Can we avoid Greece’s fate?

It’s the subprime scandal all over again. Not content with having demolished the global economy once by turning worthless mortgages into AAA-rated debt, it turns out that investment banks – in this case Goldman Sachs – helped Greece during the past decade or so to create the illusion that it was a fiscally responsible nation.

I imagine that this is the sort of thing Lord Adair Turner meant when he made his much-derided comment about some financial activity being “socially useless”. And he’d be right. In fact, it’s downright socially harmful. Banks have effectively been paid good money to provide financial gimmicks that allow governments to cook their books legally.

As the EU’s statistics agency Eurostat said as far back as 2008, “in a number of instances, the observed securitisation operations seem to have been purportedly designed to achieve a given accounting result, irrespective of the economic merit of the operation”.

So what’s the solution? As you might expect, the punditry at large is calling for more regulation. But what form such regulation might take is less clear. You may be able to create some sort of rules to stop would-be homeowners from borrowing too much against their incomes. That’s shutting the stable door after the horse has bolted, but it shouldn’t be hard to do.

But how do you stop recalcitrant governments from misbehaving? Greece has a long history of being a bad credit risk. Its problems don’t stem from Goldman Sachs finding a clever way to make it look good, its problems stem from spending too much money it doesn’t have. And we can’t sneer at the Greeks. Our own government has shunted plenty of debt off its own balance sheet using the private finance initiative, among other accounting wheezes.

In the end, the only people who can hold governments to account are the voters. That’s why one Conservative election promise should be drawing more praise than it actually has. The party says that if they get into power, they’ll publish online in full the details of all government contracts worth more than £25,000, starting from 2011. The idea is to make government spending more transparent and “root out waste”, says shadow chancellor George Osborne.

This strikes me as a great idea. It’s easy to talk about spending cuts. But what we really need is to get better value for the money we do spend. Once the electorate is aware of exactly where our cash is going, we might be less tolerant of this idea put about by Gordon Brown that “all government spending is good”. We might realise that not all spending cuts need be painful ones. And that in turn might be our best chance to avoid Greece’s fate.

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