How did it come to this? The roots of the current Greek economic crisis

Looking into the abyss - Giorgos Papandreou, prime minister of Greece, originally uploaded by Teacher Dude's BBQ.

This article was originally written last February but I thought that I would post it again since most of the points remain valid and especially in light of the fact that Eurostat has warned that Greek debt numbers are to be revised upwards for the years 2006-2009.

Much of the current media coverage over Greece's debt crisis is focused on how the country is going to raise the funds necessary to cover the $400 plus billion it owes creditors. Scenarios concerning the role of Germany and/or France in bailing out Athens are discussed constantly on national TV and in the newspapers and what will need to be done in order to convince Greece's European partners to cover cost of lending the billions needed just to keep the country afloat.

However, whatever happens in the coming months the question of what Greece does next in a world in which its financial choices are closely scrutinised by whatever monetary institution steps into the breach to save the country from bankcruptcy has not been addressed.

The prospect that an elected socialist government will be obliged to implement a conservative fiscal policy controlled by unelected officials raises all kinds of political dilemmas which Giorgos Papandreou's PASOK administration will have to deal with in the immediate future.


Papandreaou will be forced to challenge directly exactly those public sector trade unions which have put him and PASOK in power. In addition he will be forced to cut areas of spending which have been used by successive government to ensure political support.


The prospect of a place in the Greek civil service has long been the source of political power for parties on the right and left of the political spectrum. This combined by the promise of public sector contracts to economic elites in the private sector form the basis of the country's feudal political structure and in no small measure contributed to its present woeful economic situation.


Instead of land and power being swopped for military service the present Greek version of feudalism sees votes and political support flowing up the system in return for public funds and the influence it garners flowing downwards. It is a structure of patron-client relations which links the heads of the major parties to the humblest villager and is the lifeblood of modern Greek politics.


The ebb and flow of such influence and the complicated web of personal, familial and political relations that it engenders helps explain much of the apparent confusion and chaos of modern life in Athens and other major cities. Much of the country's infrastructure is divided into a patchwork of competing fiefdoms that have formed as a result of the present political setup. Each participant owes their position and continued economic well being to maintaining the right connections with those above and below them in the hierarchy. In such a system qualifications, skill, effectiveness and ability play second fiddle to being able to stay in with those who are in a position to advance your career.


Another by - product is chronic inefficiency and confusion as its duty of every fiefdom to ensure that it gets the maximum amount of resources in order to guarantee its survival. Co-operation and cost cutting mean giving up exactly those resources one needs to make sure that money and influence continues to flow to those whose support you need.


The effects of this system also affect the private sectors as the companies competing for contracts with the public sector, a huge player in the Greek economy, do so on the basis of political, personal and family connections. In some cases this takes the form of outright bribery but many others there is the mutual understanding that favours given must at some point be returned. It is no coincidence that many of the country's richest men have media wings attached to their business conglomerations which can be used to promote or attack parties and politicians .


The upshoot of this unholy alliance is that crony capitalism and "licence Raj's" dominate the economy stifling innovation and competition. There is little incentive to cut the cost of your product or improve the quality of your service in such a system. As a result Greek companies will dominant nationally rarely have the expertise to break into developed markets where transparency means that methods used at home cannot be employed.


Whilst foreign observers often point the finger of blame at Greece's powerful public sector unions for lack of competiveness and low productivity the reality is that pay in the private sector has remained stagnant for years and that much critised worker protection laws are rarely applied to non - public sector businesses. Despite a pool of cheap, educated labour which can be hired and fired at will the private sector has done little to prepare the demands of a modern globalised economy and instead reaped the benefits of European Union's lowest wage while raising prices far beyond the rate of inflation safe in the knowledge that an invisible web of cartels and unofficial "gentlemen's agreements" mean that they will not be faced with any real competition.


It is difficult to see how an economic and political system run on such principles can reform itself in the kind of time scale being proposed by Europe and controlled by exactly those people who helped run the country into the ground in the first place. The obvious answer is that Greece will not be able to implement the kinds of reforms being demanded and that in trying to square the circle the country will tear itself apart as different social and economic groups turn on each other to preserve a semblance of their priviledges and power.


Already there has been a growing wave of political violence with terrorist attacks now forming a staple of the daily news. That combined with a burgeoning crime rate form the background to a society that appears to be gradually coming apart at the seams.

http://www.nowpublic.com/world/greece-morning-after

Debt kills - International Monetary Fund Special Tactics Division

Debt kills - IMF, originally uploaded by Teacher Dude's BBQ.

IMF/EU/ECB - Resistance is anything but futile

IMF - Work will set you free, originally uploaded by Teacher Dude's BBQ.

One of the worst aspects of the current economic crisis here in Greece is the way it has sucked the hope out of so many people's lives. The current austerity measures offer nothing in the way of hope for the millions of Greeks on lower incomes whose backs are already up against the wall. This sense of dispair limited to any one group or region but rather has spread like some infectious disease throughout the social spectrum.

