Acropolis now: Greece may be just the start

Other Eurozone countries are faltering, with far more worrying consequences

Acropolis now

Orestis Panagiotou/Keystone Press

“We are finished as a nation,” says Marko Gjini, a 39-year-old unemployed construction worker in Athens. “The country has been sold off. We have no say in anything anymore. Greece is owned by the Germans.”

Like many Greeks these days, Gjini is bitter and despondent because of his country’s financial mess, and the austerity measures that have been imposed in an effort to contain it. His wife, Aleka, a public hospital nurse, has seen her income drop from 1,200 euros a month to 800 euros. Now, facing more taxes and cuts to public expenditures, the family expects to have a net monthly income of less than 500 euros. Marko and Aleka are investing whatever money they can toward English lessons for their twin eight-year-old boys in the hope that they might have a better future somewhere else. “Let the government fall,” says Gjini, “[German Chancellor Angela] Merkel is the boss now anyway.”

Greece’s financial troubles have been accelerating since 2008, and have now reached a crisis point. Unable to pay debts accumulated through years of wild spending and financial mismanagement, covered up by blatant cooking of the books, last May the country accepted a $150-billion bailout loan from the International Monetary Fund and other members of the eurozone—those European Union countries that use the common euro currency—in return for imposing harsh austerity measures. These weren’t popular among ordinary Greeks; strikes and street protests followed. Three bank officials died in May when rioters set fire to their bank branch in downtown Athens.

The Greek government, meanwhile, missed its financial targets. Rescue loans were delayed. And the recession got worse. Facing the very real possibility of defaulting on its enormous national debt, Greece last month negotiated another bailout package involving cash and a 50 per cent “haircut” off all its privately held debt, if Greece would agree to further cuts to public spending and increased taxes.

Greek Prime Minister George Papandreou then shocked the rest of the continent when he announced he would take the proposed package to the Greek people in a national referendum. But French President Nicolas Sarkozy and Merkel—leaders of the two largest economies in the eurozone—summoned Papandreou to a meeting of the G20 in Cannes, France, and told him all bailout money would be suspended until after a referendum vote was held. What’s more, they said, a referendum on the bailout deal would, in effect, be a vote on whether Greece wished to remain in the eurozone. Papandreou backed off and dropped the referendum.

For Vaso Gildizi, a Greek freelance writer, events in Cannes were “a national humiliation for the country.” The Greek prime minister was scolded like a schoolboy and sent home. The incident didn’t sit well with many Greeks who were already sour on the bailout deal and the euro itself.

“We’re bankrupt,” says 44-year-old Vasilia Paneli, owner of Bliss, a trendy café a short walk from Syntagma Square and the parliament in Athens. “We know it. The EU knows it. And yet we continue this Greek tragedy. A referendum would at least give us a voice, a chance to speak up for our future.” Paneli was unmoved by French and German threats that a referendum on the bailout deal would have meant a vote on whether to remain in the eurozone. She’d rather Greece leave it. “It’s self-serving,” she says. “I say let’s go back to the drachma.”

This option of leaving the eurozone and reverting back to Greece’s previous currency has some traction in Greece. “Under the euro we’ve become a nation of bailout slaves,” says Stavro Tsoykalas, an unemployed truck driver who claims people were never as poor during the drachma days as they are now. He too would like to drop the euro.

William Antholis, a senior fellow at the Brookings Institution think tank, likens flirting with a return to the drachma to “threatening suicide to avoid a lynching.” Greece is in for a painful few years whatever happens, he said in an interview with Maclean’s. The austerity measures are going to bite. But leaving the euro, he says, would be disastrous. The costs could include a run on Greek banks, as people sought to withdraw euros before they were changed to drachmas. Some banks would probably collapse. Greece would likely default on its debts, and would be unable to pay pensions and salaries. Some sectors of the economy built on export might benefit from a new, devalued currency, but at the expense of much heavier blows elsewhere.

“Greece would be basically shot back into developing country status,” says Henning Meyer, a senior visiting fellow at the London School of Economics. “The economy would almost certainly collapse. It would be a very severe economic shock to the country.” But Meyer is also critical of the bailout package. Forced spending cuts will shrink Greece’s GDP, he predicts, crippling its ability to pay down its debts. What’s needed, he says, is a “European growth strategy” of targeted cuts but also investment. This isn’t on the table. Greece will accept the bailout package, he says, “because they’ve basically got a gun to their head. There are no good options left.”

Indeed, this week the Greek socialist government and opposition conservatives agreed to form a coalition government until a new election is held next year, possibly in February. Papandreou will remain as prime minister until his interim replacement is chosen. In the meantime, the coalition government will approve the bailout package, triggering the release of the now frozen rescue funds.

