Greek soldier on Syntagma Square

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As the unending financial tragedy of Greece continues to hover between utter misery and incipient tragedy, it is worth delving into the roots of the crisis. Who is responsible for this collision between capital and humanity? How can the Greek people escape from being consumed by the flames of austerity?

In finding a course for Greece, we may ourselves find a path that leads from the sterile plains of corporate greed back to the common humanity of the Greek agora — at once an artistic, spiritual, athletic, commercial, and political gathering place for one and all.

The Greek tragedy: How did we get here?

Between 1967 and 1974 a right-wing military junta ran Greece. After the Regime of the Colonels was toppled and the Third Hellenic Republic established, subsequent governments endeavored to re-enfranchise the Greek population running government deficits to finance public sector jobs, pensions, health care, social benefits, and (more on this below) military spending.

Figure 1: Greek Debt to GDP ratio

Despite this, the Greek economy remained on a sound footing with Greek trade and budget deficits below five per cent before 2000. In 1999 the Greek debt/GDP ratio was 94 per cent, somewhat higher than the Eurozone average of 72 per cent, but still at sustainable levels (see Figure 1). The Greek government borrowed to bridge this gap and the economy grew at a rate of 2.36 per cent in the decade leading up to Greece’s entry into the Eurozone in 2001 when the Euro (€) replaced the drachma as Greece’s currency.

The economic effects of joining the Eurozone were dramatic. Being part of a much stronger economy caused a flood of investment, some of it of rather dubious value. Economist Paul Krugman wrote (in 2012):

“What we’re basically looking at … is a balance of payments problem, in which capital flooded south after the creation of the euro, leading to overvaluation in southern Europe.” He continued (in 2015) saying, “In truth, this has never been a fiscal crisis at its root; it has always been a balance of payments crisis that manifests itself in part in budget problems, which have then been pushed onto the center of the stage by ideology.”

Figure 2: Labour Costs

Joining the Eurozone forced weaker economies, such as Greece, Spain, Italy, and Portugal to have substantially increased labour costs (see Figure 2) as a result of wages being valued in Euros rather than drachmas, pesos, lira, or escudos. The result was to significantly increase costs for exported goods and services making them less competitive. This lead to a significant increase in Greece’s trade deficit. Nonetheless, the economy grew strongly during this period, averaging 4.11 per cent per annum.

Enter the Great Recession

Then came the 2007-2009 global financial crisis — The Great Recession — sparked by the American subprime mortgage crisis, a contagion of dreadful banking practices that soon spread to become a global fiscal and monetary disease. Credit dried up, particularly to the weaker Eurozone economies. Greece could no longer borrow to finance its debt, bond prices rose astronomically (to approximately 35 per cent on 10-year bonds). The Greek debt to GDP ratio (Figure 1) rose from high (but sustainable) levels of 100 per cent to the utterly unsustainable level of 177 per cent at present (in contrast, the average Eurozone debt to GDP ratio increased from 70 to 92 per cent).  At the same time, under financial pressure, a number of other features of the Greek economy became apparent.

1) Greek debt was much worse than hitherto reported

1000 drachma noteThis was so for a number of reasons. The Greek National Statistical Service, which compiled statistics on the performance of the Greek economy, was under direct government control and for years habitually under-reported Greek debt. Furthermore, the Greek government colluded with a number of investment banks, such as Goldman Sachs and JP Morgan Chase, to “hide” Greek debt via a number of complicated cross currency swaps where Greek debts and loans were converted into yen and dollars at fictitious rates of exchange to disguise the true level of government debt. Goldman Sachs alone made on the order of $300 million in these transactions.

Rather than having a budget deficit of circa six per cent (as had been thought) the government’s actual deficit was reported to be 13.6 per cent in 2010 and was later adjusted to 15.7 per cent through more detailed analysis by Eurostat. This meant that the actual costs to service Greece’s debt were over 2.6 times what had previously been assumed.

2) Tax Evasion

There was tax evasion on massive scales. Data from 2013 show that the government was able to collect less than half the tax revenues owed to it in 2012. This cost the Greek government on the order of $20 billion. Large amounts of untaxed money were squirreled away in Swiss bank accounts by wealthy Greeks and Greek corporations. In 2012 it is estimated that something on the order of 24.3 per cent of the Greek economy took place in the untaxed “black” sector, the highest proportion in the Eurozone. The former Greek finance minister Evangelos Venizelos estimated that there were 15,000 Greek individuals and companies that owed the government on the order of $41 billion in taxes. The Tax Justice Network estimated that there are 10,000 Greek-businesses that keep money offshore to avoid paying taxes. 

