Home About Us Archives September 2012

Op-Ed: Untangling The Greek Gordian Knot

E-mail
Print
Share This Page
Increase Text Size Text Reset Decrease Text Size

BRUSSELS — Numbers are not enough to depict the Greek drama, which has not abated despite a late summertime lull, but I will give it a shot: Unemployment has hit 23.1 percent in the general population, and it has exceeded 50 percent among the youth. Whoever loses his or her job in Greece today has virtually no prospect of finding another one in the foreseeable future.

The Athens Stock Exchange has lost almost 90 percent of its value in comparison to pre-crisis levels, and two-thirds of registered companies published losses in 2011. House prices have plummeted between 20 percent and 50 percent, while non-performing loans now exceed 15 percent. Accumulated GDP contraction is projected to exceed 20 percent between end 2008 and the end of 2012. The economy has been in a recession for five years now. Suicides jumped by 22 percent between 2010 and 2012. Greek police data show significant increases across the spectrum of violent crimes (thefts, robberies, rapes, homicides, etc.). The number of homeless people has also grown by 25 percent over the last two years.

Moreover, an ever-increasing number of insurance companies refuse to insure exports to Greece. Oil and gas suppliers require down payments in cash to provide fuel to the country. Virtually all private utility suppliers have gone bankrupt and the state providers are facing an unprecedented cash crunch due to the inability of households to pay their bills. Thousands of apartment blocs, even in the middle class neighborhoods of Athens, did not have heating last winter because the owners of their flats were unable to pay service charges. Hospitals lack even trivial supplies. The Greek state owes 6.7 billion euro to its suppliers, who, in turn, are unable to pay their own bills and employees. Greek banks have suffered huge losses, due to the recent debt restructuring, and are essentially unable to provide credit to the economy, which is verging on the brink of a full-blown depression.

a8.oped.greece.economy.story
Photo: Alexandru Nika / iStock
A woman holds a flag in front of the Greek Parliament during a protest in 2011. Greece's economy has been in recession now for the past five years.

In short, all the little things that place a society in the developed world — being able to find petrol for your car in the local gas station, adequate health care, flats with heating, the sense of reasonable security, a job — are being called into question in Greece. The people in my country cannot be sure what currency they will be using in a few months, if they will be able to travel, if they will be able to make ends meet for themselves and their families.

The daily routine in Athens is indeed a true nightmare: The center of the city is closed almost every day to street rallies. Massive traffic jams are making the lives of Athenians miserable. Garbage collection, public transport and even the electrical supply are disrupted by recurring public sector strikes. Historical landmarks are vandalized by alienated youths. The streets of downtown Athens are littered and full of beggars, neoclassical buildings have been burned down in violent riots, and the center of the city is stricken by crime, illegal immigration and poverty. Under such conditions, extremism finds fruitful ground to grow.

On top of all that, Greeks have to endure daily humiliation in the international press, demeaning comments from European politicians, and borderline racist behavior when abroad. Humiliation, desperation and the rapid deterioration of living conditions, due to the economic implosion, have backfired: Chrissi Avgi (Golden Dawn), a once-fringe neo-Nazi party that was barely registering a few thousand votes in previous polls, attracted almost 7 percent of the vote in the last two parliamentary elections, and elected 18 MPs. The growing influence of such a party — in a country that suffered hundreds of thousands of deaths during the Nazi occupation and is proud for its valiant resistance to fascism and authoritarianism during the Second World War and the Cold War — is indicative of the desperation of the Greek society.

It seems that not only German populist newspapers like the Bild have forgotten that hundreds of thousands of Greeks died from famine during the occupation by a still-living generation of Germans — the Greeks have also forgotten it. Populist media in Greece compare Chancellor Angela Merkel with Adolf Hitler, anti-austerity demonstrators often burn German flags in the streets, and there have even been a few reports of violent attacks against northern European nationals and tourists (though such incidents are still extremely rare).

The worst of it all is that there is no end in sight and, despite the sacrifices, we are back to square one: Due to the prolonged pre-election paralysis, a more severe-than-anticipated recession, as well as Greece's weak administrative capacity, the troika of international lenders (European Union, European Central Bank, International Monetary Fund), who are in Athens these days has concluded that the implementation of the second "Economic Adjustment Programme," which was agreed to last March, is way off track. A higher deficit and shrinking GDP mean that Greece's debt dynamic is fast becoming unsustainable once again, despite the recent haircut. Now, both Greece and its troika lenders are faced with two equally unappealing options: either to enforce more austerity measures in an economy already on the brink of depression, or allow for a renegotiation of the terms of the bailout agreement.

Greek Prime Minister Antonis Samaras has warned that the country is headed for bankruptcy in October if it doesn't receive additional assistance, though he says that assistance doesn't necessarily mean extra money — just more time. "All we want is a bit of 'air to breathe' to get the economy running and to increase government revenues," he told Germany's Bild newspaper.

But just as it's doubtful that more spending cuts are politically feasible in Greece, it's also highly doubtful that euro-area governments, namely Germany, will commit to a slower pace of deficit reduction for the beleaguered country.

Some self-proclaimed experts on Greece have suggested that there is no solution to the Greek predicament, other than abandoning the eurozone. They are dead wrong. Greece does not have a currency to devalue. It will have to introduce a new currency from scratch, while already being in a state of default. Such move would be suicidal, especially for a country that is not a net exporter of raw or manufactured goods. No one will be accepting drachmas in return for oil, fuel or medicines. If it abandons the eurozone, Greece will implode, and the West stands to lose as much as Greeks themselves from such a catastrophe, both in geostrategic and economic terms.

