Life Amid the Ruins July 10, 2010Posted by Yilan in EU, European Union, Yunanistan.
(Corrected to identify Konstantinos Karamanlis as the uncle of the former Prime Minister Kostas.)
A couple of months ago, around the time Greece passed new austerity measures to ward off economic catastrophe, Nicholas Papandreou, the very tall brother of Greece’s Prime Minister, George Papandreou, was riding the Metro in Athens. The Papandreous, now in the third generation of a Socialist political dynasty, live in rented houses, drive Priuses, and, apparently, take the subway, even during times of extraordinary anger toward the government.
“Nick! Why did your brother bring in the IMF?” one passenger called out.
“No choice. It was either that or no one gets paid come July 1st,” Papandreou, an economist and novelist, replied.
“Well, I am glad to see you taking public transport,” the passenger said, prompting another rider to pipe in, “I always see Nick on the Metro!”
“Excuse me, but what do you do for a living?” Papandreou asked the first man.
“I’m a doctor.”
“Did you ever take side money from your patients?”
Everybody was listening. “Yes.”
“Are you still taking money on the side?”
“Because now, the way things are, I’d be lynched.”
“See?” Papandreou said. “That’s one good thing George has done so far.”
Papandreou tells this story while sitting at a long table at the Andreas G. Papandreou Foundation, a beautiful old house in a slightly run-down part of Athens. A terrace off the back overlooks the city’s ancient graveyard. Family photos hang on one wall; Nicholas’ books and pamphlets about his father, Andreas, line the other. Papandreou, who grew up in Canada and the U.S., sounds American. He portrays his efforts to help out during the crisis as something any member of a family business would do. Indeed, the past few months have seemed like an all-hands-on-deck situation: Nick the Novelist Brother is not only placating doctors on the Metro but was taking off to Qatar to try to secure foreign investment for his country.
That the intimidation of medical professionals counts as a positive development might indicate just how dysfunctional Greek society has become. It also shows that the Papandreou government’s attempts to reform Greece will require nothing less than a societal revolution, affecting everyone from cab drivers who don’t give receipts, to tax collectors who bribe lawyers, to college kids who dream of nothing more than a good, solid pension. Greece’s “shadow economy,” estimated at 20 percent to 30 percent of the country’s gross domestic product, depends on the wonderfully named fakelaki,—also known as “little envelopes” or “bribes.” (In general, reliable economic data for Greece can be difficult to find.) It’s part of a state of affairs that includes a bloated public sector and a stunted private one, both legacies of a political system prone to patronage and corruption. The cruel result amounts to 300 billion euros in debt—115 percent of the country’s GDP or about $27,000 per Greek citizen. The 110-billion-euro bailout from the European Union and the International Monetary Fund includes strict austerity measures intended to shrink the budget deficit from 13.6 percent of GDP to 3 percent in three years. The prospect of that has thrown Greece into chaos.
The Greek people are angry. While young anarchists wielding Molotov cocktails are getting most of the attention, there are far greater numbers of Greeks stewing in their tiny apartments, furious with their leader for capitulating to the markets and the IMF and for saddling the Greek people with a life-changing burden. Experts and average Greeks alike told me that Prime Minister Papandreou and Finance Minister George Papaconstantinou must do things to rescue their country’s finances that would normally be tantamount to political suicide.
“They’re already dead,” says the former Finance Minister, onetime member of the opposition New Democracy Party, and free-market crusader Stefanos Manos, speaking of the government’s austerity measures. “They can’t die twice. Why not do the right thing?”
Greece is a Teenager
When I first arrived in Athens in May, expecting to see rampaging youths attacking policemen, I marveled at the apparent prosperity and pleasantness of everyday life. The Metro even has one of those fare systems based on trust—like Switzerland! It wasn’t long before darker sentiments became palpable. The Greek capital these days exists in a state of shock, suspicion, and bewilderment, not unlike the way New York felt in the fall of 2008 after Lehman Brothers collapsed—a sense that strange forces had created financial scenarios no one could yet understand. Something has gone terribly wrong with the system. For the little nations on the edges of the so-called first world, market-happy modernity can be harder to keep up with and easier to turn against during difficult times. In Greece, the past few months have been a brutal conclusion to what had been a glorious party of admission to Western consumer capitalism.