Talking to friends the conversation always seems to find its way round to the financial mess the country finds itself in. Everyone I know is worried about the future since the massive economic dislocation we are all going through seems to offer nothing but years of poverty and deprivation, negating decades of hard won progress.

For the young the sense of a future deferred, cancelled, even is strongest. What do they have to look forward to? Unemployment, low wage dead end jobs, a life spent living with their parents? After so many years of study and struggle they are coming to the realisation that much of what they were working towards has disappeared and nothing is being offered to take its place.

Prime minister Giorgos Papandreou may talk about the light at the end of the tunnel but few believe his words as they are the same broken promises that the Greek political class have been manking for years. The same wooden language expressing ideas that no one listens to anymore (not helped by the fact that Papandreou is a monumentally awful public speaker).

The fact is that that the recently elected PASOK party has absolutely no popular mandate for the changes they are making to pension schemes and wages since none of the recent measures were in their pre-election manifesto. Papandreou insists that his party had no idea of the size of the deficit they were inheriting on taking power last year (a contention vehermently dened by the head of the Bank of Greece who says that the head of the opposition knew of the massive overshot in public spending figures). Yet it is a measure of the collapse in public trust in the present political system that few are willing to believe him.

Lacking a mandate the leadership of the PASOK party has resorted to fear and intimidation both within and outside parliament to push through legisaltion demanded by the IMF/EU/EB troika. Any MP refusing to follow the party line faces immediate dismissal form the party whilst outside parliament the presence of riot police has become a permanent fixture of demonstrations of any size.

However, this is just the beginning, the real battles lie ahead of us in September when Greek politics traditionally revive after the lethargy of a long, hot summer. Also the effects of the first wave of cuts in wages, rising unemployment and the fall in income from tourism are likely to combine to form a perfect poltical storm. In the face of such massive unrest it is hard to see how Papadreou is going to maintain party discipline amongst PASOK backbenchers already deeply upset about the route the party is taking. Likewise the party base is unhappy with being identified with such wildly unpopular policies.

In addition there is every likelyhood that the Greece will fail to find enough revenue to fulfill Troika (IMF/EU/ECB) targets and will be forced to borrow even more to pay the bills. Already a second rise in VAT has been imposed on an economy struggling to become competitive, a clear indication that government measures to increase revenue are not proving as effective as Papandreou promised.

With a spiralling debt, massive drop in economic activity and steadily rising unemployment how long is it before Athens is forced to renegotiates its debt load?

Greek riot police about to use pepper spray against protesters outside town hall - Thessaloniki, Greece

Greek riot police about to use pepper spray against protesters outside town hall - Thessaloniki, Greece, originally uploaded by Teacher Dude's BBQ.

The riot police were used to break up a protest outside the town hall in Thessaloniki last week. Despite a pledge by the Minister for Protection of the Citizen (obviously, 1984 is not required reading for those who renamed the ministry) that the police would not be allowed to use chemical weapons such as tear gas and pepper spray they employed both liberally on the peaceful demonstration..

That, like some many other promise made by the recently elected PASOK administration seems to have gone out of the window. With the economic crisis set to worsen and austerity measures unprecedented in modern Greek history on the table this is just the beginning. As a speaker at a rally I attended today pointed out the war reparations which played a pivotal role in the economic collapse that brought down the Weimar republic amounted to 2.5% of GNP (the Wiki article on WWI reparations quotes a figure of 4-7%). Greece is being asked to devote 12.5% of its GNP to servicing its debt payments. There is no way any government can last with such a noose around its neck.

Greece set to explode over austerity package

Greece set to explode over austerity package, originally uploaded by Teacher Dude's BBQ.

On Wednesday the Greek government announced its long awaited package of economic measures to deal with the financial crisis the country has been facing since the discovery that the previous conservative government under prime minister Kostas Karamanlis had systematically lied about the country's debt load,. At the beginning of 2009 the Greek minister for finance, Yiannis Papathanasiou confidently predicted that Athens public lending requirements would not go above 3% of GNP, a figure that gradually creeped up over the following months.

However, no one, including Greece's EU partners nor the international money markets were quite ready for the real figure of 12.3% which only came to light following the crushing defeat of New Democracy in the October general elections.

On taking power Giorgos Papandreou, like president Barack Obama immediately found himself in the middle of an economic maelstrom unprecedented in recent history. Unlike America, Greece's chronically weak economy combined with a history of fiscal deception and misinformation meant that newly elected socialist PASOK party had very little room for manouevre with state coffers empty and debt repayments looming. A situation not aided by the role of speculators who saw in Greece a way of exploiting fears about the Euro and so bet on the currency losing value.

The upshot of the crisis is that a socialist government elected on a platform of social reform and aid to the poorest is currently attempting to implement a conservative fiscal reforms which are straight out the Thatcher - Friedman play book and so achieve in five weeks that which the previous right wing administration failed to do in five years in power.