Others say that austerity is the problem and that Greece should be allowed to follow expansionary Keynesian policies. But when your debt is already 160 percent of GDP, expansionary policies are not feasible. Moreover, even if they were, they would solve none of the structural problems of the Greek economy, namely public finance mismanagement, lack of export-oriented enterprises, and weak administration.

So if Keynesian policies are unfeasible and counterproductive, a return to the drachma suicidal, but the imposition of more austerity measures is also intolerable, what can be done to heal the wounds of Greece's despair?

The first thing is that insults and national humiliation undermine the legitimacy of the Economic Adjustment Programme. The new government already has a herculean task ahead of it and comments like those recently made by several European politicians only make things worse. Millions of Greeks have paid dearly not only for their mistakes, but also for the mistakes of their governments and the incompetence of European oversight institutions.

The second prerequisite to avoid catastrophe is to tell the European and Greek taxpayers the truth at last — that there are no quick fixes, magic formulas or easy solutions. The Greek economy and the Greek public administration need a complete overhaul from scratch. This will take years and sustained efforts. But the alternatives are catastrophic for both Greece and the eurozone. All this should be made clear to the citizens.

Restoring the competitiveness of the Greek economy and changing its structure is the only way for the country to survive in the absence of cheap credit. And the result of the recent elections shows that the Greek people have already realized this. But consolidation efforts should not be focused on the achievement of fiscal targets only. On the contrary, conditionality for the disbursement of cash from the bailout mechanism should be tied to meaningful reforms that will improve the quality of life of the Greek people (e.g. reduction of bureaucracy). Lest there be no doubt: Vested interests will resist reform to their last breath. But it's either them or the survival or Greece.

a8.oped.greece.economy.author.story
Nikos Chrysoloras

The fourth prerequisite to avert a cataclysmic social backlash is to do more to spread the burden of adjustment in a manner that is socially just. The troika has so far refused any responsibility for the fact that its predictions regarding recession and the social impact of the measures adopted were all dead wrong. It is high time its executives admit that 'mea culpa' and then try to bring the Adjustment Programme on a more socially sustainable path and pursue "growth-friendly" consolidation.

Furthermore, new computer software and "know how" for Greece's ministries can also improve Greek public administration with negligible cost for the European taxpayer. The Greek government has already asked for such assistance in the form of an EU Task Force for Greece; so far, the task force has not managed to produce tangible results.

Moreover, eliminating uncertainty is the key to stopping Greece's economic implosion. Although austerity measures imposed by Greece's international lenders certainly have an adverse effect on growth and suppress output, the fact that the Greek economy is in such a comatose state is mainly due to macroeconomic uncertainty and the lack of credit lines (which in turn is also a symptom of macroeconomic uncertainty). It should have been common sense: No Greek or foreigner will invest and create jobs as long as no convincing guarantees are provided that the country will remain a part of the eurozone and it will not relapse into the developing world. Hence, if the EU, the IMF, the European Central Bank (ECB) and the Greek authorities finally agree on a definitive deal, which will ensure the medium-term financing of the Greek economy, then uncertainty will disappear and the Greek economy will rebound. Besides, a successful resolution of the Greek crisis will help restore confidence in the eurozone, hence enhancing growth globally while helping pull the Greek economy out of the mud as well.

How can this target be achieved? First, we need a swift deal for an updated memorandum of understanding between Greece and its lenders. A second haircut, this time for the bonds held by the ECB and national central banks, or an easing of the bailout terms, or a combination of both, is necessary. Prolonged negotiations for such a deal only worsen the cash and credit crunch in Greece, thus pushing its economy further into depression. Once the deal is finalized, then cash disbursements from the bailout money will resume, Greek banks will be recapitalized, and the Greek state will pay its bills to its suppliers. This will allow the Greek economy to avoid asphyxiation.

Finally, Greece's Adjustment Programme needs to be accompanied by a mini Marshall Plan. Otherwise, the violent restructuring of the Greek economy will tear the nation apart. The foundations for this Marshall Plan are already in place: Greece's performance in absorbing EU structural funds has significantly improved over the last few years and is now above EU average. Second, in accordance with the decisions of last June's EU Summit, the funds, which have been or will be used for the recapitalization of Greece's private banks, should be taken off the country's books of public debt. If this happens, it will be a huge leap toward ensuring Greece's solvency and sustainability of public debt.

Third, the 120 billion euro Pact for Growth and Jobs, which was also agreed to during June's summit, should prioritize countries under duress, like Greece. If a sizeable chunk of this package is directed toward the European periphery, then some of the social effects of the austerity measures will be alleviated. And lastly, a two-year extension to the deadline given to Greece to bring its deficit below the 3 percent threshold would give its economy enough time to adjust.

Obviously, Greece should be required to give something in return: an unequivocal commitment to pursuing reform. The Greek people seem willing to do so.


About the Author

Nikos Chrysoloras is EU correspondent for Kathimerini, Greece's leading newspaper, and a Robert Bosch Foundation EU Journalism Fellow for 2012. He holds a Ph.D. in government from the London School of Economics. An earlier, more extended version of this article was published by Heinrich Böll Stiftung in Germany.

Last Edited on August 31, 2012