“The best way to think of it is to think of Greece as a teenager,” says Stathis N. Kalyvas, a Yale University political scientist who was in Athens when I visited. “Many Greeks view the state with a combination of a sense of entitlement, mistrust, and dislike similar to that of teenagers vis-à-vis their parents. They expect to be funded without contributing; they often act irresponsibly without care about consequences and expect to be bailed out by the state—but that only increases their sense of dependency, which only increases their feeling of dislike for the state. And, of course, they refuse to grow up. But like every teenager, they will.”
The story of Greece recalls a familiar old world/new world tale: a poor country 30 years removed from a devastating communist-royalist civil war and five years from a fascist military dictatorship finds itself, in 1981, in the maternal embrace of European Union membership, flush with all the easy funds that follow. Two decades later come the success of the 2004 Olympics, the arrival of Dolce & Gabbana, the proliferation of credit cards, and an airport as polished as a museum. Life, on the surface, looks good— though the old, unhealthy habits continue: public-sector employment for life, politicians with stuffed pockets, an aversion to foreign investment, snail-like growth, communal life that keeps people happy at the taverna table but stifles individual creativity, a sense that beating the “system” is what the smart people do.
What happened next took an unexpected, Don DeLillo-esque twist: Men in New York and London devise new games to play with the world’s money. The world falls into recession. In Greece, the economy sputters, the ruling political party refuses to reduce spending before the 2009 election, and the old habits become harder to conceal—more so because the then-ruling party consisted of, as the young Greek novelist Constantine Abazis puts it, a bunch of “morons.” And like the wife of an alcoholic who willfully disregards the vodka bottle stashed in the closet, the EU looks the other way. “Greece has a very cosmopolitan, international elite, and at the same time a rapidly deteriorating quality of the political class,” says Loukas Tsoukalis, president of the Athens-based think tank ELIAMEP. “In recent years a number of [European] Commission officials knew that the fiscal situation in Greece was worse than portrayed. The surveillance system has clearly failed.”
Stereotypes of Greek people as lazy and sun-stroked may have roots in the public sector: For decades politicians plied poor citizens with cushy jobs and pensions in exchange for votes. The 2004-09 conservative New Democracy government added over 85,000 public-sector jobs in its tenure; the public sector accounts for 40 percent of Greece’s GDP and 15 percent of the active workforce. The government isn’t even sure how many people it employs. As Jens Bastian, an ELIAMEP economist, explains, “Every Greek has a relative who works as a civil servant in the public sector, excluding the military and police. Reducing employment levels in the public sector immediately becomes a very touchy, family affair.”
The Greek crisis reminds us that while Greece is a part of Western Europe, it is also a place where hammers and sickles and “F—- the Police” decorate the city walls; where references to civil wars and world wars and postwar American meddling come up in daily conversation; where immigrants fleeing violence and economic plunder scramble atop the life raft of Greece’s fragile European shores, only to fester in homogenous Athens. It is also a country that in some ways still mirrors the lands across the Mediterranean—the countries of North Africa and the Middle East that continue to be strangled by Third World ways and won’t simply acclimate to the rules of the West as one might have hoped.
Reform and Punishment
If the Greeks have one thing going for them, it’s a deep, proud sense of their country’s beauty. Everywhere I went, the average Greek would complain about this or that, and then mention the islands or the countryside, shrug, smile, and say: “But, you know, it’s a beautiful country.”
“You know, I think these people in America, they are jealous. Because…we have such a beautiful country.”
“Everything here is s—-. But it’s a beautiful, beautiful country.”
On May 20—a beautiful day in the beautiful country’s semi-beautiful capital—Greeks launched another general strike and protest. It fizzled. During the previous week’s protests, the branch office of a bank in central Athens was firebombed. Three employees, including a pregnant woman, had died of smoke inhalation. More recent protests have been less destructive, perhaps because of the overwhelming presence of riot police with their shields, billy clubs, tear-gas guns, and nine-millimeter pistols. The police closely tracked the clusters of anarchists, who bore the international uniform of the 21st century’s petulant warrior class: black hoodies and boots, backpacks, pale skin, skittish, overloud laughter. The rest of the protesters looked rather upscale as they walked slowly and patiently to the head of Syntagma Square, where the lovely yellow Parliament building overlooks the area from a hill. At sunset, in that truly celestial Athens light, the rest of the square would be in shadow, but the Parliament building glowed. This was where the energetic protesters of Athens spent their days, shaking their fists and trying to break down the doors.
