The Greek Crisis Has Some Dreaming Of Independence -- From Athens

The only funny thing about the sad situation in which Greece finds itself is reading essays about what the Greek people ‘must’ or ‘must not’ do from renowned economists and leading academics writing comfortably from their offices thousands of miles from the turmoil. They are not the ones lurching from crisis to crisis worrying about when the money runs out, when the pharmaceuticals run out, when their pensions run out, or even if the food runs out.

Even Nobel Prize-winning economists like Paul Krugman urge the Greek people to rejectthe latest proposal from the creditors and risk leaving the Euro and returningto the drachma. Surely, he opines, this would be better than submitting to the even greater ‘austerity’ required by the creditors. Greece would be free of the creditors’ shackles and resume growth quickly. Nothing demonstrates the dangers of long-range analysis better than this.

In a perfect world Krugman might be right. If, and it is an enormous ‘if’ Greece had a smoothly functioning bureaucracy, a government determined to institute sweeping reforms, a political class not wedded to corruption and cronyism, and no deeply entrenched groups from  protected business interests to pampered public service employees with a strong interest in preserving the dysfunctional status quo such a recipe might work. But, alas, we are dealing with the reality of modern Greece and not some theoretical classroom exercise. And that sad reality is that without those sweeping reforms what remains of the Greek economy, regardless of the currency in use, will most certainly contract further.

Syriza could have been an agent of change. It could have instituted long-overdue reforms and, in the process, generated the revenue to improve the welfare of the people. Instead, it has proven to be nothing more than an extension, a particularly incompetent extension, of the failed political system that has decimated Greece over the last several decades. And the sad thing is if it had committed to these reforms it could have minimized the hated ‘austerity’. And the really sad thing is that the price of this intransigence is being borne by the very people Syriza said it wanted to help – the poorest sectors of the Greek population.

It chose instead to implement its school-boy theories, which by the way have not worked anywhere in the world, and substitute revolutionary rhetoric for real achievement. In the process their hypocrisy and deceit have succeeded only in alienating just about everyone who was in position to help. It would have been interesting to see, for example, if the creditors would have taken a softer tone if the government had moved aggressively on revenue producing reforms like privatization or breaking the stranglehold of protected businesses. But all we heard were thunderous pronouncements against such steps. One could almost hear the Euro Group, the IMF and the IMF pleading with Syriza to ‘give us something to work with.’ But the only thing that emerged were half-baked demands for debt reduction. Fine, but in return for what – precisely? I can imagine Christine Lagarde, managing director of the IMF, asking the Greek government what it would do to help itself.

One can argue that the European institutions made a serious error a few years ago by bailing out the private banks that had recklessly loaned massive amounts to Greece. How often should tax payers be required to rescue private banks that should have known better? When do they these banks have to pay the price for their mistakes? Wouldn’t it have been much better to force those foolish banks to take the necessary hair-cut to reduce Greek debt to manageable levels? The problem was only compounded when public institutions assumed that debt. All this may be true. But, as The FinancialTimes Martin Wolf puts it, those are now ‘sunk costs’ and it is time to move on.

Meanwhile the drama is played out on the streets of Greece as most economic activity grinds to a halt pending the outcome of Sunday’s so-called referendum called by Prime Minister Alexis Tsipras. The 72-word question is a ridiculous summation of complicated financial discussions that very few people can possibly understand. The legal grounds for the referendum are not even clear, because currently there is NO deal on the table. What, exactly are people voting on? Whatever the stated question may be, most people seem to understand that the real issue in this referendum is Greece’s position not only in the Eurozone but in the European Union itself.

A friend on the island of Andros had an interesting solution to his anger at the government and the uncertainty of the current situation – independence. “We should immediately declare independence from the oppressive, idiotic regime in Athens! We could build a real economy here based on out maritime history, but including other centers of excellence such as financial and health care.” All it needs now is a Declaration of Independence. We are, after all, close to July 4^th.

Will Greece Remain On A 'Life-Support' System?

A great deal of ink and broadcast time has been spent over the last few months on the fate of Greece. Mind you, this is a discussion that self-obsessed Greeks have been having at least since Homer, but it seems to have gained traction recently. As a very smart, very well plugged-in Greek friend explained at dinner last night, “A lot of people in Greece love nothing better than the fact that Greece is on the front pages of the world’s newspapers. While the content of this news may escape them they consider such coverage proof that Greece is where it should be – at the centre of the universe.”

            My friend, who would describe himself as a ‘realist’ rather than a ‘cynic’, says the current stand-off between Greece and the rest of the Eurozone is ‘pure theatre – nothing more.’ Both sides, he says, are playing to domestic audiences. The Greek side uses its bizarre, confrontational negotiating style to please the home audience. Given the high approval ratings of this strategy seems to be working. The optics of the  ‘little guy’ standing up to the power of the ‘big bullies’ effectively obscures the reality that the country is broke and can barely meet its pension obligations. The heavyweights of the European Union, for their part, need to show their own domestic audiences that they are not giving in to the ‘profligate and corrupt’ Greeks. They are well aware of the rising chorus of resistance to further financial assistance. “Hans will not give one penny more to those shiftless bums. If Portugal and Ireland worked their way out of the recession why can’t Greece?” So goes the rhetoric.

            The reality is a bit more complex. My friend anticipates a messy continuation of the current situation. “The creditors and the Eurozone are well aware that there is no way the current Greek government, or indeed any foreseeable Greek government, will make the necessary structural reforms to generate growth and help the country stand on its own feet. Rigid, antiquated ideology combined with deeply entrenched vested interests make such reforms virtually impossible. It’s not just Syriza, the former New Democracy government was never serious about implementing reforms. It is far more likely that the creditors will keep Greece on a life-support system by drip feeding it just enough cash to keep it within the Euro zone. Then they can forget about Greece and move on to more pressing issues. No one wants to risk a complete break- up of the Euro over a possible Greek exit from the single currency.”

