A Greece too far.

Posted in 1 by Editor on July 5, 2011

If the foundations of western political thought were laid in ancient Greece, it may well be – at least as far as Europe is concerned – that the foundations of a post-war political economic system, where rulers and ruled, employers and employed, agree that this is grosso modo the best of all possible worlds, are being fundamentally questioned in Greece. In Greece’s particular case, the period that may be coming to an end began somewhat later than the conclusion of World War II. The fall of the military dictatorship in 1974 is a rough but useful landmark. In the greater picture, however, this is a small detail we need not concern ourselves with here.

This is not the place where we can even hope to outline the fundamentals of this system – let alone of its national variants – without reducing it to a journalistic caricature. It should be enough, however, to note that for it to work (that is, for all those that participate in it to be more or less happy with it), this system requires a constant supply of funds. Now if these funds are not generated by real economic growth – an economic growth driven by productivity and, in all European cases, ultimately by exports – then the state will have to resort to deficit financing. If it does not do so, the happiness bubble bursts. And you get a Greece.

Pathological optimists – otherwise known as fools – will try to console themselves by arguing that the Greek case is an exception to the rule, a deviant case. The system works, they will attempt to argue, and the institutions of the European Union are there to ensure that it does so. They will insist that the Greeks have only themselves to blame and that, therefore, Greece is the exception that proves the rule. Unfortunately for all of us, this does not seem to be the case. There is a growing consensus that the problem might well be a systemic one. That this happiness-bubble producing machine is not indefinitely sustainable. That, at some point, the chain has to give way. That it will do so at the weakest link. That the chain (read system) is ultimately only as strong as its weakest link.

Hence, the worry that we might be approaching a Greece too far. Hence, the suspicion the Union might be, on the one hand, loudly castigating profligate governments of member states, while, on the other hand, implicitly encouraging the idea that one can live beyond one’s means and to hell with productivity. One argument goes that expecting a union of states characterised by uneven economic development to develop institutionally in an even way, regardless of the reality on the ground in each of the states, does not promote productivity growth evenly throughout the Union. The suggestion is that quite the contrary might be the case.

The worry is that, whatever the explanation, a Greek collapse might trigger a chain reaction. The problem, of course, is not exclusively one of public finances. Nor even, though more broadly, only an economic one. The problem is now also, if not mainly, a social and a political one. The decisions taken in the Athens Parliament last Wednesday and Thursday have been greeted with satisfaction by European leaders. Chancellor Angela Merkel of Germany said they were “really good news”. In a joint statement, European Commission President José Manuel Barroso and European Council President Herman Van Rompuy declared that Greece had taken “a vital step back – from the very grave scenario of default.” Markets, too, reacted positively.

Ordinary Greeks, however, and not only those protesting in the streets, are deeply unhappy and profoundly resentful of what they see as the EU’s and the Bretton Woods institutions’ pressure on a helpless and embattled Greek government to make them, the people of Greece, pay for the long-term wastefulness and economic mismanagement on the part of incompetent and possibly corrupt past Greek governing politicians.

With the Wednesday vote, the Athens Parliament voted to reduce very sharply indeed government spending and to dispose of a broad selection of national assets. The package, approved with a majority of 155 to 138, calls for the privatisation of assets worth about €50 billion. These include ports, telecommunications, real estate and the public stake in the national energy corporation. It also provides defence cuts over the next five years and, much more sensitively, hefty cuts to public health up to 2015, higher taxes on heating oil and for the self-employed. It will also mean reductions in the numbers of public sector employees.

This comes on top of 10 per cent plus wage cuts, began last year, for Greece’s 800,000 public workers – that’s more than 10 per cent of the country’s workforce.

The Thursday vote approved the second part of the austerity budget amounting to a further €28 billion. This should have now cleared the way for an immediate €12 billion cash injection. As I file this piece, there is as yet no confirmation of when this will actually come through. But will this settle the problem? No. Meanwhile, Ireland, Portugal and Spain will continue to tremble. Also for EU countries, such as Malta, where the only solution to their governments’ problems is, finally, an election, it will mean that the incumbents will not be able to spend their way to re-election.


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