the country’s financial books. In particular, Greece had dramatically understated its public deficit. Bond markets and ratings agencies responded accordingly, precipitating a major financial crisis for Greece. The Greek government announced, and in some cases adopted, a variety of reforms designed to cut public spending and reduce corruption. In particular, the Papandreou government committed to creating an independent and credible national statistics agency. But the crisis continued and the statistical agency remained suspect.
In May 2010, Greece negotiated its first bailout program with the Troika — the European Commission, the International Monetary Fund, and the European Central Bank — that included a commitment for — wait for it! — an independent statistical office. Previously, a committee composed of members of Greece’s Finance Ministry and central bank had produced the annual public finance report.
The reformed rules moved responsibility for the public finance report to the newly independent Greek national statistics office, or Elstat. Greece appointed Andreas Georgiou as president of Elstat. Georgiou, a Greek former IMF official, enjoyed the full support of the creditors; he promised to bring Greece up to European Union standards for statistical reporting. To an impressive degree, he did just that. In August 2010, Eurostat — the E.U. statistical agency — dropped its standard warning regarding the reliability of Greek data.
It didn’t take long, though, to learn the difference between independence in a formal (de jure) sense and de facto independence. From almost the start, Georgiou was undermined by his own advisory board, staff, and civil servants more broadly. Politicians and former Elstat employees publicly accused him of malfeasance. And, in November 2011, prosecutors announced that they were investigating him on charges that he has illegally reported statistics and had acted against the national interest. Such crimes involve serious penalties, including life in prison.  Neutral and credible observers see no merit to the case.By 2012, Greece needed a second bailout. Once again, strengthening Elstat’s independence was an explicit feature of the agreement. But the political harassment continued. In January 2013, the prosecutor brought formal charges against Georgiou and two other Elstat employees. If found guilty, he could serve 10 years in prison.
The investigation clearly threatens the political independence of Elstat. Even Yanis Varifoukis, hardly an apologist for the Troika or the bailout terms, declared in  2013, that Georgiou was the victim of a vendetta by politicians frustrated with austerity and the Troika.
Recent events cast further doubt on Elstat’s independence. Elstat is supposed to provide revised historic public debt figures for Greece. (Eurostat’s website offers no public debt figures for Greece before 2009. Keep that in mind when reviewing analyses that present trends in Greek debt/gross domestic product in that time period). The Finance Ministry has refused to release the necessary data to Elstat, showing that government politicians continue to constrain Elstat’s work. More alarmingly, the prosecution of Georgiou, which had laid dormant for over a year, was reactivated in March and appears to be headed for trial.
One might have expected Syriza to resolve both of these problems. The finance minister, until recently, was Yanis Varifoukis, who had earlier spoken out against the criminal proceedings. And releasing the historic data — which presumably would reveal public financial mismanagement in the 2000s — would only reinforce Varifoukis’s and Syriza’s claims that their key political opponents and predecessors are corrupt and incompetent. But Syriza has done nothing.
Five years after Papendreou’s public admission of lying about Greece’s finances, bailout negotiations continue to demand commitments to an independent statistical agency. We should not take those written commitments seriously. Obviously, fulfilling these commitments comes at too high a political cost. Greece has been willing to execute several economically, socially and politically difficult reforms regarding public sector employment and pensions. All of those, apparently, were politically easier to manage than insulating Elstat from political pressure.
If financial reporting can’t be reformed, what can be?
The Elstat saga shows that, for whatever reason, creating de facto independent and effective institutions is nearly impossible in Greece. Given that, what are the chances that current commitments to reform more politically sensitive institutions — such as tax collection — will be carried out?
Greece’s creditors appear to have developed a similar sense of skepticism in the last few days. The deal reached Monday includes extremely demanding and intrusive provisions, including immediate legislative action. In particular, the Greek parliament must pass legislation to safeguard the independence of Elstat by Wednesday.
One obviously might question whether further legal changes will fail in implementation—i.e., that the de jure reforms will never create de facto change. The creditors seem particularly concerned about this, and will require direct E.U. supervision of several key areas, including public administration reform.
Effective E.U. supervision may be the only hope for fundamental change. This may break from the “extend and pretend” character of past bailouts. But, as the civil service strikes pending this week signify, we shouldn’t expect reforms of any type to be easy.
Matthew Gabel is professor and associate chair of the department of political science at Washington University in St. Louis.
Read more about Greece and the euro at the Monkey Cage:
Henry Farrell, The euro zone was supposed to strengthen European democracy. Instead, it’s undermining it
Henry Farrell, Other Europeans say they can’t trust Greece. The problem goes both ways
Stefanie Walter, What were the Greeks thinking? Here’s a poll taken just before the referendum
Mark Copelovitch, Greece votes no. Is this the end for the Eurozone?
Nicholas Sambanis, Why the Greeks rejected Europe’s bailout 
Stathis Kalyvas: Why the Greek referendum is the referendum from hell
Amber Curtis, Joseph Jupille and David Leblang: Greece isn’t the first country to have a debt referendum. Does Iceland provide useful lessons?