Why is Greece such a basket case? And what are the implications for Europe and the U.S.?

I recently participated in the Greek Power Summit 2011--Helping Greece Rebuild, which was held in Athens. Here's a wee incident that underscores how clueless and irresponsible the Greek government has become. The bulk of attendees at this confab were business and financial executives who are either Greek emigrants or of Greek descent. They went to Athens to size up investment opportunities and offer suggestions on how to bring the failed Greek economy back to life. These executives manage corporate and financial assets in the tens of billions of dollars. Yet the government acted as if they weren't there. Sure, it was teetering, but you'd think that some top ministers--or at least their high-level representatives-- might have found a few minutes to make contact with these influential executives and entrepreneurs. Not a chance. No one from the president's or the prime minister's office came by or asked us to come over and say hello. Ditto the finance ministry. Leaders of the supposedly conservative opposition? Nowhere to be found.

Athens has been telling creditors that it could raise 50 billion euros or more in a few short years. Attending this summit was Krzysztof "Chris" Walenczak, Poland's under secretary of state at the Ministry of Treasury and the man who's been in charge of that country's privatization program for the last two years. He and his team have won plaudits from impressed observers around the world. Chris shared with us fascinating insights on how Poland has successfully sold off 500 entities, with plans to sell off another 300 fairly soon. But not a single person from the Greek government was there to learn from the Poles' experience in pulling off privatizations of such major proportions. After his absorbing presentation Walenczak couldn't hold back any longer and angrily asked, "Why isn't there anyone here from the government?" And that, in a nutshell, is why Greece is falling apart.

Alas, the government's so-what's-your-problem-with-us attitude reflects the thinking of much of the population. Every evening Syntagma Square, home to the Greek Parliament as well as the hotel where we were staying, is loaded with chanting demonstrators. "Thieves! Thieves!" are the milder epithets they yell at their governors. But it isn't their pols' criminally reckless fiscal behavior that's really angering the demonstrators, it's that Greece's creditors are demanding more belt-tightening.

Last year the government did begin to make some cutbacks. For instance, automatic Christmas, Easter and summer bonuses to all bureaucrats--the equivalent of two months' pay--were eliminated. But not one civil servant from the bloated public sector was sacked. Thanks to fierce union resistance, privatizations have stalled. And the government has made no fundamental structural changes to create a buoyant, entrepreneurially friendly economy. It's no surprise that the economy is still sputtering and that deficits remain gargantuan.

On the first evening of the conference police had to block demonstrators, who'd heard rumors that government ministers were dining with us, from breaking into our hotel. So poisonous is the political atmosphere now that almost all recognizable political figures--in power and out--rarely venture into public places, lest they be physically accosted by angry citizens.

The second day of the symposium turned out to be the day that opponents of cutbacks had called for massive demonstrations. Syntagma Square was filled with thousands of demonstrators and squads of riot police. Conference proceedings were punctuated with what seemed like thunderclaps but were actually detonating tear-gas canisters. During sessions we occasionally heard the thump! thump! of projectiles hitting the hotel. Tear gas came into the lobby, and kindly attendants provided us with wet towels to cover our faces. Thankfully the violence was episodic, and no guests were hurt.

By now we're all familiar with the disasters of the Greek economy. Until 2009, when the current government took over and realized the jig was up, Greece had for years routinely cooked its books--and in such a way that would have amazed even Bernie Madoff. Moreover, the Greek economy is riddled with cartels and guilds that have effectively shut off competition. Greece experienced a terrible civil war between 1944 and 1949. The communists may have lost, but Greeks cynically say their economic doctrines won out. Greece has one of the most rigid, government-dominated economies in the world.

Forbes.com