Greeks believe in protest. During a week in Greece, I witnessed four demonstrations, including one rather elegant march through the fancy neighborhood of Kolonaki, the protesters mourning crimes by the Turks in the Black Sea in 1922. Tourism employees protested at the Parthenon; others went on strike at the docks in Piraeus. This was normal. Since the military dictatorship, the leftist ideological consensus has required that Greek people generally ignore, if not tolerate or condone, a certain level of dissident violence in addition to agitation. But that day, the mood among protesters was weary, almost defeated.
After the Greek government accepted the IMF bailout, officials began to impose not only reforms but punishments. Pension plans and wages were cut by 15 percent to 20 percent. Value-added and excise taxes were raised twice. Bank accounts were opened up, and names were named: Those 57 doctors who didn’t pay taxes, for example, were identified to the public. Tax-collection directors were replaced, employees were shuffled to new posts, bribery complaints were investigated. Even some 16,000 rich Athenians who dwell in the magnificent northern neighborhoods of the city found themselves targeted for failing to disclose that they own swimming pools on their tax returns. (It’s estimated that a third of economic activity produces no tax revenue whatsoever, an annual tax shortfall of approximately 25 billion euros a year.) The Minister of Tourism resigned after it was revealed that her husband, a beloved pop star, owed millions in back taxes. Bastian, the economist at ELIAMEP, told me that, for the first time, a Greek government was cracking down on a way of life.
It had no choice. But to get the people to change—quickly—the politicians needed to make sacrifices, too. The Finance Ministry made it clear the crackdown would extend to government officials: “According to a preliminary investigation, 70 Finance Ministry employees have real estate holdings ranging from €800,000 to €3 million in value. The average real estate holdings for these employees is valued at €1,228,337, while their average declared income is €50,834. The Finance Ministry is launching investigations into all these cases,” although it will have to do much more than that.
Greeks reacted to questions about how the country ended up with so much debt with almost comic confusion. “I was also asking myself this: What were they doing?” says Michalis Chrysochoidis, the Minister of Citizen’s Protection. He mentions former Prime Minister Kostas Karamanlis. “[He] created a utopia, an illusion that we can live well without trying to make things better.” Many observers described Karamanlis, who was elected in 2004 on an anticorruption platform, as an easygoing manager who didn’t control his cabinet. Then in 2008 and 2009, when the New Democracy party had to run for reelection, the administration completely stopped trying to reduce spending. “The deficit was initially projected at less than 4 percent, and it turned out to be 13.6 percent,” ELIAMEP’s Tsoukalis says. “Under normal circumstances it might not have been the end of the world. But it happened at a time when everyone had realized that sovereign debt had become the big issue. Faced with the prospect of the 2009 election, the previous government showed negligence. They just let it go.”
This partly explains why anti-corporate sentiment is not among the grievances widely aired in Greece. Resentment is reserved not for the rich but for the government. Greek banks didn’t engage in reckless financial schemes the way American banks did, showering easy credit on people who couldn’t afford to pay it back. It was the government that did most of the borrowing. “Everywhere else in the world the banks brought down the economy and pressured the government,” says Gikas Hardouvelis, chief economist at Eurobank. “Here the state finances are pushing down the banks.”
I told Hardouvelis a story I had heard about a Greek entrepreneur who couldn’t persuade foreign investors to trust Greek banks as his backers anymore. “Investors feel that if the country defaults, Greek banks will be in trouble,” he says. “Still, the exposure to Greek bonds is low. Greek bonds are not owned by domestic banks. They’re mostly owned by foreign banks.” Which is why fear of contagion is so intense.
“That’s a big issue, certainly,” says Jon Levy, Europe analyst at the political risk consulting firm Eurasia Group. “But there are multiple channels of contagion.” For example, contraction in countries that need to cut expenditures would also affect other European countries. A drop in demand in Spain would mean a drop in demand for German cars, triggering declining incomes in Germany and leading to a contraction there. “These channels of contagion are really just beginning to become evident,” Levy says.