            The only flaw in this argument is that the so-called ‘Hard Left’ faction in Syriza doesn’t want to play this game. They would like to drop the constraints of the Euro and return to the national currency, the drachma. The language they use while spinning around in their own little galaxy is full of such stirring phrases as ‘national sovereignty, dignity, national honour, and freedom from oppression.’ When reminded that even fellow ‘austerity’ sufferers like Portugal, the Baltic states and Ireland, urge Greece to follow through on reforms this faction in Greece says this is merely proof that Europe is not ‘ready’ for a real left-wing government. You have to remember that Greece is about the only country left where political terms like ‘Left’  and ‘Right’ are actually used in serious conversation. Most other countries have moved on to more current challenges rather than re-fight old, stale political doctrine.

            Behind the ringing calls for ‘national sovereignty’ with a return to the drachma lies a far more mundane reality. Returning to the drachma means essentially a return to the rotten old system that broke Greece in the first place. The government could simply print as much money as it wanted, regardless of its value, and reward its friends with jobs, higher state hand-outs, even more restrictive labour practices, and protective barriers for favoured industries – those that are left in Greece that is. The economic hardships faced by ordinary people would be glossed over as ‘sacrifices necessary for the common good.’ In other words, ‘Stop whinging about the lack of food on the shelves and glory in the return of Greek pride.’

            Remaining in the Euro, with all its financial constraints and empty Greek treasury, makes this type of political spending more difficult. But not impossible. “Remember all those €70 billion in non-performing loans held by Greek banks.  Do you think it is a straightforward process determining whose loans will be forgiven and whose repayment will be demanded,” my friend asked rhetorically. “I dare say there will be some interesting discussions between the banks and the government on this issue.”

            He may be right in his ‘life support’ analysis, but there is always the risk that an accident between inexperienced Greek negotiators and tired, frustrated Eurozone finance officials could push the country into the cold, hard world outside the Euro.

The Greek People Deserve Much Better

The ancient Athenian dramatists would find plenty of subject matter in modern Greek politics. The only question would be whether Aristophanes or Euripides should write the play. There’s enough material for the comedies of the former or the tragedies of the latter.

            There is absolutely no question that the Greek people have been put through the economic and emotional wringer ever since the crisis began more than five years ago. The economy has almost ground to a halt, unemployment has soared, incomes have been slashed, the best and brightest young people are fleeing the country for greater opportunities elsewhere, and popular anger has reached a thundering crescendo. People are in the mood to roll a few heads.

           

            But whose? Therein lies the question. Unlike other troubled European economies such as Spain or Ireland, the problem, and any solution, go far beyond mere economics. Should they go after the entire Greek political class whose deceit, mismanagement and self-interest over the decades did so much to bring the country to its knees? Should they lash out at the current government that has very reluctantly started a half-hearted reform program? Better yet, should they vent their anger on the usual suspects – the perfidious outsiders who have the nerve to put strict conditions on the billions of Euros they have given Greece?

                That certainly is the position of the main opposition party, the left-tilting Syriza. This is where Aristophanes would have a field day. The main thrust of Syriza’s election campaign is promises to re-negotiate the bail-out agreement, force the creditors to take a bigger hair-cut, give free electricity to certain people, increase pensions, increase spending, do away with the real estate tax, raise the minimum wage, and, by the way, reinstate the €12,000 tax-free threshold. One would love to be in the room when these masters of Greek melodrama meet with the decidedly un-melodramatic German Finance Minister Wolfgang Schäuble to ‘renegotiate’ the terms of the bailout agreement. Good luck to them.

            While Syriza’s mishmash of proposals may sound contradictory and implausible to anyone with minimal financial knowledge they are consistent with the general anti-Western and anti-capitalist dogma of the Greek left that holds everyone except themselves responsible for the country’s problems. Rather than see the State with its old patronage system of politics as the author of many of Greece’s serial catastrophes many of the Greek left see the State – which they want to control – as the country’s salvation. There is not much room for private initiative in this resurrection of a failed system.

            So far the party has been relatively silent on its foreign policy objectives. This is understandable. Generally it has favoured anyone who has loudly resisted ‘Western imperialism’. But where do they turn now? The traditional international icons of the Greek left are fading past. Che Guevara and Hugo Chavez are dead. And the Castro brothers are competing to see who opens the first McDonald’s franchise in Havana. Even Iran is in serious negotiations with the Great Satan. Maybe they can turn to Kim Jong Un of North Korea. Or there’s always Hamas.

            Syriza maintains that it wants to remain in the European Union and the Euro. But it’s difficult to see how this goal is compatible with its demands of restructuring the bail-out package and back-peddling rapidly on even the small reforms that have been taken. What will Syriza do if the so-called Troika (European Commission, European Central Bank, and the IMF) refuse to budge? Will it stamp its feet and threaten to pull Greece out of the Euro? While the destabilizing effects of such a move are less than they were three years ago the thought of a member country leaving the Euro still makes people nervous. The idea of Greece back in the drachma may thrill the zealots. Others view it as collective suicide.

Syriza leader Alexis Tsipras: Backwards to the future?

            One hardened cynic in Athens says maybe it would be a good thing if Syriza wins. “Then,” he adds, “the Greek people will finally see that the Left has absolutely no answers. There is no money, no room for them to manoeuvre. There may be a fig of leaf of some debt rescheduling, but there won’t be any fundamental change in the conditions for further financial aid. Once the Greek people grasp the reality that there is no return to the old days they might just accept some serious reform.”

