The Political Economy of the Greek Crisis

This book starts out by refuting widespread cultural stereotypes about Greeks with hard empirical data. It then offers a more refined and complex explanation for Greece’s troubled present by taking a scientific, international political economy based approach in a language that is accessible even to non economists. Hard data and graphs are used to illustrate arguments, as opposed to subjective opinions. The author takes readers through the post war decades of super high growth in Greece, the catastrophic entry into the European Communities, resulting in deindustrialisation, and the first sovereign debt crisis of the country at the beginning of the nineties. It explains the birth defects of the Eurozone construction which fuelled an artificial boom, and how a corrupt political class allowed special interests to capture the Greek state against the wishes of uninformed voters. It lays out how after 2009 the EU and the IMF attempted to cure Greece’s troubles by causing even more harm with austerity and a debt ‘haircut’, failing to address crucial issues such as offshore tax havens, untaxed shipping, excessive military spending, one sided economic structure and inadequate investment into human capital.

Table of Contents

I. Culture and the Economy: Are Greeks Lazy and Corrupt?

Culture and Economics

Stereotypes against the Facts

II. The Hellenic Tiger: the Greek Post War Growth Miracle (1950–1973)

The Post War Politics of Greece

Credit based developmentalism

III. ‘Rejoining Europe’ in 1981

What is the EU?

The Collapse of the Greek Economy in the European Communities

Tax and Community Financial Transfer Effects

IV. The Original Sin of Indebtedness (1973–1993)

The Papandreou Era: Welfare State without Revenues

The Revenue Side of the Budget: The Failure to Meet Expenditure

Greece Enters its First Sovereign Debt Trap Crisis

V. Stabilisation and Euro Convergence (1993–2001)

Is a Greek Euro Possible?

‘Modernisation’ and its Heritage

VI. The Eurozone Boom (2002–2008): Greek Grasshopper, German Ant?

Birth Defects of the Eurozone Construction

The Eurozone Boom: A Cash Machine for Germany

VII. Crisis and Austerity 2009–

Collapse and the First Bailout

The Second Bailout and the Haircut

Austerity: A Means to Growth!?

Saving the Eurozone and its Banks

VIII. The Way Out

Grexit is Collapse

No Solution without Global Changes

What Greece Should Do

Bibliography

Acknowledgements

Endnotes

© Zoltan Pogatsa, 2014

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Cover Design: Anna Redl

Zoltan Pogatsa is is an academic economist dealing with the political economy of European integration. He specialises in the development issues of the European periphery, having authored several books and numerous articles on the subject. He has taught and carried out research at universities across Europe. He spent the 2012–2013 academic year researching the Greek crisis on a Greek state scholarship. He takes a critical approach to the handling of the crisis.

ISBN: 978-9934-8396-8-9 (epub); 978-9934-8396-9-6 (mobi/kindle); 978-9934-8396-7-2 (printed)

I. Culture and the Economy: Are Greeks Lazy and Corrupt?

Greeks love being Greek.

This is a significant fact, because many people in Germany and elsewhere in Northern Europe imagine that in the middle of perhaps the greatest economic crisis of the their modern history, Greeks would somehow feel bad about themselves, wised up with a sense of guilt about their former overspending, facing the harsh reality of sobering up after a drunken party with the inferiority of a corrupt, broken Southern country that has fallen back to where it really belongs, the third world.

While some undoubtedly do feel this way, it is by no means the general mood. Greeks have a solid and proud identity. They live their life in the firm and well-founded belief that there is something unique about their country that no other land can quite match. History is just a part of it. As a visitor, one encounters much talk of ancient Hellas and the struggle against the Ottomans, but it is not classical heritage or history in general that defines today’s Greeks, however much it is an attractive aspect of the image of their country. Not surprisingly, the everyday life of a present day Greek is not dotted with constant references to Plato or Aristotle. Heroes of the anti-Ottoman struggle for independence such as Kapodistrias and Ypsilantis are important in collective conscience, but all other nations in the Balkans have similar figures, and it does do not make them as confident as the Greeks.

Being Greek is a matter of lifestyle. First and foremost it is a question of climate. The Mediterranean climate is pleasant all year round, with temperatures in Athens hardly ever sinking below freezing point. Saloniki and the mountainous areas are cooler, but the Aegean, Crete or the Peloponnesus are almost tropical. It is also a matter of landscape. It is well known that Greeks are a maritime culture, and collective Greek psyche is captivated by images of the sea, sunsets, peninsulas and archipelagos, rugged mountains slowly moving by as ships sail past them. Then there is the light. Lawrence Durrel¹ and other keen observers have emphasised how there is that omnipresent, bright, almost white light that floods everything, and gets reflected even more. One has to experience it to understand how exploding brightness leaves no room for gloomy thoughts that come naturally in cold, wet, foggy and cloudy lands. A crisis in Greece means something else.

Like Spaniards, Italians, Croats, Turks and Israelis, Greeks enjoy their Mediterranean lifestyle. Ruins and palm trees, marina sunsets and oleanders, light cloths, scented hair, languid walks with komboloi beads in hand, loud table conversations, endless lounging in kafeneions, afternoon naps, extensive dinners stretching into the night, seafood, stilettoed girlfriends on the back of motorcycles, elegant clubs full of pearly white teeth and gelled black hair. Greeks feel that Germans are too stiff and fail to enjoy life. They earn well, but they forget to live. They drive massive, secure cars and spend their days amidst mutually monitored manners worrying about their savings and future pensions, in a sustained concern about Sichereit and Sparsamkeit, security and frugality. This contrasts with that insecurity about their history. Greeks earn far less, but spend far more easily. And if there is nothing to spend, one can always sit all afternoon in a cafe and stare out to sea in that dazzling white sunlight, achieving a relaxed empty and carefree state of mind that Buddhist meditate to achieve.²

Having faith in one’s own culture even in bad times is a blessing. Greeks now that the sun, the beaches and the scent of cypresses will always be there for them, whatever their economic future brings. As that most iconic of all Greeks, Kazantzakis’s Zorba suggests: ‘keep on dancing, the music will come’. Such a mentality makes a nation strong and resilient.