This was a triple-whammy punch: the level of Greek debt was much (2.6 times) greater than supposed; Greece was collecting far less (approximately 50 per cent) taxes than it was owed, and it was unable to borrow money (or only borrow at extortionate rates) to cover the shortfall.

The Greek social safety net

There is sometimes a misapprehension that the Greek government has squandered its money (and more recently, that of its creditors) creating cushy lives for its citizens who work short hours and benefit from overly generous pensions. In fact, social expenditures in Greece amount to 24.0 per cent of GDP, twelfth amongst OECD countries (see Figure 3a; OECD data, 2014). France, Finland, Belgium, Denmark, Italy, Austria, Sweden, Spain, Germany, Portugal, and the Netherlands all spend more [N.B. As an interesting comparison, supposedly generous Canada is 27th amongst OECD countries in terms of social expenditures, investing only 17.0 per cent of GDP.)

Figure 3a: Social Expenditures

Furthermore, the Greek labour force is extremely hard working, putting in an average of 2,042 hours annually, the fourth highest amongst OECD countries. Only Mexicans (2,228 hours/year), Costa Ricans (2,216 hours/week), and South Koreans (2,163) work longer hours. [By way of comparison, Canadians work an average of 1,704 hours/year, and Germans work 1,371 hours/year, only 67 per cent that of what Greeks do (See Figure 3bOECD data, 2014).]

Figure 3b: Hours Worked Per Annum

The Greek pension system that the Syriza government inherited was a jumbled mess with some 130 separate pensions funds making up the national retirement system. People working in certain hazardous professions could retire early and there were various injudicious loopholes and exceptions. Nonetheless, the average age of retirement in Greece (2012 data) was 57.8 years of age compared to the Eurozone average of 59.6 years, only a three per cent difference (see Figure 4). [By way of comparison, the average age of retirement in Germany is 61.1 years and in the U.K. it is 58.3 (Eurostat data, 2015]. Pensions are much more generous (as a percentage of wages earned) in Greece than they are in (say) Germany, however, workers’ wages are less and (as per above) Greek workers work on the order of a third more hours over their lifetimes than their German colleagues do. Pensions should reflect how much people have actually laboured during their working lives.

Figure 4: Age of Retirement

Furthermore, in exchange for the bailout packages that Greece received in 2010 and 2012, many pension benefits have been cut back sharply. Retirement age has now been increased from 60 to 67. Greek pensions, which averaged $1,484/month in 2009, have now been cut to $915/month, a 38 per cent reduction. Many of the early-retirement exemptions have been axed and holiday season bonuses have disappeared. As Owen Davis pointed out in Greek Debt Crisis: Greece’s Pension System Was Once A Bloated Mess, Now It’s A Crucial Lifeline For Struggling Families, with unemployment currently at 25.6 per cent, the remnants of these pensions:

“Have become the last social safety net preventing Greek society from completely falling apart. The elderly population is literally feeding the rest of the family.” — Greek Deputy Prime Minister Yannis Dragasakis 

Military spending

Crucially, past governments also made enormous financial investments in military hardware, perhaps in part due to Greece’s long-standing tense relations with its neighbour, Turkey. Nonetheless, this military profligacy contributed sizably to Greece’s problems. Greek military spending accounted for 2.3 per cent of its GDP, the third highest on the world after the U.S. (4.4 per cent) and the U.K. (2.4 per cent) (NATO data, 2013). Since 1974, Greece has spent some $240 billion (USD) on armaments. 

Figure 5: Greek military spendingThe main beneficiaries of this spending have been the United States (42.0 per cent), Germany (25.3 per cent), and France (12.8 per cent) (see Figure 5). For Germany, in particular, this market has been vital, Greece being its biggest customer in Europe. Almost 15 per cent of Germany’s total arms exports are made to Greece. Since the late 1990’s Germany has sold on the order of $60.7 billion in arms to Greece. Greece also accounts for 10 per cent of all French arms sales. Over the years Greece has bought a fleet of four state-of the art submarines (for $7.75 billion; they are still unfinished and have never sailed), hundreds of Leopard tanks, Mirage and F-16 fighter jets, and many other weapons.

Furthermore, as Greek MP Dimitris Papadimoulis has pointed out, “Well after the economic crisis had begun, Germany and France were trying to seal lucrative weapons deals even as they were pushing us to make deep cuts in areas like health.”