            Right now the election campaign seems locked in what The Wall Street Journal calls ResponsibleStagnation or Reckless Collapse. If Syriza represents the Collapse part of the headline, the government of Prime Minister Antonis Samaras represents the Responsible Stagnation. Indeed, the prime minister has never really pushed the reform agenda demanded by Greece’s creditors. He seems to present a picture of a weak person forced by unreasonable people into something he personally would rather not do. The result is that his opponents have been able to focus on the dreaded austerity instead of the much needed reform.  I haven’t heard anyone make a virtue out of the demands for reforms, and loudly proclaim that Greece has no choice. That the only hope for its young people is to break with the destructive old ways and build a new political and economic system.

Prime Minister Antonis Samaras: How much reform does he really want?

            Polls say the election will be very close. Syriza holds a small lead over New Democracy of Prime Minister Samaras, but many voters say they are undecided. The most likely outcome is a narrow victory with the winner forced to form an unstable coalition. There could well be another election this year before a stable government can be formed.

The stakes are huge, especially for the young generation of Greeks who would much prefer to remain in their native country rather than be forced to take their talents all over the world. There is no shortage of brilliant people in Greece. The real tragedy, suitable for Euripides, is that the existing political system does its best to reduce that brilliance to a weak candle glow. Time for things to change

Now The Hard Part Begins

He won, but can he govern? Having narrowly won an election where the real contest was fear of isolation versus anger at austerity Antonis Samaras and his New Democracy party now face a much larger challenge. They must reach out to all factions in a deeply divided Greece and replace despair with hope.

Antonis Samaras

Is this too much to ask from a professional politician known mainly for obstruction rather than bold, creative thinking? One can only hope that the struggles of the last six weeks have opened his eyes to the failure of traditional tribal politics and the need for radical change. He has spent his entire political life believing that the enemy was PASOK (the Socialist party). PASOK has now been made irrelevant by coming in a distant third in the election. The real enemy is not any of his political opponents, not even the new challenge of loose coalition of leftist parties called Syriza. No, the real opponent is the very social, economic and political status quo that nurtured him, that created this mess in the first place. 

If he can convince people he wants to change this ossified status quo, if he can paint the main anti-austerity party Syriza merely as a defender of the status quo but with new people, and if he has enough skill and dexterity to change the debate from austerity to building a stronger Greece for their children he just might win over some of the sceptics.

It would help if he could develop some of the communications skills of his young opponent Alexis Tsipras, head of Syriza. Samaras unfortunately bears a close resemblance to former U.S. President Richard Nixon with his dark 5 o’clock shadow, rigid demeanour, and total inability to inspire trust. 

Although those that know him say he is well-meaning, he comes across more as a bank manager reminding you of your large overdraft than a person who has any sympathy or understanding of your problems in finding money to feed your children. Tsipras, in contrast, is young, vibrant, and telegenic. The fact that his message offers merely a slightly updated version of the same old system is lost in the sparkle of the presentation.

It would also help if Greece’s European counterparties stopped sounding like an old-line school master about to give ‘six of the finest’ to some errant student. “This is going to hurt me more than you, you wretched little boy.”

Now is the time for a more nuanced approach instead of lectures. The northern Europeans have made their point about the ‘profligate’ Greeks. Now they have to help Samaras build the kind of structure that will really integrate Greece into the European family rather than leave it dangling as some distant, slightly unwelcome southern Balkan relative. Put the so-called austerity on the back burner. The country simply cannot afford it right now. Stress the structural changes that will actually generate growth and offer hope for the future.  In short, demonstrate and communicate a little more flexibility than a bill collector trying to re-possess a car when the payments come a little late.

There are still a great many people betting on the ‘Grexit’ – Greece’s exit from the Euro zone. Some of these are serious economists, but much of this comment can be dismissed as financial actors merely supporting their own investment decisions. I doubt very much that Greece will in fact leave the Euro. There is absolutely no political will in Europe to test the consequences of such a move. They may not like the Greeks very much, but they like the idea of a crumbling Euro even less. It is almost impossible to predict right now what steps European leaders will take to keep Greece in the Euro or possibly to re-configure the Euro. Ask any five ‘experts’ and you  get at least seven answers. On paper, the Greek financial situation continues to look dire. But if European leaders have been good at anything, it is ripping up the paper upon which old agreements were written and coming up with something to fit changed conditions of the moment. I suspect there will be a lot of ripping and feverish re-writing over the next several months.

Samaras has now won his long-cherished goal. He will be prime minister of the Hellenic Republic. What will he do with this opportunity? The old economic and political mould is shattered. The people are confused, distressed, and angry. Will he adopt the words from Abraham Lincoln’s famous second inaugural address as the American Civil War ended -- ‘with malice toward none and charity for all’ -- or will he try to patch together the broken, discredited  mould? There is a great deal riding on the answer.

Which Greece Will Show Up?

Which face of the Greek electorate will show up at the polls next Sunday in the second general election within six weeks? The angry, petulant, anti-everything voters who cast their votes for the extreme left and right in a fury of protest against the so-called ‘establishment’ blamed for bringing humiliation and poverty to Greece? Or will the slightly more sober side of Greece, afraid of being isolated and scorned outside the Euro,  hold its nose and vote for the charisma-challenged Antonis Samaras and the other parties ostensibly in favour of maintaining the tough reforms required to keep Greece in the Euro?

Will This Greece Win ?

This national schizophrenia was clearly seen in the latest polls that show a neck-and-neck race between the traditional centre-right New Democracy with its muddle-through policies and the anti-everything coalition of vaguely leftist groups under the banner of Syriza. The election rhetoric, if anything, has increased since the inconclusive results of the May 6 election when no group got enough votes to form a government.