This won’t solve all of Greece’s problems, though. The economy will take years to recover, if it does at all. This will make Greece difficult to govern in the years ahead, as future governments will have to convince voters that austerity measures are still necessary, even as their standard of living stagnates or declines.

“If one of us were indebted to that degree and told you have to give up all the comforts that you’ve been accustomed to, and on top of that pay more out of your pocket, and maybe in 15 years you’ll see some incremental growth, there isn’t much incentive for people to work toward that goal,” says Phil Triadafilopoulos, an assistant professor of political science at the University of Toronto. “There isn’t much hope in that message. And that’s basically the message of austerity at its best.”

It’s not certain Greeks will buy in to such a deal, and solve some of the problems that have bedevilled the Greek economy and made reform so difficult: widespread tax evasion and a pervasive black market. Kostas Agas, a banker in Piraeus, a port city on the outskirts of Athens, says that even though Greeks understand the severity of the problems facing their country, many “continue to perpetuate the black money economy and the no-receipt mentality, but now it’s done in defiance of the austerity measures.”

Beyond Greece’s economic future are dilemmas about its political one—and indeed about the political future of Europe as a whole. “This is a much bigger than a question of currency. It’s a question of identity and who we are moving forward,” says Triadafilopoulos.

A generation or two ago, Greeks talked about “going to Europe,” as if the place were somewhere else. This has changed, as Greeks, especially young Greeks, embrace being part of a larger European community. But cynicism is growing among some, such as Gjini, the construction worker who believes his country is owned by Germans and run by Angela Merkel.

“The nature of the European Union is that you give up a piece of your sovereignty in return for prosperity and democracy,” says Jeffrey Kopstein, a political science professor at the University of Toronto. “That’s the bargain. If the prosperity is not there, the bargain appears to be less juicy.”

But Spyros Economides, a senior lecturer in international relations at the London School of Economics, dismisses the notion that Greece is selling its sovereignty to foreign countries in exchange for bailout funds. “This is a false dichotomy. We are a European Union partner. We are eurozone partners. We’ve also benefited from being part of this joint enterprise. And when we were on the receiving end of money and benefits, and structural funds and cohesion funds and regional funds, I didn’t hear much of an outcry then in terms of what this meant for sovereign rights and whether we were being dictated to from abroad.”

What’s most worrying about Greece’s financial crisis is that it is not an isolated one. Other countries in the eurozone are faltering, and the repercussions in economies bigger than Greece will be stronger. “Greece is a minor, minor spoke on a much bigger wheel,” says Economides.

Portugal and Ireland have both needed bailouts because of their debt problems. Now there are fears for Italy’s economy—the third largest in the eurozone—because of the country’s large debt and soaring borrowing costs for the government. This week, its prime minister, Silvio Berlusconi, finally heeded calls from political allies and opponents and agreed to step down. Along with Papandreou of Greece, he’s the second European leader to fall victim to the financial crisis in a week.

“The European project has a big question hanging over it,” says Economides. “I don’t think the European Union is in danger of collapsing right now. But you can see if the eurozone starts dismantling and falling into subgroups, and two tiers, then of course it has direct implications as to what this project actually is, and who it’s for, and what it’s going to achieve in the future.”

Already, some voters in the richer EU countries question why they should continue to bail out poorer member states. In Britain, 81 Conservative MPs defied Prime Minister David Cameron’s orders to vote against a call for a referendum on Britain’s continued membership in the European Union. And according to an October ICM poll, more Britons would vote to leave the European Union than would choose to stay in it.

“A whole dream has come into question,” says Triadafilopoulos. “Something that people were really proud of and saw as part of their identity, this European project, has been challenged at its very core. The belief in Europe as a basically positive thing and a way of moving forward into the future has been put into question at its basest level.

“Europe was established initially as a way of making sure that France and Germany didn’t tear each other to pieces a third time. The logic changed somewhat to be more economically driven. But at its core, it’s an idea that Europe is a community of European states that are united, despite their differences, according to a common allegiance to certain core principles—key of which is a commitment to liberal democratic principles and human rights. “If that project fails, then what we understand of Europe today is thrown into question. And Europe’s pre-unification history is not one that makes me optimistic. It was the centrepiece of two world wars, and prior to that innumerable conflicts, vicious conflicts that pitted European against European.”

Triadafilopoulos doesn’t expect a return to war in Europe. But he says a shared sense of what it means to be European will be lost. Until now, the trend in an integrating Europe has been toward liberal democracy. “If that trend is thrown into reverse, I don’t know what the consequences are, but I’m pretty sure they’re not good.”