Of course social psychologists are right when they warn us about the dangers of cultural stereotyping. They often miss, however, how positive identification, one that is not aimed at denigrating the other, can be a source of strength. Cultures differ from one another, and they have features and achievements that members can identify with. Liberals might believe that all cultures are equal, but the members of these groups certainly do not. It is painful to see how some cultures indulge in self-depreciation, inferiority complexes, forcing many of their best to abandon them and flee. Conservative thinkers have tried to salvage the idea of positive group identity, but in history it has fallen victim far too often to the vicious intolerance and hate mongering of nationalist exclusionists.

Ethnicisation has played a harmful role in politics of the post 2008 Greek economic crisis. Global mainstream media has done a very poor job of reporting on the supposed causes of the collapse. Far too many accounts were content with drawing on cultural stereotypes of how Greeks were a ‘lazy’ ‘Southern’ people, quasi a ‘Third World nation’, drawn to ‘clientalism’, ‘state patronage’, ‘corruption’. They ‘lived beyond their means’ both as individuals and as a state, relied on comfy state jobs, and retired too early. The global media barrage convinced even some open minded observers, many of them Greeks themselves, that there is such a thing as Greek exceptionalism, that Greece’s problems are somehow unique in the world, or at least in Europe. As we shall see, most such shallow stereotypes are refuted by hard empirical facts. The Greek story is both deeper and more representative of a middle income country in the age of globalisation. However, the characterisation stuck nevertheless, and as a consequence of mass media reporting the popular image of Greeks across the world has come to be identified with lazy and corrupt Mediterranean who after the bust turned into hooligans throwing rocks at the police on Syntagma square in downtown Athens. Having spent more money over the last decade then they had earned, ridiculously they were now demanding that Chancellor Angela Merkel send them more! When the author gently reminded his friends in Berlin that in fact these Greeks were demonstrating for Germany not to send them more money, they were surprised. They had been told the opposite so many times that they did not realize that the indignados in front of the Greek Parliament (called aganaktismeni in Greek) were in fact out there to convince the Troika of lenders (the International Monetary Fund, the European Central Bank and the European Commission) not to keep on financing the senseless row of austerity measures that had been implemented since the outbreak of the crisis by their governments. Shallow cultural stereotypes have replaced economic analysis to the extent that even many Greeks themselves have accepted this ascribed image of themselves, and have engaged in self depreciation³, the psychological basis of which is to distance themselves from the rest of Greek society, which they have come to believe is culturally hopeless. ‘We Greeks are so corrupt!’ Which is of course to be understood as: ‘The rest of them all are, but as for me, I am different, I deserve better.’ This is the representative pose of the ‘enlightened’ westerniser/moderniser, that is so prevalent in developing countries as different from one another as sub-Saharan Africa or Eastern Europe.

Shallow stereotyping is not a German prerogative. Greeks themselves are not exempt from this unfortunate tendency, and some have reciprocated aggressively. German dominance in Eurozone debates reminded them of former Nazi suppression during World War Two, when Germany was an occupying power in Greece. Some went overboard in misrepresenting the Germans, and especially Chancellor Merkel, portraying her in an SS uniform. This symbolic hate mongering then in turn affected the Germans negatively, who had already developed a less than favourable attitude towards the Greeks as a consequence of their superficial media reports and debates. A vicious circle started, and the resulting atmosphere of tension makes it difficult to lay out a rational narrative of how Greece’s problems have evolved as a consequence of processes that only international political economy can capture. Yet this is the approach that this book attempts to take.

Culture and Economics

There has been a comeback recently of the long neglected importance of culture on economic policy, with books published and conferences held on the topic. One of the outcomes of this line of research is that as far as economic policy is concerned, there is no such thing as a homogenous culture. The argument is often made that economic models cannot be transferred from one culture to the other because cultures have long term, resilient features that prevent the adaptation of a model. The theory of cultural path dependency has held strong, even though it is easy to see why this pessimistic view is mistaken. Sociologist have now for decades carried out World Value Surveys, asking the same set of questions related to values and attitudes in dozens of countries across the globe. One of the lessons drawn is the recognition that treating entire nations as if they were homogenous value communities is more damaging than helpful.⁴ As modernisation, globalisation, postmodernisation, neoliberalisation, Americanisation and numerous other processes reach societies, subsocial groups develop different responses in terms of their value orientations, interests and habitus. Thus nations are comprised of a large number of competing value communities at any point in times. After all, democratic elections are precisely about debating the potential policy solutions that arise from these different value axioms, and the legislation of the majority view is not even the end of the story. The interests of the minority communities must also be protected. The basic assumptions of groups about life are determined by their age, social position, class, religion, ethnicity, human geographical heritage, family history, and a large number of other factors. It has proved possible to use statistical modelling to analyse the strength of these groups in different societies.

Not all groups, however, have the same access to self-representation. The narrative such as ‘cheating Greeks’ is a harmful ethnocisation of a problem that is essentially one of democratic deficit. As