Already swingeing price hikes in the cost of petrol, VAT and and the promise of wage cuts across the board have produced a wave of strike actions and protests. And this is just the beginning. Last weeks marches were marked by violent confrontations between marchers and the riots police who, despite orders by the Minister of the Protection of the Citizen, Mihalis Chrysohoidis used tear gas to disperse those present.

In scene reminiscent of December 2008 the heart of Athens once more resembled a war zone. In addition trade unionists and left wing protesters attempted to storm the ex-ministry of Macedonia and Thrace in Thessaloniki, Greece's second largest city. Like the 2008's outbreak of violence the confrontation are being fueled by a deep sense of outrage and injustice and are drawing support from a wider cross section of society. Enraged pensioners are just as likely to take part in these protests as disenfrancised youths.

As the austerity package starts to bite and the knock on effect of such a drastic change in the economy is reflected in skyrocketing unemployment then these clashes are set to increase in both size and intensity as more and more people take to the streets to voice their disagreement.Next week the country's trade unions have declared another general strike and with the work stoppages are planning public demonstrations which are likely to see a repeat of last Friday's violence.

At the heart of the protests lies the belief that while the country is indeed corrupt and that the public service is bloated and inefficient billions of euros has been siphoned off illegally and that the man in the street is being asked to pay for the folly of the local economic and political elites who have used their power to get rich at the cost of the rest of the country.

The fact that the PASOK politicians asking Greeks to make sacrifices have been repeatedly embroiled in corruption and bribery scandals has done little to convince voters to accept such painful cuts. Over the last decades members of both main parties, New Democracy and PASOK have been accused of a seemingly endless list of scandals involving corruption and influence peddling yet not one MP has ever been convicted or gone to jail. In such a climate of lawlessness where those in power seem able to float the law with impunity few have the moral stature to ask ordinary Greeks to give up so much in such a short time frame.

Although untouched by scandal personally, Prime minister Giorgos Papandreou's party is currently facing allegations that the German Siemens electronics corporation paid bribes to high ranking PASOK officials in order to win contracts for the 2004 Olympic Games held in Athens.

The Games which cost three times the previous ones in Sydney provide an insight into how the present economic crisis came about. Massive cost over runs, lack of transparency over contracts and a legacy of expensive facilities which lie rotting and unused across Athens are testiment to Greece's system of crony capitalism where efficiency, cost, competion, and innovation count for very little in an economy where political favours, kick backs and bribery are the rule rather than the exception.

Poverty in Greece

Poverty in Greece, originally uploaded by Teacher Dude's BBQ.

To listen to some international accounts of the current debt crisis you might be forgiven for thinking that the 300 billion euros Greece owes has been used to fund some kind of Balkan version of a Scandanavian welfare state. That the money has been spent on funding an unsustainably generous social safety net.

However, even a brief visit to the country's decrepit hospitals and threadbare schools is enough to disabuse even the most casual observer that that the huge mountain of debt accumulated has been used to improve the lives of the poorest Greeks.

While in theory Greece has a welfare state that compares with other EU members the reality is that much of this provision is of low quality or non-existent. As a result of such systematic deficiencies people are forced to pay for services that other Europeans take for granted. Few, if any student entering the countries universities have got there without massive investment of time and money by parents in the form of expensive extra tuition.

Similarly, medical treatment in the country's supposedly free health care system costs billions in terms private charges and bribes.

Instead most of the money has simply evaporated in a miasma of corruption and incompetence which sees that any public service contract almost invariably goes over cost and requires double ot triple the time originally alloted.

Case in point is the underground system being built in the northern port city of Thessaloniki which started 45 months ago and already is 32 months behind schedule. That number is set to rise as the Itallian construction company which won the countract has announced that it will fire 80% of its employees in March if it does not receive extra funding.

On the other hand the country Greece's bloated public sector can still afford to pay some of its better connnected employees 16 salaries per year. Those luckily to be employed by parliament are paid for 16 months work annually. At the other end of the spectrum tens of thousands often wait months or years to be paid wages owed.

Giorgos Papandreou has been working hard over the last week at the Davos World Economic Forum to try and persuade fellow Europeans and international economic markets that the his newly elected socialist government can reign in spending and raise more revenue. However, how much influence a system that his party has been instrumental in setting up and maintaining over the last 30 years is open to doubt.

For the last four decades both left and right have used the public sector as a way of gaining and maintaining voter loyalty by handing out jobs and contracts in return for political support. As a result the country's infrastructure has been manned not by the brightest or the best but the most faithful.

Entry and progress depend not on competence but on maintaining the myriad of personal, family and political connections that form the basis on any succesful career in Greece.

With unemployment predicted to hit one million in 2010 conflict and clashes between social groups unwilling to make sacrifices and a government unable to pay seem unavoidable. Already farmers have blockaded much of the country's transport network in order to demand one billion euros in funding and sweeping changes in agricutural policy.

Demotix