Sunday, 31 October 2010


Another big news item this week was Greece’s continued slide down the scale of Transparency International’s Perceptions of Corruption Index to the dubious accolade of ‘most corrupt EU country.’ I simply cannot summarise my impressions on this better than the inspired Twitter user @divinejudge1 [note by ‘lower corruption’ he means ‘lower transparency score]:

But that’s just perceptions. How about a stab at the facts? Well, there's no facts to be had about corruption but as readers may recall, I am particularly fond of a particular methodology for measuring the size of the shadow economy, which I also cite here.

According to Schneider (here), after a bumper year in 2009 when it grew by 0.3%, the Greek shadow economy is due to shrink by 3.2% this year, on the optimistic assumption that GDP is going to fall by 4%. Schneider’s estimate is that Greece’s shadow economy should reach 25.2% of GDP this year – still comfortably the largest in the EU in relative terms but also just barely over 2007 levels.

These figures underscore the point made by the IMF in its recent review of our adjustment programme: the resilience of the shadow economy is no insulation from the pain of recession or fiscal austerity. When the informal sector is large enough, it invariably comes to depend on the formal sector for demand. Fans of decoupling narratives always come to grief in this way and when they are governments the implications can be severe. I remember being subjected to this narrative by some of our leading lights back in 2008 – the same people that told me to stop worrying and learn to love the deficit.

Of course some academics will rush to explain that these ‘perceptions of corruption’ are just another bourgeois construct, or a way for the Americans to put us down and that the formality of economic activity is irrelevant. 

To this I can only say: try to read through this without rolling it into a joint.

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