Tourists Are Choosing The Baltic Over This

 While the politicians dither the economic situation deteriorates rapidly. The country is running out of money. Unemployment is at record levels with the proportion of young people without jobs topping 50%. Banks are paralyzed, and most sources of liquidity have dried up. Tourism bookings are dropping like a stone with many Europeans deciding that the North Sea or Baltic beaches are suddenly more attractive than Mykonos or Santorini.

No Comment Required

 Syriza’s cunning plans for breathing life into the comatose Greek economy range from unwinding all the half-hearted reforms made to date to increasing taxes on the rich and the shipping companies. Syriza conveniently ignores the fact that the rich and the shipping companies are much smarter than politicians and will always stay at last three steps ahead. Essentially, Syriza wants to maintain the very system that brought Greece to its knees. The only difference is that Syriza people would be in charge of the patronage.

New Democracy and its supporters don’t really have much to say, but thunder on anyway about the disastrous consequences of leaving the Euro. They say that only they can achieve the unachievable – have the creditors moderate the terms of the reform program and keep Greece in the single currency. Left unsaid in the New Democracy campaign is the humiliating reality that northern European technocrats will continue to exert enormous influence on the Greek economy and public administration.

The extremist parties have no real program other than yelling invective at each other, throwing glasses of water, and getting into slug-fests on television. The head of the neo-Nazi Golden Dawn party was quoted as saying he really didn’t believe in elections in the first place, and that they haven’t done any good for Greece.

Political Debate Greek Style

 International economists, like an ancient Greek chorus, offer a steady drumbeat of unsolicited advice. Most of them think Greece should leave the Euro and take its chances with the drachma. This might work if Greece had anything to export or had the industrial infrastructure to replace expensive imported goods with domestic goods. But it doesn’t. Other pundits wring their hands in desperation and moan that Europe really ‘should do something, anything’ to keep the grand Euro dream from becoming a nightmare. Unfortunately, they don’t really have a clear idea about exactly what should be done, or what could be done given the political realities of the European Union.

Will The Drachma Return?

There are faint whispers that voters just might opt for the reform program they know rather than jump into the unknown with Syriza. This theory says that Greek voters got all their complaints and frustration off their chest in the first election, but will ‘come to their senses’ in this election. Maybe, maybe not. But it is quite possible that the physical aggression shown by the neo-Nazi party Golden Dawn during a TV show might have shocked people into realizing the danger posed by extremes of either wing. Many people remember the vicious civil war that Greece suffered not that long ago, and they have no wish to repeat that particular tragedy.

There is another theory that says Greece would benefit from a total collapse that would force the entire system to be rebuilt from the rubble. As one Greek friend pointed out, the problem with this theory is who, exactly, would do the rebuilding. There is no obvious or credible alternative to the discredited existing political establishment.

Is there room to re-negotiate any terms of the existing program? The Germans continue to talk tough, but could this change slightly after the elections? The head of the IMF, Christine Lagarde, had a good point that may gain some traction. Her idea was to ease up on the budget cuts and give priority to the structural reforms that must be changed if the Greek is to have a chance to grow.  Maybe there is room to shift the priorities of the program and stretch out the savings program to ease the immediate pain.

The May 6 election seemed like a wake-up call for many Greeks. They were driven to the edge and didn't like what they saw in the abyss. This is their chance to pull back and return to the hard, long-term task of reforming their beautiful country.

The Hugo Chavez Of The Aegean

Few people understand modern Greece better than Nicholas Gage. In his poignant and powerful book Eleni he tells the story of growing up in a mountain village in northern Greece during the Civil War in which his mother was executed by communist guerrillas. He knows his Greek demagogues and extremists better than most.

When he calls the rising star of Greek politics ‘daring, cunning’ and ultimately very dangerous for Greece it is worth paying attention. His column in Friday's International Herald Tribune  puts Alexis Tsipras, leader of the rapidly rising radical party Syriza, squarely in the tradition Alcibiades in ancient Greece and Nikos Zachariadis, leader of the communists during the savage Greek civil war.

 In the inconclusive election on May 6 Tsipras brilliantly played to the anger millions of Greeks feel about the destruction of their comfortable life style.  His party’s vote increased sharply as he outmaneuvered his clumsy opponents at every turn by constantly re-defining the debate. According to him it is no longer about reform of the sclerotic Greek state. It’s all about the ‘austerity’ that the evil Troika has forced on Greece or about the evil politicians that agreed to the reform program. Many polls put Syriza in the lead for the second election on June 17.

His brilliant solution to Greece’s problems is to hire yet more civil servants (all of whom will naturally vote for him in the future), nationalize the banks, increase taxes even more, and stop all the feeble attempts at privatization and liberalization of the economy. Basically he wants to take Greece back to the conditions that created the mess in the first place.

Who is going to pay for all this? In his brave new world Greece can renege on the reform program arranged with the Troika and somehow still remain in the Euro. If, and I admit it is a big if, the European leaders stick to their guns Greece under Tsipras will simply run out of Euros early this summer. Then, in order to fulfil his extravagant promises, he will start printing drachmas­ – lots of drachmas.

But he does have one great advantage over the bureaucrats in Brussels. Party leaders like Tsipras love confrontation. They thrive on it. European Union bureaucrats hate confrontation. They want everything settled quietly and politely around long conference tables arrayed with bottles of water and neat little note pads. Tsipras could well hound them into submission with his unrelenting polemics. Jean Claude Juncker, head of the Euro Group, has already started to run up the white flag of surrender by saying that they should take another look at the Greek agreement.

The negotiating style is well known. Demand, shout, demand again, never compromise, stay there all night if you have to, shout and bang the table until your opponents give up out of sheer fatigue and hunger. This is the all-or-nothing approach where compromise is a four-letter word.

In short order, Tsipras would become the Aegean version of Hugo Chavez of Venezuela and Christina Fernandez of Argentina by riding a wave of economic populism to strong election results. Unfortunately the same wave that carries him to the top will come crashing down  on the long suffering people and bury them for a long time.  

