Edmund Phelps: People see the fix that Greece is in as a moral parable that is a warning to the rest of the West. But the parable has flaws or mistakes in it. It’s far too crude to lay the crisis in Greece on an over-large welfare state, or on pandering after the votes of public employees. Germany, Holland, and Sweden have the lowest unemployment rates in Europe, despite huge welfare programs and well-paid civil servants, too. They’re saved by their horror of under-taxation. There is no such horror among the Greeks. Greece allowed its public debt and its public outlays to soar in relation to tax revenue. So the correct moral to be drawn here is spend what you like, but pay your bills on time.
Now, press reports tell us that ordinary citizens in Greece did not know of [their government’s] now scandalous under-reporting of the under-taxation. The reports say that the crisis results from—or they imply that the crisis results from—the unpreparedness of the country to determine how the costs ought to be shared and the benefits adjusted. Tax increases or roll-backs of civil service pay, or some give-backs in pensions for a while, or what? Everybody is at loggerheads. So I think the correct moral of this story is do not keep the truth from the public. We need openness, transparency. It has nothing to do with the size of the welfare state or [the level of] pay for civil servants.