Debt crisis is caused by corruption

Corruption is to blame for the economic mess that the EU has landed itself in, according to a new study. Many southern European countries are so corrupt that people refuse to pay taxes to the state. The result is that these countries are on the verge of bankruptcy. (Photo: Colourbox)

Corruption is a very big part of the reason why Europe is currently facing huge economic problems.

A new research project investigates what impact corruption has on the various EU countries during the debt crisis.

“There are many indications that the Greek crisis is closely linked to corruption and the problems it causes. The former Greek prime minister even said I could quote him on that,” says Professor Bo Röthstein, of The Quality of Government Insitute at the University of Gothenburg, Sweden.

“And like Greece, Italy also has a low credit rating. These two countries are finding it difficult to borrow money. The reason is that high levels of corruption lead to low credit ratings.”

Röthstein heads a new and comprehensive study into corruption, involving researchers from 16 countries. The EU has invested €8 million in the project with the aim of identifying the obstacles that prevent us from getting rid of corruption. This is the largest single grant for a social science project in the EU to date.

Corruption leads to a lack of tax revenue

In Greece, it’s common to pay black money to public employees, e.g. doctors. This is the only way to gain access to public services, argues the researcher.

Modern left-wing citizens in corrupt countries such as Greece do not trust that higher taxes will lead to more welfare. (Photo: Colourbox)

“The result of this is that tax fraud has become a national sport. People don’t want to pay black money while also paying taxes. So it ends up with people cheating on their taxes,” he says.

“This is why it’s difficult for Greece to get revenue through taxes. It’s a very serious problem for the country because its budget deficit is so great that no-one dares to lend it money. It’s risky to lend money to a country that cannot finance its repayments through taxes.”

Corruption creates distrust in the welfare

An early part of the project has analysed how a representative sample of EU citizens relate to taxes and corruption.

Röthstein says they have compared moderate left-wing citizens in countries with low corruption – the Nordic countries – with an equivalent sample in countries with high corruption – the southern European countries.

“The citizens were asked whether they would be prepared to pay higher taxes if they were given more welfare,” he says.

“They all shared the same ideological beliefs; however, we found that only the citizens in the least corrupt countries were willing to pay higher taxes. Those in countries with high levels of corruption did not expect that higher taxes would lead to more welfare.”

Scandinavia has the lowest corruption

So corrupt countries have trust problems both in relation to foreign investors and their own citizens.

This ultimately means that the least corrupt countries perform best during the crisis, argues Mette Frisk Jensen of Aarhus University’s Department of Culture and Society. She is the only Danish researcher in the project.

“The levels of corruption play a big role in a society,” she says. “It’s therefore important that we find a way of developing reliable institutions and a social order that leads to less corruption.”

“As early as in the 19th century, Denmark took some important steps in that direction. The development in public administration and the legal history that has been established in recent centuries is probably a major part of the reason why Denmark is currently one of the world’s least corrupt countries.”

On a global level, corruption in both the public and the private sector is more the rule than the exception. Seen in this light, the very low corruption in Denmark and the other Scandinavian countries is quite spectacular.

A change of attitude is necessary

Although the research project has only just started, Röthstein has some general estimates of how the rest of the world can reach a level of corruption like that in Scandinavia.

“The politicians need to send out signals strong enough to make all citizens change their attitude. Most people who are involved in corruption believe it’s pointless to change course unless everyone else does so too. So it’s all about creating a collective attitude,” he says.

“But it’s a complex problem and we can’t just write out a prescription and solve it all. We know a bit by now, but it’s still too early to make our suggestions official.”

The state needs to have credibility

The Swedish researcher mentions some general factors that appear to have an effect on whether a society has low corruption. These factors include:

• Education
• Extensive welfare
• Equality between men and women

“It’s important that the state doesn’t only serve the political elite – but all of its citizens. Therefore, the state needs to establish trust by distributing public goods,” says Röthstein.

“But the problem bites its own tail. In a corrupt society it’s difficult to convince people to pay the taxes required to make this possible.”

The ANTICORRP project is sheduled to run over the coming five years.

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Read the Danish version of this article at videnskab.dk