Greece Needs to Tackle Cartels – But Can It?

(by Andreas Stephan) An EU task force sent to Athens in January have suggested that removing obstacles to competition – estimated to cost Greece around 1% of GDP (€2.5bn a year) – would help to restore its competitiveness and contribute to controlling the current Greek economic crisis. As well as the need for greater liberalisation in Greek markets, collusion is thought to be a big problem. But in the light of its business culture and public sentiment, can cartel control be made effective in Greece?

Although Greece has a modern cartel enforcement regime in place – complete with leniency programme and now criminal sanctions – leniency applications are thought to be few and far between. The problem is partly a cultural one. 500 years of Ottoman rule (Τουρκοκρατία) left modern Greeks with an inherent distrust of authority and government institutions; compounded by widespread corruption. Greece also has a close-knit collectivist culture in which many businessmen know their competitors personally – some even have family ties. Against this backdrop, whistleblowers are deterred by social constraints. Leniency applicants may also be put off by the widely reported scandal which surrounded the Hellenic Competition Commission (HCC) in 2006. The then Director General of the HCC was arrested on corruption charges after it was alleged he received a bribe from a dairy firm under investigation, in return for leniency.

What then can the HCC do to encourage whistleblowers? The prospect of serving jail time could persuade otherwise reluctant leniency applicants to come forward, but will only be effective if at least one conviction is secured to make the threat credible. Offering a handsome reward to individual (disgruntled) employees who report a cartel has had some success in Korea (as well as in tackling fraud and tax evasion in the US), but this use of public money may be politically unpopular.  Programmes of public education (for example in Universities) could help; cartels are frequently discussed in Greek newspapers, but there is a popular misconception that any price rise must be caused by cartels. This has resulted in many condemning the HCC as ineffective. Case selection is also crucial.  By focusing on markets which directly affect final consumers and bid-rigging in public procurement, the HCC can attract positive media coverage of its enforcement and expose the nature and cost of such practices.

Multinational firms operating in Greece could prove a very useful ally in jump starting leniency. These will be familiar with competition compliance standards generally expected in the US and other jurisdictions (Coca-Cola is one firm that spends money promoting competition law compliance in Greece). They should also be more willing to cooperate in return for immunity, by virtue of their being insulated from Greek business culture. Generally, whenever there is a change of ownership (even if it only involves Greek firms), the HCC should create strong incentives for the parent firm to audit and stamp out collusive behaviour, promoting compliance in the industry.

Competition law enforcement in Greece not only has the potential to ease the current economic crisis, but may also contribute to a fundamental change in culture. The success of Greeks outside of the Hellenic Republic – at the highest level of business and politics in Europe, North America and Australia – hints at the potential economic success of Greece in the presence of strong institutions and effective enforcement. Successive Greek governments – both conservative and socialist – have allowed corrupt and collusive practices to fester, feeding into a general acceptance that underhand deals are ‘normal’ in Greece. Perhaps the current economic crisis – arguably the most severe in Greece’s post war history – coupled with strong pressure from its EU partners, will force the necessary culture change to secure a brighter economic future?

But this may be optimistic.  Greece’s public deficit (meant to remain within the Eurozone limit of 3%) has now exceeded the 12% mark. The failure of successive Greek governments to curb public spending has also resulted in Greece becoming as much as 30% less competitive in relation to its Eurozone partners since 2001, thanks to higher wage and price inflation. Some have even suggested that Greece will have to leave the Eurozone in order to cure its economic woes.

In a country where the people readily exercise their democratic right to take to the streets, the painful public cuts in spending, wages and pensions will almost certainly result in civil unrest and mass industrial action. Policies are needed to help balance the budget and stimulate growth, while easing the painful spending cuts. Tackling widespread corruption of public officials, reducing the enormous black economy (around 30% of GDP is thought to be hidden from the taxman), reducing  government barriers to free competition, and making it easier for business to set up in Greece (currently ranked 109th in the world for ease of doing business) would be a good start.

Andreas Stephan

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