In the old days he could play the West off the Soviet Union and basically blackmail one side or the other to support him for geo-political reasons. Now, this is much harder to do. It’s extremely doubtful that either Russia or China would volunteer to take on the Greek headache.

The investment vultures are waiting eagerly for this Greek collapse. I have been told by more than one person over the last several months that they consider a Greek default and a return to the drachma as inevitable. “Things are going to get a lot worse fairly soon. Then the prices could be interesting.”

Gage sums up the hard realities facing a Greece under Syriza.

“Yet many Greeks look to Alexis Tsipras as the leader they have been waiting for – bold, daring, cunning. What they don’t realize is that he is also very dangerous, with a vision for Greece that will isolate it from the rest of Europe and reduce its people to the kind of poverty they have not seen in half a century.”

It is nothing but very cynical deception to attempt to delude the Greek people by claiming that a repudiation of the reform program will improve their economic situation. It won't. Such a repudiation would cripple an already weak economy. The real tragedy would be to give up on reform before it has even begun to bear fruit.

This Modern Tragedy Requires Euripides

A front page headline in Saturday’s  International Herald Tribune says it all, really.

            “If Measured By Mistrust, Greece Is In A Class By Itself”

European leaders have finally reached the point of scepticism in their dealings with Greece that they should have reached when they let the country join the Euro several years ago. Both parties would have been spared the fiscal and monetary train wreck now in progress had there been a bit more scepticism about the numbers and a bit more concern about the reality of modern Greece rather than the ideal of ancient Greece.

But on a larger point, how has the nation once hailed as the proud successor to splendid Hellenism, the cradle of democracy and home to so many brilliant and artistic people fallen so far that it has now become synonymous with chiselling and cheating?

Several people will undoubtedly write lengthy, learned books about this situation, but it would really take a modern Euripides -- not some bloodless accountant -- to capture the pathos and scale of this tragic descent. All these works may well all start at the same point . . . the abject failure of Greece’s self-appointed and self-perpetuating political elite. The current crop of Greek leaders didn’t invent this situation, but they certainly continued ‘con gusto’ the age-old system of patronage and corruption that spawned a crippling, nationwide sense of entitlement.

“Somebody owes me. I’m entitled. Why should I work until I am 60 get a pension? I voted for him, now I want to get my reward” are common refrains from Crete in the south to the Albanian border in the north.  The politicians were brilliant at fostering and manipulating this attitude. They created a direct link between do-nothing jobs for you and your family and votes for themselves. They built an economic system designed to keep themselves in power and anyone else out. It is no accident that the Greek economy has been called the last Stalinist economy in the world. Even Cuba shows signs of coming out of its cocoon. Not Greece.

Now, suddenly and cruelly, it has become crystal clear that this entire system was a complete fraud. The emperor really has no clothes, and the torrent of money has ended. Not a single person in any position of authority in Greece prepared the people for this jarring confrontation with economic reality. No wonder the average person is frightened and very, very angry.

At some point one would not be surprised to see a latter-day Oliver Cromwell stand up and repeat the furious charge he levelled at the Rump Parliament in 1653.

“You have sat too long for any good you have been doing lately . . . Depart I say and let us have done with you. In the name of God, go!”

 

But do any of the political elite show the least sign of changing or showing even the smallest amount of contrition? Has anyone actually apologized for dragging the Greek people through this chaos? Do they sound responsible for the almost punitive conditions laid down for the financial rescue plan? They do not. That would be too much to expect from people still consumed about being elected band leader on the Titanic. Ideally there would be an entire new cast of young leaders champing at the bit to take over and reform the country’s outdated and inefficient institutions. Sadly, nothing like this is on the horizon.

Greece is now faced with a bitter choice – accept the harsh terms for financial rescue or default and most likely get thrown out of the Euro. I’m not at all sure that the very cynical, self-interested Greek politicians would be against a return to the drachma. It’s going to be very difficult to continue business-as-usual with some humourless, anal-retentive German or Dutchman managing the purse strings if Greece manages to stay in the Euro. A return to the drachma might cause serious economic problems in Greece, but the ‘unbearable’ external pressure for reform would be removed allowing the discredited political class to continue as before.

The only good news is that is over-long drama is about to end. The author very cleverly came up with two possible endings. We’re just not sure which one we will see.

The Easy Part Is Over

Getting appointed interim Greek prime minister may prove to be the easiest part of the job for the academic central banker Lucas Papademos. Widely acknowledged as the prototypical bright technocrat required to lead Greece out of the economic swamp he will be sorely tested when his brief honeymoon ends. But the new coalition government has one thing its hapless predecessor never secured – wide public support. Recent polls show more than 70% support for the new government, while the two main parties are languishing with sharply lower numbers.

The formula for the beginning of Greece’s recovery has been well known for months, if not years. Reducing the state sector, reforming the ridiculous pension system, opening closed professions, selling state assets, starting to collect taxes, cleaning up the scandalous health care sector, and reforming the stagnant legal sector are just some of the steps required to stop the haemorrhaging from the state budget and get the country moving. The problem has been finding anyone with the political courage to implement these changes because their implementation spells the end of the corrupt patronage system that has dominated Greek politics for decades. In effect it is like asking Greek politicians to write their own political and, in some cases, financial obituaries.

For months the politicians have wasted time promising everything and delivering very little as the downward spiral of the Greek economy rotated faster and faster. The little social consensus existing in Greece was getting pulled apart in almost daily protests and strikes. The politicians were caught in the headlights unable to move as Germany, France, the International Monetary Fund, the European Commission and a host of others told them what they must do to secure additional assistance. The country was rapidly heading toward a disorderly default on its sovereign debt.

