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Putting the Greek debt crisis in context May 8, 2010

Posted by Yilan in EU, European Union, Yunanistan.
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There is no doubt that the Greek political establishment has failed miserably and has brought Greece to the brink of an economic abyss.

Greek politicians are notorious for being corrupt, greedy, and incompetent. Regardless of party or ideology, most have gorged themselves at the expense of the country’s economic well-being.

However, they were not alone; their German counterparts guided them down the path to perdition. The unwritten practice of European Union officials looking the other way over doubtful state numbers provided by Greece and other countries during the creation of the eurozone is still symptomatic of deeper problems in the dream of a united Europe that is quickly turning into a nightmare.

A major part of the Greek debt crisis is the result of excessive military expenditures forced on the country by the German military industrial complex. Greece has purchased more than 1,000 German Leopard tanks, but for half of them there are no shells. In addition, the Greek government bought three German submarines; two barely made it to Athens and the third is still in a German dockyard because it is not seaworthy.

Why did Greece buy such useless military hardware? Two reasons: That was the price Greece had to pay to secure German loans and EU grants and the Germans have had few qualms about bribing Greek politicians (remember the Siemens scandal?) to grease the wheels of industry. In 2009, 4.3 per cent of the Greek GDP went to military spending. Beyond purchasing faulty German military equipment, Greece sustains a large military establishment to counter continuing threats from Turkey, which accounts for a staggering $14.5 billion a year.

The looming economic catastrophe in Greece is just a symptom of the malaise in the eurozone. Although the EU is a common market with a common currency, it does not have a central government and a common defence policy. The European currency was created quickly and few questions were asked as to whether some of the current members in fact had the economic stability to join the eurozone.

Politics overrode common economic sense, though, and the eurozone was established; it also included the weak economies of Greece, Portugal, Spain and Ireland. However, even though the European Central Bank is supposed to regulate the new currency, strengthened by the rule that all the members would not permit their debt to exceed three per cent of GDP, in effect states still possess a staggering amount of economic autonomy that undermines attempts at creating a streamlined European economy.

Germany and France were the first to break this fundamental principle and the other small EU countries could not take the French and Germans to task; instead they chose to follow the example and allow their debt to grow.

As long as they were buying German and French military hardware, automobiles, fridges, stoves and a host of other products they could not afford, Berlin and Paris did not ask too many questions.

Why should they have? With their ballooning debts, the smaller EU countries effectively were underwriting the economic prosperity of Germany and France. The underpaid Greek, Spanish, Italian, Portuguese and Irish workers have made it possible for the German civil servant to retire at 65 with a pension that completely overshadows that of his or her Greek counterpart.

This does not excuse the bloated Greek civil service, but it does explain the unhealthy dynamic of “have and have-not” countries that is plaguing the EU. The Greek civil service employs one out of three working people in Greece because of historical reasons and political incompetence. Greece is a country with almost no industry or natural resources and a small agricultural base.

Historically Greeks have had two choices: Emigrate and seek a better life elsewhere or find work in the civil service.

Over time, the professions too became overcrowded, leaving Greek lawyers, doctors, architects, etc., with little chance of securing a good living unless they could augment their salaries with work in the civil service. Because of the financial shortcomings of the Greek state, civil service salaries were low and the only advantages they offered were tenure of employment and early retirement.

This arrangement functioned well until after the Second World War when Greek politicians decided to exploit the civil service as a means of rewarding their followers. Instead of capitalizing on the new technologies that were emerging and trying to create new economies, they preferred to use the promise of a civil service job to secure votes. Greece became a closed society with a centralized economy that rivalled that of the Soviet Union, whose leaders preferred corruption to innovation.

Unfortunately, this has been a millstone around the neck of the Greek people and today they are forced to accept the bitter pill of severe cutbacks and the end of their way of life.

Most economists disagree with the severe austerity package being forced on the Greeks, arguing that it would accomplish little except keeping the country in debt for the foreseeable future. Sadly, for Greece’s partners, punishment is the order of the day and not common sense.

Andre Gerolymatos is the head of Hellenic studies at Simon Fraser University.

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Comments»

1. Henk - May 6, 2011

Great article. Lets see how this situation plays out. French Banks own about 25% of Greece debt. Swiss banks 21%. Germany 15%. German banks could probably handle Greece debt restructuring. Not sure about France. Switzerland is not part of the Euro so is less a concern. Even if Greece has to leave the Euro it would also endanger nations like Ireland and Portugal.

All in all it seems better to restructure Greek Debt at least to some extend. And to create a European bond market to unite markets as one and share the same interest rate on the total debt of the Eurozone. This would make sure nations will support laws for financial oversight in all members. Laws that will on some levels be pushed through already now with new powers of the EU through Lisbon and new powers gained after the financial crisis.

The EU and IMF can further push Greek policies to improve tax collection and to have more financial oversight so that any corrupt leaders in Greece can`t lie about the numbers or get fired to begin with. They hopefully will also push for much lower military investments in Greece from 4.3 To lets say 1.2% of GDP. Stimulating job creation and businesses startups should also become a top priority.


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