Tuesday, November 8, 2011

Call it "the political lag" if you wish

Greek prime minister George Papandreou has finally resigned after guiding Greece through multiple bail-out packages and adopting various reforms. When Mr. Papandreou started as prime minister in October 2009 the crisis in Greece was escalating. It was then announced that Greece had constantly underreported their finances and Greece's situation is far worse than bad. Greece's budget deficit was over 12% of GDP at that time.

After multiple confidence votes Mr. Papandreou has raised taxes, cut costs, let public workers go, introduced multiple reforms like the one aimed at reducing tax evasion - everything you would expect from a prime minister handling the biggest crisis in country's modern history. Yet his popularity has suffered greatly. According to recent polls over 70% of the people are not satisfied with Mr. Papandreou's handling of the crisis. Again, something you would expect after tough austerity measures that leaves no one untouched.

My sympathy lies with Mr. Papandreou. It's much easier to be a populist politician lowering taxes and raising salaries. The people love you.. After all that's what the Greeks and Romans did in ancient times when the emperor was becoming unpopular - held celebrations and gladiator fights. Mr. Papandreou is the victim of those earlier governments that were overspending and doing little to carry out reforms. From here the term "political lag" as well.

I have argued this before that current democratic system tends to reward those politicians that are not obeying the rules (being populist). The outcome of one's faults are handled by future governments. That's why I find it important to introduce so called governing in accordance with the rules. The principle is simple - the government is allowed to govern until it obeys the rules.

For example if Greece were to enter into its legislation that their budget deficit could not surpass 3% of GDP as eurozone rules require then the government that is unable to obey this limit would step down and new government would be elected or the power would automatically be handed over to opposition. After all the elected government is responsible for their promises during elections as much as they are responsible in obeying the rules agreed before them.

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