Terms of Debate Changed

In the middle of all this Prime Minister George Papandreou threw up his hands saying he could no longer cope with the conflicting demands and called for a referendum on the latest bailout package. However ill-timed, capricious, or irresponsible it was, this call served one very important function. It changed the terms of the debate within Greece. Suddenly the debate was no longer about this cut or that cut, this reform or that reform. It became simply “Do we want to stay in Euro and, ultimately, the European Union or revert to being a political and economic afterthought stuck onto the southeast corner of Europe?”

That set the stage for a few fevered days of politics when the main parties were pushed kicking and screaming into coalition discussions. The main opposition party demanded Papandreou’s resignation, and he dutifully – probably delightedly – complied. After much pushing and shoving they finally divided cabinet seats and settled on the only serious candidate for interim prime minister – Lucas Papademos, the former governor of the Bank of Greece and a vice chairman of the European Central Bank. The only mark against him is that he, like too many people in the EU and ECB, accepted at face value statistics prepared by the Greek government alleging that the country met the requirements to join the Euro in the first place.

The Communist party and another leftist party stayed out of coalition talks and refused to agree to any of the austerity program demanded by Greece’s creditors. This move is essentially irrelevant, and the joke going around Athens is that the Greek communists are the sole remaining distributor of a company that’s been out of business for years.

Papademos is supposed to remain as prime minister until elections are held sometime next year. Up until that time he is supposed to oversee the wholesale changes required to keep Greece in the Euro zone. No date has been set for the elections although the main opposition party New Democracy wants to hold them as soon as February. This date may well get pushed back if the country is in the middle of serious reform. Few people would be willing to sacrifice those gains for a return to petty politics. New Democracy has been stalwart in its opposition to anything since the crisis began, and its leader had resisted all calls for a coalition government of national unity. There are signs that the people are tired of this juvenile gamesmanship. If elections were held as early as February it is doubtful that any party would gain a majority, and the country would be forced right back into a coalition.

Sometime fairly soon the government has to come up with ways to get Greece moving again. You can accomplish only so much with cuts, then you have to start growing. It may well be true that Greece is unable to become competitive and grow within the Euro and may have to – someday – revert to the drachma. If the country has shown signs of stabilizing and the European banks are largely out of their Greek debt it may just be possible to arrange an orderly, well planned departure from the Euro. Once the panic and hysterical rhetoric have died down officials will have a chance to do the hard, honest analysis they should have done before Greece joined the Euro.

The Real Risk Of Leaving The Euro

The calls for Greece to default on its mountain range of debt and leave the Euro for the perceived safety of its native Drachma are growing louder. Nouriel Roubini’s column in The Financial Times gives several very good reasons why such a move would make sense for Greece. Roubini acknowledges that the extensive ‘collateral damage to Greece’ of leaving the eurozone, but says it can be contained.


Other analyses, however, verge on the ludicrous. Costas Lapavitsas, a professor SOAS and a member of Research on Money and Finance writing in The Guardian, recommends default and departure from the Euro because of the ‘errors’ of the organizations charged with giving Greece enough money to pay its bills.

“Greece is facing an economic and social disaster, the results of so-called rescue by the ‘troika’ of the EU, the International Monetary Fund, and the European Central Bank. Greece must change course to avoid a grim future for its people: it must default on its debt and exit the eurozone,” opines Lapavitsas.

Noticeably absent from his analysis is any recognition that the real culprit in the Greek tragedy is the very structure of Greek economic and political life over the last several decades. The international organizations he blames had nothing to do with the out-of-control political patronage, corruption, bloated state sector, stagnant economic structure, and unpunished tax evasion that brought the country to its knees. Undoubtedly the international organizations could have responded faster and more effectively, but it is risible to blame them for Greece’s sharp descent into the third division.

Collateral Damage

Roubini is right about the collateral damage to Greece if it leaves the Euro. Banks would probably have to be nationalized, there could well be a bank holiday for a few weeks while the drachma was re-introduced, inflation would soar, savings would be at risk, and the value of the drachma would drop like a stone.

Lapavitsas blithely says such a development would give Greek companies a chance to increase exports and recapture the domestic market. What is he talking about?! Perhaps he hasn’t noticed that the Greek industrial infrastructure has been eroded to the point of extinction. Every ounce of steel, every drop of oil, every car, every electronic product, much of its food is imported. What exactly does he think Greece will export? Most Greek companies rely heavily on imported raw materials and machinery. Exactly how are they going to pay for these with a rapidly depreciating Drachma?

Greece does have certain industries, like ship yards, that could benefit. But years of union intransigence and government incompetence have reduced this industry to a shadow of its former self.

Pressure For Reform Must Continue

But the real risk of returning to the Drachma is that it could remove the pressure on the political class to make the reforms necessary to put the Greek economy on the road to recovery. Right now, under the threat of bankruptcy, the ruling party in Greece is promising extensive reforms that should have been made decades ago. Opening up closed professions, shrinking the size of the state, selling state assets, collecting taxes are just some of the reforms agreed to because of the pressure of the very international organizations that Lapavitsas criticizes.

Make no mistake. These reforms are traumatic for the ruling PASOK party that blossomed on the back of a corrupt system of patronage. They spell the end of business as usual, and could mean the end of PASOK as a major party. Who is going to vote for them if they cannot deliver the jobs and pensions they used to pass out? No wonder several leading members of PASOK are resisting implementation of these reforms. The fact that this is the only way to create a sound economic basis in Greece is of little importance to them. The risk of losing their office far exceeds their knowledge of or concern about the economic well being of their country.

The only way they could continue business as usual is to remove the external pressure for reform by defaulting on Greece’s sovereign debt, declaring bankruptcy and returning to the drachma. With inflation and depreciation it could be much easier to retain the old habits that got them into this mess in the first place.