Such deals have been rife with bribery and corruption. Former defense minister Akis Tsochatzopoulos was convicted of taking an $8.85 million bribe from Ferrostaal, the German company that supplied the scandal-plagued submarines to Greece. The German company Siemens was convicted of bribing Greek cabinet ministers in relation to securing contracts for the 2004 Olympic Games in Athens (see Helena Smith’s article German ‘hypocrisy’ over Greek military spending has critics up in arms in The Guardian for further information).

While successive Greek governments certainly bear responsibility for having engaged in this profligate military spending, much of the money they squandered ended up supporting the arms industries of its Eurozone partners Germany and France, with not a little under-the-table bribery greasing the contractual wheels.

Bailing out or sinking the ship?

Since May 2010 the Greek economy has been the subject of an austerity experiment on a grand scale. The issues discussed above pushed the Greek debt/GDP ratio to 167 per cent and hence Greece to the cusp of a sovereign debt crisis. In response to demands by the so-called Troika [the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission (EC)], wide ranging austerity measures (such as pension reforms discussed above), structural reforms, and privatization of public assets were imposed upon Greece in return for a series of bailout packages meant to temporarily tide over Greece allowing it to pay principal and interest on previous loans and bailout packages.

Old Greek WomanThe effect of this been like walking slowly up a fast-moving downward escalator. In 2011 the Greek economy contracted 6.9 per cent and 111,000 business went bankrupt. Over 20,000 Greeks were forced into homelessness. The unemployment rate steadily rose from 10 per cent in 2010 to 25.6 per cent. Youth unemployment is at 53.2 per cent and some 1.3 million Greeks are unemployed. Per capita income has fallen 24 per cent. Some 44.8 per cent of Greeks now live below the poverty line. Interest rates on long-term Greek bonds are at roughly 10 per cent, eating up some 23 per cent of government revenues (for comparison, interest rates on long-term German bonds are under 1 per cent).

The economic consequences of this grim experiment in neoliberal austerity is that the Greek economy has been so badly mauled that if conditions continue there appears to be no possibility of returning it to an even keel or semblance of normality. Further bailouts simply fund the repayment of previous bailouts. As the numbers above hint at, the human cost has been horrendous. And these are simply statistics. For a glimpse of the human dimensions of this Greek tragedy see Alex Andreou’s articles Do Not Blink, Greece and Where is my European Union? Ordinary people reduced to penury.

Who is responsible?

There is no doubt that successive Greek governments bear a substantial share of responsibility for squandering money on needless military purchases, for deliberately hiding the level of government debt, and for fostering and succumbing to various corrupt practices. For decades there has been a lackadaisical approach to tax collection and wealthy professionals, politicians, corporations, and businesses hid money in offshore tax shelters or banks, secure in the knowledge that Ministry of Finance officials would do little to try and collect the amounts owed.

People in AthensThis must change, and indeed has been changing. As part of the structural reforms demanded by the Troika, the personal income tax-free ceiling has dropped; certain tax exemptions have been done away with; the Value-Added Tax (VAT) has increased from 19 per cent to 23 per cent; and social contribution taxes have gone up. In 2012 tax revenues collected by the government increased by 5.8 per cent from the previous year. The size of the Greek public service, previously criticized as being bloated, was reduced by 267,095 between 2009-2013, from 952,625 employees to 675,530, a reduction of 29%. The Greek police have established a special unit to deal with tax offences and the Greek government is in discussions with the Swiss government with respect to revealing the hidden Greek assets in Swiss bank accounts. More certainly needs to be done.

A share of the responsibility also lies with those 15,000 Greek individuals and companies who have for decades engaged in tax evasion and tax fraud on grand scales.

A further share of the blame must also lie with the various foreign governments and corporations that have profited enormously at the expense of Greece, siphoning off immense profits, paying bribes, corrupting officials, and otherwise enriching themselves. Also in this category are banks that have taken part in what are little more than Ponzi schemes to drain financial and natural resources from Greece. In a really penetrating analysis, Mark Blyth writing in Foreign Affairs (see A Pain in the Athens: Why Greece Isn’t to Blame for the Crisis) makes clear that the Greek debt crisis has been largely manufactured to protect, “German banks, but especially the French banks, from debt write-offs.” Of the 230 billion that was ‘loaned’ to Greece in the first two Economic Adjustment Programs, only some $27 billion actually went keep the Greek state running. The remaining 90 per cent effectiveluy bypassed Greece, going instead to bailout wildly over-leaveraged French and German banks hit hard by the 2008-2009 economic crisis. It’s a sobering account.

