Go to Athens and you will see the problem very clearly. The habour is full of yachts, the streets are jammed with luxury cars and the people covered in designer labels and bling. This is a wealthy place, you might think, then look at little closer. The place looks like a building site and here's why: in Greece you pay no taxes on a building 'til it's completed, but since the weather is fine all year anyway, why not just leave the top floor unfinished? And they do, private individuals and corporations alike.

You see, the Greeks want a level of government spending like Germany or Sweden. They're even willing to vote in the taxes to fund it. But they're not willing to actually pay those taxes, and so they just don't. Greece is a poor country full of rich people. In that sense the austerity measures will be easy to implement: corruption is everywhere. As is a strong sense of entitlement... Compare that to Germany or Sweden where paying your tax is seen as a civic duty.

I did quite like the German idea that the Greeks ought to sell off their islands to other countries to raise cash.

It runs deeper than that: Greece is the last Stalinist economy in Europe (despite never being behind the Iron Curtain).

The government is so massively bureaucratic and corrupt that most people there consider it foolish to pay taxes to such an entity.

This article goes into the background, and, on a hopeful note, suggests how that could change in the future: http://www.aei.org/article/101804

To give you some idea: if you want to start a company, it will take you a minimum of 40 days to visit various bureaucrats and get permissions.

When you hire employees they will come with union strings and have a Soviet-era worker mindset (i.e., they can do whatever work they want, incompetently or not, and they still expect to get paid, etc.), which is probably where the phrase comes from.

The Calomiris article goes into more detail.

"Mildly socialist, corrupt and inefficient" is how any economist who has a brain, local or otherwise, would describe it.

"Stalinist" is for Sarah Palin, the Tea Party and other groups who are more concerned with "impact words" than actually understanding anything.

EDIT: Just to make it more clear how inaccurate and inflammatory that comparison is, Stalin by many estimates killed more people than Hitler. I'll repeat that. Stalin by many estimates killed more people than Hitler. Want to rethink the comparison maybe?

Their references to that term allude to red tape on a large scale, centralized economic planning, indifferent and unmotivated labor, etc., not the death camps and killing.

(And that last phrase reminded me of this: http://bit.ly/bh96ml apropos of nothing).

PS funny skit

This. Athens reminded me a little bit of Cairo, with mile after mile of "unfinished" occupied buildings.

It seems also that good policy is a major problem. No taxes till complete? That's fine, now make it illegal to move into an incomplete building. No sane person can make a rational argument that people should be able to move into construction sites.

Maintaining a house no one lives in is pretty expensive, so there's every reason to have someone move in as soon as the house can manage weather protection, food storage, and ventilation. Further, if you're personally involved in advancing those concerns, you're already spending at least 10 hours a day in the building. Now, leasing the place out while there are holes in the floor is probably against a law, but there's no reason why buildings couldn't be continuously developed incrementally with user feedback. And occasionally, they are.

Interesting. The exact same thing happens in south Italy.

* European countries are too small to be meaningful in worldwide economic (or military) matters: our markets would be too atomized, we wouldn't have any negotiation power unless we "harmonize" our positions: I'd rather have the decisions be taken together, rather than harmonized as an afterthought.

* Granted, today Brussels doesn't work democratically and lacks real power, especially when it comes to monetary policy. Giving real power to that shapeless bureaucracy seems stupid at first sight. For European elections, most parties are attached to a single country, have "national" (i.e. totally off-topic and inapplicable) programs, aren't kept accountable for anything once elected; the vast majority of voters either don't have a clue what a Euro-MP's purpose is, or would bet that they have none.

But all of this would change quite rapidly, if Brussels was to get some real, strategic, intelligible power: real programs would become defensible during elections, the purpose of real pan-European parties would become clear, and if elected people ran on a real program, they could be held accountable of it (well, at least as much as in normal democraties anyway).

But I do not see why we should see harmonization as so important. Unilateral free trade is always possible. Also, Switzerland seems to be doing fine as a small and independent country.

Besides, free trade is a fairy tale: we practice free trade according the WTO rules, but the real business is the negotiation where WTO rules are decided. As Europe, you've got enough weight to have your word, as most businesses can't afford to forgo the whole European market. Most of them can forgo France, or Germany, or Spain.

> Besides, free trade is a fairy tale: [...]

That's because politicians/diplomats are negotiating free-trade as if it was a prisoner's dilemma. But you can lower tariffs unilateral.

And there are people who regard fiscal competition (or other regulatory competition) as a good thing.

Could you please explain your argument about inflation? Couldn't each country decide on its own inflation, without harmonization nor a common currency?

Let's say we have 10 countries, with an identical GDP of 100 billion, and 10% flat tax rate. Let's say they agree on what's the minimum decent level of public services (health care, education, roads, wars abroad, prisons, car makers and bank bailouts...), and it cost just these 10% GDP raised by taxes.

On day 1, everything goes smooth: everyone needs 10 billions, has 10 billions, spends them. Now, a country decide to lower its tax rate to 5%. Taxable activities move massively to this country, their GDP soars to 300 billions: they've now 15 billions of income tax, that's great for them; but other countries have only got 9.4 billion left, they're below their bare minimum income. They'll have to choose between suppressing some public services, and protect themselves against the dumping countries (i.e. make it artificially impractical for companies of the dumping country to do business in the rest of the union).

Now, if the dumping country is much smaller than the others, it can do some dumping without hurting other, bigger countries too much with the drain. That's why dumping countries are usually small ones: the smaller the country, the more we let it get away with.

The dumping mechanisms encourage to lower taxes, at the expense of reduced public services. In some countries, limiting public services is ideologically considered a Good Thing (and for some reason, people don't realize that wars and prisons are public services). But limited public services are correlated with higher stress, and higher crime rates. That's not the lifestyle most Europeans want: so we have to protect our taxes. Don't forget that there is already a strong control feedback on taxes: voters don't enjoy paying them, so most taxes that can be suppressed or lowered under acceptable conditions are cut ASAP.

> Couldn't each country decide on its own inflation, without harmonization nor a common currency?

Without a common currency you can handle your own inflation.

But if there are many different moneys in a market, and they fluctuate relative to each other, it's much more difficult to make business. Moreover, when countries have independent monetary policies, they eventually indulge into protectionism (although they try to disguise it into something else). Therefore there's no more common market, with the corresponding economies of scale.

Before the Euro, european countries already had a "monetary snake" system which limited money fluctuation and ability to indulge into protectionism, to favor business inside Europe.

Finally, being known as unable to raise inflation has a positive effect: since lenders are confident that Euro can't be significantly devalued, they consider the loan as less risky, and therefore accept lower interest rates. Look at Greece: people are afraid that the country might go bankrupt, so they only lend at high interest rates, putting Greece into further trouble. Know, imagine that Greece was able to devalue its currency through inflation: lenders would anticipate massive inflation, and protect themselves with outrageous interest rates. The alternative for Greece would be to borrow into a stronger, foreign money, but then if their economy tanks, the debt would explode with soaring exchange rates, and the whole country would default. Given this high risk of default, interest rates would soar even if labelled in a strong currency.

Being tied to a strong currency, with some rules which keep it strong, forces you to drive your economy responsibly. Unfortunately for Greece, the Euro rules weren't strong and enforceable enough to prevent their politicians from acting irresponsibly. Know they're going to pay...