The likelihood of a Greek default increases with each passing day. The European Union is simply not able to respond quickly to anything, let alone the risk of a default by a member state. Something like that was not supposed to happen. But despite much flapping around with endless, conclusionless summit meetings Greece may be forced to default and leave the eurozone. Whether this is a disaster for Greece depends entirely on how it is done. If such a move is taken as an excuse to abandon all the reforms discussed so far the Greek economy will remain mired in deep recession without even the hope of growth. The benefits that Roubini discusses will be possible only if the difficult steps taken under duress continue when the immediate pressure is removed.

From Players to Mere Spectators

Despite the drama, the protests, the widespread moaning and shouting surrounding the recent narrow approval of austerity measures imposed by its European partners the Greek government will look back on that vote as the easy part of the long-overdue reform process. When you’re in water way over your head and going down for the third time you tend to climb on any life boat that comes along and worry about the conditions of your rescue at some later time.

Now, if Greece’s political leaders are serious about the country’s long-term health, they face the extremely difficult task of actually reforming the stagnant, self-serving economic system that has become completely dysfunctional over the last several decades. Unfortunately, so far none of the political parties has demonstrated the strong will that is required to undo the structure that generated the current quagmire because it is that very structure that has, up to now, kept them in political power. Every time the political leaders attempt to unravel the tangled web of the Greek economic structure and smooth the way for personal initiative the affected interest groups – ranging from self-important bureaucrats to taxi drivers – threaten retaliation. And the politicians beat a hasty retreat.

On top of this problem there is even some question whether the political leaders truly understand the gravity of the situation they face. Newly appointed finance minister Evangelos Venizelos recently went to Brussels and attempted to re-negotiate the most recent bail out agreement. Before the words were out of his mouth the usually mild mannered Finnish commissioner Olli Rehn angrily told him that renegotiation was out of the question. Prime Minister George Papandreou addressed a European gathering of socialists and slammed the rating agencies for suborning democracy in Greece. Papandreou seemed unaware that the rating agencies were merely responding to conditions that he and earlier generations of Greek politicians had created. Opposition leader Antonis Samaras is not much better. His contribution to the debate is that Greece should be lowering, not increasing taxes. He may be right, but his point is irrelevant because there is absolutely no chance that Greece’s paymasters in Brussels will buy that one. So far Samaras has resisted any attempt to climb out of the rut of narrow, short term political interest and join in a national coalition to forge a better future for Greece. If he did join a coalition he might actually have to come up with some positive, realistic suggestions.

He misses the point in that the actual tax rate is less important than collecting taxes at any rate. So far no Greek government has been particularly good at this. Samaras says he wants a ‘creative shock’ for the economy that lower tax rates could bring. Again both he and Papandreou miss the point that there is a great deal they could do to ramp up the Greek economy without spending a penny. Simplifying obscure regulations that strangle innovation at birth, modernizing the legal system, eliminating over-lapping jurisdictions in ministries, etc., etc. could encourage investors to take a more favorable view of Greece.

As one Greek friend put it, “Right now there is no sign that our so-called leaders recognize their errors. The first step in any recovery is for each and every one of our politicians to get on their knees and apologize for their mistakes and the mistakes of their fathers and grandfathers. Then we might actually get somewhere.”

The reality of Greece today is that it has lost control of its own fate. Mandarins in Brussels, Paris and Berlin have more influence than Greece’s own politicians. Jean-Claude Juncker, Prime Minister of fiscally prudent Luxembourg and head of the Euro Group, put it bluntly in a recent interview that Greece faces a ‘massive’ reduction in national sovereignty. This is a very hard pill to swallow for people who believe they brought democracy and civilization to the rest of Europe.

This situation is nowhere more evident than in the Greek banking system. Every Greek bank went on a lending binge over the last several years that saw the loan-to-deposit ratio climb to more than 130%. This is no problem if you have reliable funding to cover the yawning gap between deposits and loans. Now, however, the only funding source available to the Greek banks is the European Central Bank. And if Greece ever falls into formal default this funding is in real danger. And it does not help matters that the flow of deposits out of Greek banks has picked up from a stately walk to a jog. Any more bad news and the jog could move up to a sprint. Their fate is entirely in someone else’s hands.

The tragic irony of this situation is that if the Greeks had devoted half the energy they spent on fiddling an admittedly corrupted system to real economic activity the country would be flourishing. If Greeks who loudly proclaim their patriotism demonstrated this patriotism by actually paying taxes instead of resorting to every dodge known to man and God their country might have been able to retain a vestige of sovereignty. Instead of major players in this drama, they are reduced to mere spectators.

Tragedy Becoming Farce

The woeful state of Greek economic and political affairs is about to cross the thin line from tragedy to farce. So far the Greeks are way ahead of the other European Union players – after all they invented the art form. In fact, only someone like Euripides or Aristophanes could do this situation justice.


This tragic farce in Three Acts has the following dramatis personae including the off stage choruses of wailing people, foreign banks and hedge funds.

In Act One we have:

Happy Greek People
Happy Greek Banks
Happy Foreign Banks
Happy Politicians
Silent Economists
Silent Eurocrats

Act One opens with the Happy People dancing and borrowing from the Happy Banks to spend money they don’t have. Need a vacation? Call your friendly Happy Bank. Need a car or a gift for your wife or mistress? Call your friendly Happy Bank. The banks lend much more than the deposits they have and are confident in getting cheap loans from Europe to cover the difference. Don’t have a job to repay the loan? Don’t worry. Your Happy Politician will fix that. Government needs money to pay for all this joy? No problem. Borrow from the friendly Happy Foreign Banks. Why not? Thanks to this marvellous invention of the Euro the rates are so low it’s almost free money. Some junior economist in Brussels sees a tiny problem with all this happiness because somewhere, somehow, this money is supposed to be repaid. Before this junior economist named Ernst can voice his doubts too loudly his fellow Eurocrats send him on a two-year fact finding trip to Central Africa.