Girl in TrikalaIt is clear, however, who is not responsible — the vast majority of the people of Greece. They have not lived profligately. Their social safety net is not excessively generous, and they are not the ones with numbered Swiss bank accounts. Yet, the sins of past governments and of the wealthy and corporations are being squeezed from their ever diminishing — virtually vanishing — salaries, pensions, social security, and savings. Millions of ordinary Greek citizens have had their lives turned inside out for the past five years, many reduced to poverty and penury and there is no end in sight. Each bailout promises only more pain and uncertainty.

The current government of Greece led by Syriza (the Coalition of the Radical Left) and Prime Minister Alexis Tsipras, which was elected on January 25, 2015, has only been in power for five months. As a left-wing, social-democratic, anti-capitalist, anti-globalization, eco-socialist coalition (composed of thirteen groups) it is starkly at odds with previous Greek governments and played no role in the policies that brought Greece to this financial brink. Whether one supports Syriza’s hardline approach in dealing with the Troika on the sovereign debt crisis, or not; and their occasional brinksmanship with regard to exiting the Euro, or not they have clearly inherited this situation.

To err is human, to forgive, divine

So wrote Alexander Pope. There is a long litany of error that has brought Greece to the state it is in 2015. But the current unending austerity agenda of the Troika acting on behalf of the Eurozone is compounding error into tragedy.

In an open letter to German chancellor Angela Merkel and the Troika, economists Thomas Piketty, Jeffrey Sachs, Heiner Flasbeck, Dani Rodrik, and Simon Wren-Lewis write: 

1953 DEbt Accord“Together we urge Chancellor Merkel and the Troika to consider a course correction, to avoid further disaster and enable Greece to remain in the Eurozone. Right now, the Greek government is being asked to put a gun to its head and pull the trigger. Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the Eurozone as a beacon of hope, democracy and prosperity, and could lead to far-reaching economic consequences across the world. 

“In the 1950s, Europe was founded on the forgiveness of past debts, notably Germany’s, which generated a massive contribution to post-war economic growth and peace. Today we need to restructure and reduce Greek debt, give the economy breathing room to recover, and allow Greece to pay off a reduced burden of debt over a long period of time. Now is the time for a humane rethink of the punitive and failed program of austerity of recent years and to agree to a major reduction of Greece’s debts in conjunction with much needed reforms in Greece.”

Further details on Piketty’s position and proposals are contained in an interview published in Die Zeit.

In 1953 in London representatives from twenty-two countries — including Greece — signed a debt accord cancelling 50 per cent of Germany’s debt [DM 13.5 billion of pre-war debt was restructured to DM 7.5 billion; DM 16.2 of post-war debt was restructured to DM 7.0 billion]. It was widely recognized that the German economy had been shattered by the events of World War II and it was incapable of sustaining its debt load. This debt forgiveness played an instrumental role in contributing to the German economic Wirtschaftswunder (or “Miracle on the Rhine”) of the 1950s and 1960s, allowing the devastated country to rebuild and recover.

I can’t get no relief

So sang Bob Dylan. The economic and other circumstances of Germany in 1953 and those of Greece in 2015 are far from identical. However, Piketty et al. are driving at a common point, namely that carte blanche debt forgiveness and stark neoliberal austerity are not the only options. The London Debt Accord was tailored to Germany’s situation and debt relief was outcome-contingent, that is to say German debt repayment was linked to future trade surpluses. If trade surpluses failed to materialize then no repayment was required. In other words, creditors had a stake in ensuring that the German economy recovered. In Thoughts on the Greek referendum and the democracy mismatch in public debt crises, economist and lawyer Anna Gelprin makes a similar point in regard to a way out of the unfolding Greek economic tragedy:

“One way to mitigate the democracy mismatch would be to link debt repayment at the outset to the achievement of agreed policy objectives, so that creditors designing the policies would share some of the risk with the debtor. The debtor would get a modicum of financial relief if its economy fails to recover, though any such relief would be too small to justify sabotaging its own recovery. The amount of outcome-contingent debt can be small because the principal goal of risk-sharing is political accountability for the creditors. 

“If a small fraction of their investment were tied to policy success, creditor officials would have to defend their policy advice more vigorously up front to their own stake-holders, and might be less inclined to take policy risks. Requiring creditors to share in the risk of their prescriptions might mean less crisis lending, or less ambitious policy conditions. Either would be welcome. A government that cannot agree on credible policy reform with its creditors should not borrow more; it should restructure sooner. At the other extreme, lighter conditions would reflect creditors’ appreciation for the debtor’s domestic political challenge, so that there is no need for an eleventh-hour referendum.”