A Job for Life
Hardouvelis, the Eurobank economist, served in the 1996-2004 government of PASOK, under Prime Minister Costas Simitis, who was a promising leader until his government dissolved in a storm of scandals. Simitis had presided over a period of transformation that coincided with a high point in recent Greek economic history: 2004, the year of the Olympics. In readying itself for the international extravaganza, the nation spent money like a working-class bride on her country club wedding, thinking it the most important day of her life.
“Greece was an under-banked economy for a long time,” Hardouvelis says. “Mortgages and consumer loans were effectively prohibited until 1993. When that changed, together with growth, credit expenditures grew faster than nominal economic activity. But as long as there was growth, no one worried.” In 2004, Greek GDP growth was a strong 4.6 percent, mainly fueled by the Olympics construction boom. The Games inspired immense pride for the Greeks and served as a coming-out party of sorts, an emblem of security and wealth. “The facilities were maharaja-level luxury,” says Stefanos Manos, the former Finance Minister. “Greece had the mentality of the nouveau riche. We borrowed, and we spent.” The nation hungered for new status symbols. A 2008 Nielsen report found that, of all the countries in the world, Greece cared most about designer labels, trampling Hong Kong (the runner-up) in its taste for brand names.
Ayis Georgoudas, chairman of Nak, a collection of shoe stores and international label outposts, rode this materialist wave. When I met him at his office at a Bally store, it was a Saturday and he was working. Three young women were helping a wealthy couple trying on shoes that, at Bally, can cost as much as 300 euros. Upstairs in his small office, Georgoudas, 35, had a collage of photos and clippings on the wall: Dostoyevsky and Solzhenitsyn; Michelle and Barack Obama; Jesus Christ.
Georgoudas wore green high-top sneakers with black laces and a white monogrammed button-down shirt. He is from Thessaloniki, in Greece’s north, where he worked in his family’s shoe stores as a kid. His family did well enough to send him to New York University, where he received bachelor’s and master’s degrees. Within the past five years he expanded the family business to 20 international brand chains, introducing Bally, Clarks, Naturalizer, and others, to Athens, bringing in 20 million euros a year in sales. “Some private-sector employees feel bitter about their counterparts in the public sector,” Georgoudas says. But, he explains, “I just love to work.”
Stefanos Manos applauds the recent decisions to cut wages and raise taxes but believes more drastic measures are needed. “The average pay is two and a half times the pay in the private sector,” he says. In his view, more must be done to create a competitive environment. “In Greece, you cannot rent a little truck to move your refrigerator,” Manos says. “Why? To protect the truckers. You have to hire a trucker. You have to get a parking permit. If you sell your house, both parties have to have a lawyer—by law—to participate in the transaction, and they’re guaranteed a percentage of it. If I want to give my house to my son, both he and I have to have lawyers. If Coca-Cola (KO) wants to take out an advertisement during a news program on TV, a percentage of it [20 percent] goes toward a pension fund for journalists. They have so much money in there that journalists don’t even know or care how much money they have!”
Then there are the bribes. “Lawyers know that when a tax collector comes, he will ask for a bribe. Doctors, too. But that tax collector has a job for life. A surgeon at the state hospital expects something on the side,” Manos says. “Otherwise, you can get your operation in six months or more.”
The Oedipus Complex
If ancient Greece is known for Zeus, democracy, and civilization, modern Greece claims Aristotle Onassis and the islands, which is to say, shipping and tourism. The two account for more than a quarter of the country’s economy. So far, only one has been affected by the crisis. In June, hotels reported a 30 percent drop in sales, though you wouldn’t know it from the number of tourists craning their necks from the Plaka up toward the Acropolis. Hoteliers complained that the overplaying of riots on television had scared off travelers who didn’t know that civil unrest in one neighborhood would hardly affect the frappe-drinking café conviviality of the next. The Acropolis and its hill of ancient treasures hover literally above the fray.
There were murmurs of labor strikes at island ports, which Nicos Vernicos, a shipping magnate and president of the International Chamber of Commerce, passionately decried. I interviewed Vernicos across a divan at his luxurious, art-filled home in the waterfront suburb of Glyfada. The house radiated a quirky, restrained air that almost smelled of old money; Vernicos Shipping Group is one of the longest-serving members of a tiny, private club that seems to operate in its own little maritime universe.
