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Greece’s Crisis Long in the Making

Riot police push protesters back under a blanket of tear gas during protests in Athens, Greece, on June 15, 2011. (Photo: Eirini Vourloumis / The New York Times) While the global financial crisis was in full swing in October 2008, Kostas Karamanlis, then Greece's prime minister and leader of the conservative New Democracy party, declared in a speech to his cadres that the Greek economy was largely “shielded” from the effects of the economic crisis thanks to the structural adjustments his government had initiated.

While the global financial crisis was in full swing in October 2008, Kostas Karamanlis, then Greece's prime minister and leader of the conservative New Democracy party, declared in a speech to his cadres that the Greek economy was largely “shielded” from the effects of the economic crisis thanks to the structural adjustments his government had initiated.

Not to be outdone in populist rhetoric, Karamanlis' main political opponent, Panhellenic Socialist Movement (Pasok) leader George Papandreou, reassured the Greek citizenry that, “There was plenty of money around.” Papandreou declared that, if elected as prime minister, his government would manifest “the political will” to find money for the common folk, just as it had been found to bail out the banks. Papandreou continued this tactic all the way up to his win in the national elections of October 2009.

With political leaders like these, no wonder Greece is at the edge of the abyss. For all practical intents and purposes, the country is essentially bankrupt, and it has become a litmus test for the eurozone. Greek citizens are, nowadays, making a national sport out of attacking ministers and members of the parliament and routinely staging massive demonstrations outside of the parliament, shouting, “Thieves!” and, “Traitors!” at the elected officials inside. They seem to have finally realized that the Greek political class has proven to be not only thoroughly corrupt and irredeemably irresponsible, but also infuriatingly inept, horribly ignorant and profoundly incompetent. One would be hard-pressed to identify a single Greek leader in recent years from any point on the political spectrum who possessed the ability, or the courage, to conceive and articulate a long-term vision for the future of the country's political life and pedagogically engage the public in the rebirth of a civic virtue. Similarly, the political elite as a whole – including intellectuals – has shown no interest at all in charting a national development strategy, or in tackling, in a concerted and systematic manner, the plethora of domestic and international challenges the nation faces. In consequence, whenever a full-fledged crisis – whether domestic, international, or environmental – has surfaced in the past few decades, the country has experienced significant trauma.

The Greek political system has failed tragically because, since the re-establishment of parliamentary democracy in 1974 after seven brutal years of military rule, elected officials from the two main political parties have governed via clientelist practices and undemocratic principles. Political leaders took turns locking voters into a long-term relationship based not on the delivery of public goods and a just social order, but on promises of targeted resource redistribution to party faithful. Political leaders saw the state not as an instrument for carrying out just and effective social and economic policies, but, instead, as a tool for realizing party-based goals, clientelist relations, and purely personal interests.

This undemocratic and corrosive political process helps to explain, in large part, why the Greek public administration system is so inefficient and notoriously corrupt, but it also sheds light on why the nation as a whole seems to lack a culture of public attitudes and projects built around common interests and civic life. Indeed, in a world of ceaseless competition, possessive individualism, and social decay, all too often we forget what is most critical in the idealization of true democracy: the creation of good citizens and the pursuit of the good life.

The ills and anomalies in Greek political culture are truly astonishing when we consider that Greece is a European Union (EU) member state. Greece's underground economy generates more than 40 percent of official gross domestic product (GDP); tax evasion is so widespread that it covers virtually every aspect of society, and the percentage of people on disability pensions or early age retirement far exceeds that of any other country in the EU. In addition, political scandals and financial crimes – many of them of gigantic proportions and with such severe legal and political implications that, in other countries, they would have led to the collapse of entire governments and heavy prison sentences for the culprits – routinely go unpunished. Laws are violated systematically on virtually every basic civil matter, ranging from drunk driving and double parking to smoking in public places, and often with the complicity of the authorities themselves.

Greece's sovereign debt crisis, which exploded in 2009 (the country's budget deficit stood that year at 15.4 percent of GDP) may have been precipitated by the financial global crisis of September-October 2008, but it had long been in the making. It was, in effect, a time bomb waiting to explode. In Greece, income tax rates were always very low, tax evasion massive, and Greek governments ran a continual deficit – building up an impressive stock of national debt consistently well over 100 percent of GDP. Moreover, the nation's fiscal deficit remained outside of the world's view for so long because of the systematic use of cooked statistics, which were sometimes submitted with the cooperation of the EU authorities. Even the budgetary statistics that were the basis for Greece's entry into the eurozone had been manipulated in order to present a rosier economic outlook.

The fact that Greece ran huge deficits for at least the last two decades is only part of the story. The other part is the nature of the economy itself. Greece has an economy which is not only predominantly service-oriented (based largely on tourism and agriculture), but also inefficient. The domestic market structure is characterized by a severe lack of competition and the operations of cartels, and other inefficiencies hamper Greece's international economic relations. As the eminent economist and strategist Pankaj Ghemawat noted in our recent interview, the Greek economy is in such dismal condition that even a restructuring with a major haircut won't solve its problems:

What we're praying for are reforms in the Greek economy, because if you draw a map of the world from a Greek perspective, with Greece scaled in proportion to domestic output for the domestic market (its GDP minus its exports), and other countries scaled in proportion to Greece's exports to them, it becomes clear that a real recovery is not just a matter of managing international economic relationships.