In Act Two we have:

Less Happy People becoming Angry People
Stiff Upper Lip Greek Banks
Nervous Foreign Banks
Nervous Politicians
Very Happy Hedge Funds
Suddenly Righteous Eurocrats
I-Told-You-So Economists
Baroness von Brandenburg
Sly Duc de Versailles
Bewildered Vikings
Stern Headmaster
Loud Choruses

Act Two opens with storm clouds over the Acropolis, offstage clashing of cymbals, angry wails from the chorus. We won’t pay! This is not our problem! Nervous Politicians discover that the cash drawer is empty. No money can be repaid. Something Must Be Done! Cuts! Austerity! And, God forbid, Taxes! Offstage chorus of whinging masses becomes louder. Delighted hedge funds set up an opposite chorus. Default! Default! You’re Broke! Admit It! The I-Told-You-So Economists are indulging in an orgy of self-congratulations at one of the few times their predictions actually came true. Self-righteous Eurocrats proclaim loudly that they are shocked, shocked that Greece is broke. How can this be? You told us you were a member in good standing of the Euro Club! We took your numbers at face value! You mean they weren’t true? Say it’s not so! The Baroness von Brandenburg proclaims that good, thrifty Northern European (German) taxpayers will not pay one more pfennig (oops, Euro) to the shiftless bums stealing money for their holiday homes on Aegean islands. The Sly Duc de Versailles, whose banks own about €30 billion of Greek paper, rushes to the baroness’ side to plead for caution. His pleas are accompanied by another loud chorus of Contagion, Contagion, Contagion. Think of Ireland, Portugal and Spain.

 -You’re absolutely right Baroness. They are shiftless bums that don’t deserve another centime. But    let’s not be hasty here. Remember all those nice Teutonic toys, those Volkswagens and Mercedes they bought with all that money we gave them? All those nice roads and airports you Germans built. Maybe we can find you a nice little island. Just a few Euros more and we’re out of the woods here. Now is not the time to be pedantic.

Then the Bewildered Vikings start complaining about all the money they’re spending on Greece. The Duc de Versailles flies into action once again as the Vikings get nervous.

- How can this be? How can a country not know how much money it has or doesn’t have? This does not happen in real countries! This should not happen!

-That’s the point Olaf. You’re absolutely right. But how many times have I told you to forget the word ‘should’ when talking about the Mediterranean. It works with your reindeer and igloos, but loses a lot in translation when you head south.
- But . . .
- Sit, Olaf. Calm down. Just a few more Euros and we’ll pretend this never happened. Just raise your hand at the right time and we’re home and dry – or whatever you say up on the glaciers.

The Stern Headmaster, who knows the real condition of European banks, is petrified at the thought of default. Impossible, he thunders. At the same time he knows full well that he, or his lucky successor, is going to wind up with most of the dud Greek paper.

The Baroness and the Duc finally agree to have the sturdy, frugal, work-ethic obsessed Northerners make extra payments on the condition that the Greeks completely reform their economic life and become more like, well, Germans.

Cue puzzled looks by Nervous Greek Politicians. Reform? What are they talking about? We’ve been doing this for years. Oh, I get it. They want us to agree to their terms. Of course we will. How simple. We’ll agree to anything. Actually doing anything is another matter, but agreeing is easy. This is accompanied by much offstage banging about, shuffling of chairs, and loud cries heard by the audience. Oh, do be quiet and do what you’re told for once! Don’t you realize we have the upper hand. They have to give us the money or they go bust along with us. Just shut up and go through the motions of these so-called reforms. Then things will return to normal. Trust me.

Curtain.

Act Three opens with more wailing by the chorus of Angry People. The Sly Duc de Versailles once again takes the centre stage he loves so much.

-See, my friends. There is a magic word here. Pretend. This is what the Baroness and the Vikings don’t really understand. You don’t have to Do anything. (He shivers at the very thought of this.) But we pretend to pay the Greeks who immediately turn around and give the money back to our banks for all those nasty Greek bonds. The Greeks pretend to reform, jettison a few hapless cabinet members pour encourager les autres, and in a few years everyone has forgotten about this petite je ne sais quoi. The only people left holding the bag, as you Anglo-Saxons put it so well, are the Stern Headmaster and the people at the IMF who, tant pis, seem to be without a leader at the moment. They will perhaps understand in about five years what a great game this all was.

He gives a very Gallic What Else Can I Do shrug and slithers off the stage.

Meanwhile the Eurocrats are left with a problem. How to make sure the Greeks at least try to implement some of the reforms? The solution? Find someone to go to Athens to oversee the process. Who better than young Ernst? Honest and dependable young Ernst, and, more important, expendable young Ernst. An urgent call goes out to Central Africa to find young Ernst, if possible, and bring him home.

Young Ernst is dispatched to Athens with firm instructions to make sure the shifty Greeks stick to the Northern European plan. His zeal distresses his Greek counterparts no end, and they particularly don’t like this business of working through lunch and even on the weekends. At last they come up with a solution. They call upon shapely young Maria to do her national duty and introduce this handsome young Teuton to the ‘lighter side of Greek life.’ In time nature takes its course and the work hours begin to slip, the cigarette and ouzo breaks become more frequent, and Ernst’s reports back to Brussels and Berlin get shorter and shorter.

In the final scene we see the sun setting slowly over an Aegean island, and Young Ernst, clad only in shorts and adorned with a new tattoo, is dancing the sirtaki with Maria to the sounds of bouzouki music. Happy People have once again returned to a Happy Country.

                                                             The End