Although Greeks don’t do much exporting, they do ferry around 15 percent of global goods. So the shipping companies are far less vulnerable to the internal dynamics of the Greek economy than they are to, say, trade between China and all of Europe. Unfortunately for the Greeks, the very thing that keeps the shipping industry based there, as in many countries, is that it does not pay corporate tax. Ship owners pay taxes based on tonnage but not on actual shipping, providing little revenue for the Greek state. That’s because 50 years ago, Greece passed something called Law 89, a massive tax break for ship owners in exchange for pumping money into the economy, according to Clay Maitland, a managing partner of the Marshall Islands ship registry. The deal still provides Greece with a lot of jobs, something it can’t afford to lose. “It’s kind of like the financial industry in New York,” Maitland says. “[The shippers] can move.”
Manos agrees. “You push them and they’ll simply hoist a different flag and move out,” he says. “They have an escape clause. Because of this clause, governments have been mostly reasonable.”
When I ask Vernicos about the tax issue, he says: “Greek shippers are much-above-average patriots, and they support their country.” Later, he proudly displays his collection of Hellenic-themed art, including an Andy Warhol of Alexander the Great.
Vernicos’ business dates to the mid-19th century, when his family rowed goods across the Bosphorus in Constantinople. His father served as a member of the pre-junta Parliament, and the young Vernicos spent time in jail for activities against the military dictatorship. After the turmoil of the 1970s, he settled down to navigate the rocky seas of the country’s fledgling democracy, as well as something unexpected: the European Union.
When Greece joined the European Community in 1981 it was embroiled in conflict with Turkey, an issue that still motivates Greece to spend billions on its military. Greece was admitted to the EU largely because of the credibility of the Prime Minister at the time, Konstantinos Karamanlis (the uncle of former PM Kostas), and Europeans’ attraction to all things old and Greek. Karamanlis was soon replaced by Andreas Papandreou (the son of George and the father of the current George), who campaigned on anti-NATO, anti-EU, and anti-American populism, even though he had an American wife.
“People familiar with him knew he didn’t mean it,” ELIAMEP’s Tsoukalis says. “But the adjustment was not always painless.” At the time, Papandreou père had to reunite a fractured country, so with generous socialist policies he won support from the lower classes and the countryside. “He brought new people into the Greek political scene, he gave marginalized people their rights. But redistribution was done at the expense of future generations.” He also kicked off the addiction to pension plans, many of which went to civil war veterans—something staunchly defended by at least one of my ranting, receipt-hating taxi drivers.
“The crisis did not happen overnight. We’ve been overspending for the last 25 years,” says Manos. “It was accepted political wisdom that if you gave out jobs for life, this would guarantee the votes of entire families. I think it turned out to be correct.”
The father-son conflict at the heart of the Greek political crisis makes sense in a country dominated by family dynasties. Papandreou the son, who is bookish and quiet, now must clean up the mess made by Papandreou the father, who is flamboyant and charismatic—or so the story goes. “Like most children, Papandreou wants to avoid the negative aspects of his parents,” Vernicos says. “He knows better than all of us the weaknesses of his father and wants to be different.”
Even so, the PASOK government was slow to recognize just how bad the situation was. “Everything changed after Davos,” Vernicos says, referring to last winter’s Davos Economic Forum. “When the bankers and politicians meet each other in Davos, you have Bill Clinton and Bill Gates wearing ski anoraks, and they all speak the truth,” he says. “After Papandreou went in February, he realized the scale of the danger. He changed completely after he came back from Davos.”
“Who is educating the Greek government and the Greek people and European leaders?” Vernicos continues. “The markets. If you see what Euro leaders were saying a few months ago and now, there’s a world of difference in [German Chancellor Angela] Merkel and the others. The markets are the harshest tutors.”
Suddenly, the good socialists of PASOK must transform themselves. While I was in Athens, the party was courting a Chinese shipping company, Cosco, which made a deal to take control of Athens’ main container dock in its Piraeus port and was eyeing land for a logistics center in an environmentally beleaguered area called Thriasio. Although the labor class regarded Cosco as a threat, the political elite rejoiced; even Greek socialists are pouring ouzo for the smiling Chinese communist-capitalists.
“All these guys are now running after Mr. Cosco,” Vernicos says. “They’re having to lick where they spat.” But he is optimistic. “For the first time we have a team managing Greece that doesn’t care about political gain, they just want to do the best for their country,” he says. “They really don’t care about being reelected.”