In the decade ending in 2007, Greece's GDP grew by about 4 percent a year; however, everyone now recognizes that this growth was due almost exclusively to heavy government borrowing and historically high levels of private debt and consumer spending. In a word, Greece's economic development of the last ten years was based on a bubble economy.

Again, this is not to underplay the significance of the neoliberal global crisis, especially since Greece was fully incorporated into the neoliberal architectural framework of the European economy; however, it would be quite foolish to attribute everything to international factors and to ignore the specifics of Greek capitalist development and the peculiarities of the national culture in question. The incompetent and untrustworthy way the Papandreou government has been running the country since the eruption of the debt crisis further testifies to the significance of domestic factors. After having lied to voters with his famous, “There is plenty of money around” quip in order to get elected, Papandreou completely miscalculated the reaction of the markets. First he engaged in a series of loud public outcries about Greece's debt problem and complained about the depth of corruption his country faced; then he laid the blame for the crisis on international speculators, and even on the EU. In a few weeks, the country's deficit problem was transformed into a credit issue, and the markets treated Greece as insolvent.

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As the months moved on and the crisis intensified, Papandreou ruled out seeking assistance from the International Monetary Fund (IMF) and kept on insisting that the country was in no need of funds from the EU. Yet, as was revealed much later, Papandreou approached then-head of the IMF Dominique Strauss-Kahn for IMF intervention only two months after the Greek prime minister had taken office. Papandreou did not confirm to the Greek people that he would ask the IMF for help until late April 2010.

When a joint eurozone-IMF bailout plan was introduced, Papandreou accepted the conditions without a fight. The former foreign minister (who held that post from 1999 to 2004, in the cabinet of then-prime minister Costas Simitis) seemed to have lost whatever negotiation skills he may have had. The conditions for the bailout entailed harsh austerity measures, including sharp reductions in budget expenditures, sharp cuts in pensions and wages, sharp increases in value-added taxes, an increase in the average retirement age, and rapid privatizations of state assets. Furthermore, the French and Germans insisted that their military dealings with Greece be a condition of their participation in the bailout plan. On top of all that, the $110 billion bailout plan carried a 5 percent annual interest, a much higher interest rate than Greece borrowings carried before the country was shut out from international credit markets.

In the nearly 13 months that have passed since the activation of the bailout plan, the Papandreou government has managed to confine itself to merely executing the plan. It has not done a single thing to combat corruption, to fight tax evasion (it has been estimated that big businesses and wealthy individuals owe more than $40 billion to the state in overdue taxes, while Greek tax fugitives have stashed some 600 billion euros in Swiss bank accounts), or even to reduce state expenditures and undermine the power of vested interests. The Papandreou government's inability to promote and protect any sense of a common good in these historically hard times has infuriated the Greek citizenry, probably as much as the austerity conditions imposed by the EU and the IMF. Papandreou's current public approval ratings are at barely 20 percent.

Adding insult to injury, the last government reshuffle threw to the sidelines those ministers who stood against the privatization of the Power Electric company and who insisted on applying the rule of law for environmental protections. (The former finance minister Giorgos Papakonstantinou, widely regarded as being as unreliable and untrustworthy as the prime minister himself, was moved to the Ministry of the Environment, where now – as the joke among folks on the streets would have it – he can instill as much damage to the environment as he did over the economy.)

The EU's handling of Greece's debt crisis has been a dismal affair at best, and a fine display of the huge void in European leadership. The bailout plan was nothing more than a sure way to secure payment for the banks and the private bondholders and drag the economy further down the neoliberal path. The expectation that the austerity measures and fiscal discipline imposed on Greece would lead to growth and allow the country to regain access to the international credit markets by mid-2011 proved to be a mirage. The nation's GDP shrunk by 4.5 percent in 2010, and it is expected to decline by another 4 percent in 2011. Unemployment rose to 16 percent (although many labor analysts estimate the actual unemployment rate to be close to 20 percent), and wage earners and pensioners saw their incomes slashed by as much as 30 percent. The harsh conditions of the bailout plan also ensured that the economic crisis brought with it political unrest and social turmoil. Public anger is brewing now to truly dangerous levels, and violence by police and demonstrators is widespread.

The midterm fiscal plan currently underway is a condition of the bailout plan and was approved by Pasok parliamentary members just a few weeks ago. It envisions deeper cuts in wages and pensions and the adoption of a privatization plan similar to the one implemented by former East Germany, which involves direct supervision by EU and IMF representatives and various corporate intermediaries. This is a plan through which, as Eurogroup Chairman Jean-Claude Juncker said recently in an interview to Germany's Focus magazine, “The sovereignty of Greece will be massively limited.”

At the same time, the EU is getting ready to rescue Greece from bankruptcy with a second multibillion-euro bailout (estimated to be anywhere from 80 to 100 billion euros) and to administer an even heavier dose of neoliberal medication to a barely breathing patient. As with the first bailout plan, it is certain that the Papandreou government will merely go along for the ride (the prime minister is assured of a high- ranking position in the EU once he is kicked out of office in Greece). And, as recent developments have revealed, Papandreou's government will do anything in its power to break the backs of demonstrators who stand in the way of their country's conversion from a corrupt republic to a corrupt banana republic.

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