It’s the 70s. A small Mediterranean country of a historic past and turbulent present is undergoing an economic miracle. Greece’s economy is thriving, industries are springing like mushrooms, and people are creating new urban cultures in a country previously plagued by World War II Occupation and Civil War. Annual growth rate averages nearly 8 per cent, and this Southern European economy is outperforming all the behemoths of the North.
Now it’s 2015. Greece’s unemployment rate has reached 25 per cent, 48.6 per cent of Greeks below 25 are on the dole, pensioners are coping with shrinking pensions already slaughtered by 46 per cent , and 30 per cent of the Greek population live below the poverty line.
How did this roaring economy of the second half of the 20th century go astray?
At the top of the blame pyramid sits political mismanagement. In exchange for votes and power, governments led alternately by the center-right New Democracy party and the center-left PASOK spread a pandemic of corruption and “laidbackedness” in an ever-burgeoning public sector of excessively generous worker pay and pens
ions. The allure of fast money eroded ethical standards in the country to the point that tax evasion became rampant.
On the other hand, the destabilizing rush of foreign dollars into rapidly growing economies like the Greek one, let alone Wall Street firms such as Goldman Sachs, which “chipped in” to aid the government to fudge statistics and hide its debt levels from the Eurozone, also conduced to the Greek economic debacle.
Greece, with considerable structural problems and a cavernous gap between revenues and expenditures, was fragile. When Wall Street imploded in 2007, the nation became the epicenter of Europe’s debt crisis. Over seven years of recession, Greece has turned over to the Troika (the European Commission, European Central Bank, and International Monetary Fund) for its fiscal survival. The Troika has bailed out Greece thrice: in 2010 with a 110-billion-euro ($123 billion) rescue package, in 2012 with 240 billion euros ($272 billion) and this year with an 86-billion-euro ($95 billion) program. Borrowing from the Troika comes at a huge price, however: the Greek debt mountain is due to amount to 180 per cent of GDP near the end of 2015.
Of all the bailouts, it is the third that seems the most Thatcher-esque. In mid-October, Greek lawmakers passed a legislation to unlock a tranche of loans worth 2 billion euros ($2.3 billion). According to the legislation, Athens must implement public spending cuts and tax hikes in order to receive 86 billion euros over three years. Greek pensioners must stomach more cuts in already butchered pensions, Greek vulnerable social groups will receive half the heating allowance of 2014, Greek self-employed workers will pay heavier taxation and so on and so forth.
Interestingly, Greece’s governing party is left-wing and fiercely anti-austerity—at least before the national elections of January 25. Syriza assumed power after resoundingly pledging to end the vicious cycle of receiving-bailouts-to-pay-off-debts.
“We reject ultimatums,” declared Mr. Alexis Tsipras before the elections.
“We call on voters to give a “proud ‘No’ to ultimatums and those who terrorize you,” vociferated again Mr. Tsipras, this time days before the (Gr)eferendum of July, 5, when Greeks were asked to vote yes or no to the new austerity package, interpreted by the world as basically yes or no to the euro. A blatant no came out of the ballot box.
Nevertheless, over the next weeks Alexis Tsipras signed the vindictive third memorandum. The EU taught a harsh lesson to those stepping out of the line. Laureate economist Paul Krugman, who calls the reforms “madness”, categorically states that Greece has lost sovereignty and stands no hope of recovery under these reforms.
Even the Eurocrats themselves are not sugarcoating the pill. “The sovereignty of Greece will be massively limited,” former President of the European Commission Jean-Claude Juncker told to Germany’s Focus Magazine in 2010 while then-European Council President Herman Van Rompuy nonchalantly said that member states cannot be allowed to make autonomous decisions as solidarity means a loss of sovereignty for all.
The quandary between solidarity and sovereignty dates back to the formation of the EU itself. The Treaty of Lisbon introduces the concept of “shared sovereignty” and sets out in detail the principles governing the transfer of sovereignty from the member states to the Union. They are the principle of conferral, the principle of subsidiarity and the principle of proportionality—with the proportionality one being the most “national-friendly” (albeit sufficiently obscure to be interpreted at will).
The EU is defined not solely as a political union but—predominantly—an economic federation, created with the ultimate purpose of a strong European currency able to counteract external threats (like the dollar). In reality, the EU is a consortium of antithetical economies. Can heavily industrial, export-economies like the German or Dutch ones share a common currency with economies of the South, “exporting” mostly tourism and agricultural products—and “brain” as of late (see brain drain)?
In July 2015, 62 per cent of Greek citizens who had endured austerity for seven years were bent on abandoning this “capricious” union of economies. The Syriza government appeared to be driving a hard bargain but, in the end, it bowed to Brussel’s dictates. The bete noire for the Greek government was the repercussions of the explicit threat of getting kicked out of the euro.
Many economists predict doom and gloom if Greece reverts to its old currency, the drachma. Greek public debt, totaling 322 billion euros, would rise automatically in relation to the amount of the depreciation of the drachma, multiplying Greek borrowings. Unpaid wages and pensions, deficiencies in basic stuff, huge capital flight–an inevitable catastrophe was looming over Greece.
Interestingly enough, when Southeast Asian countries, Russia and Iceland were on the cusp of collapse, they devalued their currencies, made reforms, punished the culprits and started growing.
Financial theorists state that the greatest difference between those countries and Greece is that in case Greece leaves the monetary union and re-adopts drachma, which will inevitably be devalued (that’s the point of reverting to it), denominated in euros public and private debts will further aggravate the debt burden. The Union’s “favorable” low interest rates have certainly given a “helping hand” in trapping the troubled country in the vicious cycle of borrowing-to-repay-lending.
To repay loans, earlier this week Greek MPs ratified the 2016 state budget which aims to make €5.7bn from tax hikes of €2bn and public spending cuts including €500m in defence and €1.8bn in pensions.
Every last of the month, Greek pensioners anticipate with trepidation the bank withdrawal receipt. They calculate the new reductions in pensions and shake their heads as to whether they will live to see their pensions sinking to Bulgarian levels, with the former Eastern Bloc country emerging as an investment and taxation haven. The left-wing Syriza government is following in the exact footsteps of its predecessors. Much worse, it has ignited a climate of political apathy among those who view the right and the left as misleading categories in the Machiavellian world of politics and the EU as an autocratic, self-serving monster with a grin forming the name of solidarity.