The Human Strain
For all the hardship visited upon Greece, extreme poverty keeps a low profile in Athens. In recent decades the country has seen an influx of Albanian workers who more or less look Greek and work very hard. They speak the language and have secured a place in society. But the hundreds of thousands of other immigrants in Athens—the Africans and the Pakistanis, the Bangladeshis and the Afghans, the Kurds, the Iraqis, the Somalis, the Moroccans and the Nigerians—are different. Greece is the entry point for refugees and migrants hoping to make their way to the rest of Europe. They arrive in tiny boats, aspiring to smuggle themselves deeper into Europe. If they get caught en route, according to EU law, they can be thrown back into the dumping grounds of Greece, the first country they entered. “We are the guardians of Europe,” Minister Chrysochoidis says. “This is a huge and terrible problem, a human problem. We need an independent authority of asylum, so refugees are protected and traffickers are punished. Ten percent migrants for a small country is a lot.”
One evening, I went to see where the immigrants lived, in an area referred to as Sofokleous, which is close to the center of town. It was Sunday, and very quiet. Iason Athanasiadis, a journalist who has reported from Iran and Afghanistan, tells me to leave my handbag at home and to dress down in the hopes that we’ll look like drug addicts in search of a fix.
Suddenly we turn a corner and the streets are crowded with human misery. Some people seem healthy, selling socks off the sidewalk, screaming at each other. Others are bloodied and battered, their clothes half ripped off, shoes missing. You could look to your left and see three men sticking needles into their ankles; to your right, a woman sidles up to a man for some drugs. She looks as if she has been beaten, and her flesh seems to be melting off.
We turn up a side street and spot a man inside a taverna called Klimataria, which opened in 1927. It’s a happy-looking place. It’s also empty. Business has dwindled 70 percent, and soon the restaurant will be moving. The immigrants sometimes attack each other in the street “with swords,” according to the owner, Pericles Spiridou. Any tourists who come near the restaurant flee in fear. Only three years ago, this had been a fashionable part of town. Then the police decided to clear the main squares of several Athens neighborhoods, essentially corralling the migrants into these back streets. In a country with little industry and few jobs, there wasn’t much for these foreigners to do but sell whatever they could on the street—handbags, trinkets, drugs, themselves.
Spiridou is a liberal-minded person. He doesn’t disparage the immigrants. Instead, like many other Greeks, he speaks of the state. Where is the regulation? Where are the police? Forty-nine years old, with thick, wavy white hair, Spiridou also has existential concerns. “We’ve lived through many things,” he says. “Civil war, a dictatorship, the fall of communism. Now what I hope is that I live to see the fall of capitalism. That’s my dream. And I will see it.” He glances toward the streets outside, where Greece is anything but beautiful.
Long, Hot Summer
Two weeks after I returned from Greece, the Finance Minister, a well-regarded figure who drives a battered Subaru, announced that the country was on track to meet its 2010 deficit targets, boasting an almost 40 percent reduction in the deficit in the year’s first five months. Spending was down 10 percent; revenue was up 8 percent. He dismissed rumors of bankruptcy as “absurd” and “terror-mongering” and urged the Greek people “not to bite the bait in groundless hysteria.” Bastian, the economist from ELIAMEP, describes the Finance Minister this way: “When you meet him, you feel as though, if I have to trust a politician in Greece, this is the one I trust.” Prime Minister Papandreou, meanwhile, was taking to the road, courting Libyans as potential investors, a possible lifeline along with the Chinese. Rumors of a cabinet reshuffling circulated. As of May, about half of all Greeks said they supported the Papandreou government’s bailout measures.
Meanwhile, bad news continues to mount. Moody’s (MCO) downgraded the country’s debt four notches, to junk status, and private investment remains weak. The next tax increases kick in on July 1. Metro employees went on strike because 285 temporary employment contracts were not renewed.
The arrival of summer brings respite, at least insofar as escaping the feverish temperature becomes the major preoccupation and Greeks of all stripes decamp to the islands. When they return in the fall, the IMF will issue a formal progress report in advance of the next round of loans, and it will start to become clear whether there is hope for a new Greece. “Until then,” says Bastian, “it will be too hot to realize what it all means.”