German Debt Relief Accord, 1953

German history does provide a template of responsible debt relief that could be employed to ease the current situation of Greece.

Bailouts: A blank cheque for the banks?

When it comes to the will of the international community to rescue the needy, an instructive comparison can be made to the response to the international banking crisis of 2008-2009. International agencies like the International Monetary Fund and the World Bank, and countries [such as the United States with its Troubled Asset Relief Program (TARP)], and interventions by the US Federal Reserve, the Bank of England, the European Central Bank, and others employing quantitative easing (which some critics believe is little better than simply giving money away] poured enormous funds into private banks to stabilize the financial system (see Figure 6).

Figure 6: Cost of Bank Bailouts

Shown along side these is the estimated $323 billion sovereign debt of Greece. The parallel is not exact, however, one has to wonder if the political will amongst the international community and its financial instruments exists to bailout these private banks, why is there so little accommodation for an entire nation? Who believes that the “suffering” experienced by Goldman Sachs, JP Morgan Chase, Deutsche Bank or any of these other 20 private banks is more deserving of relief than that of 11 Greek million people?

To Grexit or not to Grexit?

Results of Greek ReferendumAs it stands 61.3 per cent of Greeks voted “no” in the July 5, 2015 referendum on austerity, rejecting the bailout terms that the Troika has been seeking to impose on the country in exchange for yet another round of bailouts. Although many Greek citizens continue to want to remain in the Eurozone, if the Troika continues to be intransigent a Grexit (Greek Exit) from the Eurozone may yet come to pass.

Indeed, in retrospect, tying Greece’s economy (and consequently in important measure, its social policies) to stronger economies may have been unrealistic. The balance of payments problem described by Krugman earlier, and inflated labour costs making exports uncompetitive (see Figure 2), are economic problems that a country can address through devaluation if it has control over its own currency. Having adopted the Euro, Greece was powerless to make monetary decisions. The only “quasi” devaluation it could make was by cutting wages and benefits, an austerity response that exacerbates poverty and social ills.

The Ancient Agora

The Greek AgoraSome of the most inspiring times of my life have been spent in Greece. Who can fail to be moved when walking in the Athenian Agora, knowing with certainty that some of the stones one is treading on felt the footfalls of Socrates, Plato, Pericles, Aeschylus, Demosthenes, Thucydides, and Diogenes. It was and is a place of assembly, an open market, a place of food and culture, music and merriment, philosophy and commerce. And there are thousands of other such locales throughout Greece that resonate with classical and contemporary life and culture.

Roma dancing in the Plaka

Greek people — like those of every other country on the planet — have contributed greatly to the common human project. Anyone who doubts the generosity of Greek people need only but visit the country. Moreover, as Alex Andreou has written in Byline

Offloading wood in Metsovo“If a European Union which produces €28,000 of annual GDP for every single one of its citizens cannot provide a safety net for [impoverished Greek citizens], then it is profoundly wicked. If this is not a union of partners, but a gang of big players and small players, who cut the weakest loose at the first sign of trouble, then it is nothing.” 

Crushing austerity, structural adjustments, and privatization of public assets are the bastard children of corporate capitalism and its neoliberal ideology. They serve the sterile creed of assets, deficits, shareholder profits, and unending growth at the expense of humanity and the environment.

Once while staying in the Plaka in Athens I went out for a walk in the early morning light. I climbed higher through the twisting streets until I came to the base of the Acropolis. Above me towered the rock citadel crowned by the Parthenon, while below me unfolded contemporary Athens: the bustling markets of Monastiraki; Syntagma Square, the political epicenter of contemporary Greece; the ancient ruins of the Agora. In 380 BC, somewhere beneath the span of my eyes, Plato wrote:

“The makers of fortunes have a second love of money as a creation of their own, resembling the affection of authors for their own poems, or of parents for their children, besides that natural love of it for the sake of use and profit which is common to them and all men. And hence they are very bad company, for they can talk about nothing but the praises of wealth.” 


Christopher Majka is an ecologist, environmentalist, policy analyst, and writer. He is the director of Natural History Resources and Democracy: Vox Populi.

Christopher Majka

Christopher Majka

Christopher Majka studied oceanography, biology, mathematics, philosophy, and Russian studies at Mount Alison and Dalhousie Universities and the Pushkin Institute in Moscow, and was a guest researcher...