But Triadafilopoulos says the crisis might have collateral benefits if it provokes debate among Europeans about what they want their future to be. Europe’s politicians, he says, will have to make a renewed case for the union. “Those who believe in Europe, they’re going to have to marshal arguments that resonate with everyday people in their respective countries, that give them a sense of the consequences if Europe is allowed to wither, because they are significant,” he says. “This may be a way of connecting Europe to Europeans.”




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Acropolis now: Greece may be just the start

  1. From an Arab Spring towards democracy, to a European economic Fall…..

  2. And everyone continues to be amazed that financing government operations with debt, and then more debt next year with no plan to ever repay doesn’t work.  Just wait til the Americans start to default (as they’ve already threatened to do).

    Horrible as the thought is, the only thing that will work when money has no value is some form of Communism.

    • Money works just fine. Usury doesn’t.

      When you remember that money is a social construct to simplify the act of bartering (“I’ll give you this wrench so you can fix John’s truck so that he can go and build Mary’s chicken coop so that she’ll give Tom a chicken so that he can make me a lovely meal,” becomes “I’ll go to Tom’s restaurant and buy a chicken sandwich.”) the idea that people charge interest (usury) is nonsensical. You don’t give a wrench and expect a wrench and a half back.

      Of course, it’s a work-around for the basic flaw in capitalism — resources go to who can afford them the most, not necessarily who needs them the most. By being able to charge interest, you give a reason for those with excess resources to enable those without to afford what they actually need.  Unfortunately, this also provides incentives for people to collect a larger and larger excess of resources.. because they can use the excess to generate more resources with considerably less effort than acquiring those resources otherwise would require. And once you start getting too much resources that are “excess” to those who actually need them you get distortions in the market which lead to frustrations in the people, which, eventually, inevitably, will lead to violence and/or oppression.

      What we need is to develop some incentive within capitalism for people to provide their excess resources without expecting even more resources in return.  It has been done. There were some small tribes where power and respect were accorded by what you could give away. And of course, as  you increased in power and respect, when you needed things yourself you were most likely to have them offered to you quickly.  Perhaps social networking and the dissolution of privacy can lead us to such a place again.

      But I expect the violence/oppression route is far more likely.

      • Lending money at zero interest is non-sensical. The lender deprives himself of the use of that money and risks losing it altogether.

        Capitalism has no flaw. Corporatism is another matter.

        • Under the current system, I agree. That’s why I said we need to figure out some alternative means of incentive. Incidentally, the lender doesn’t really deprive themselves of the use of that money, because if they were going to use it for something, they wouldn’t have loaned it out in the first place.

          Oh, and incidentally, saying capitalism has no flaw makes about as much sense as saying communism has no flaw.

          • That’s preposterous.  Just because I have no use for my money now, that doesn’t mean I won’t have a use for it later.  Interest is compensation for the risk that I won’t have my money back when an opportunity to use it comes up, and for the possibility that I might not get it back at all.  And the flaws of capitalism are the flaws of humanity: fear, greed and stupidity.  The flaw of communism is that it denies humanity.  

          • Interest is an expression of time preference in the market: $110 in a year is equal to $100 in the hand now, represents a 10% interest rate.  Risk is a separate premium on top of that.

      •  ”Small tribes” being key to making it work.  In a larger society, the blunt truth is that too many people who feel they don’t have enough also feel they are entitled and will happily raise the centre digit accompanied by a grin if they welsh on some sucker’s loan – sticking it to the man, who just happens to be for the most part a million middle class investors and pension holders sitting behind that avatar in the Monopoly suit.

        • Absolutely agree. If there is a move to a gifting type of economy, we really need some way to combat the free-loader problem. That’s why I was wondering about social networking and the dissolution of privacy.

    • The only form of communism that had worked – and I know of – was kibutz system in Israel. And even that later changed into free enterprise style.
      Unless of course some very primitive societies with very little demand for more than just plain survival.

      • There is and always would be some form of coercion and some sloth in any such system – even the kibbutz system whose present non-existence speaks for itself.

      • The only communist system that works is the family itself, where the communist motto – to each according to his need from each according to his ability – is literally played out.  That’s why the communist idea is forever appealing to the inner child; it’s the way things are in our families.

        • There can be a lot of unfairness, even within the immediate family, with the powerful be allowed to make all of the decisions for the weak.  In a communist system, a very small number of extremely powerful people are allowed to treat everybody else as perpetual children.  So, communism resembles a highly dysfunctional family in some ways.

    • Money by definition has or is perceived by persons exchanging it to have value.  What you are referring to is currency units which have no intrinsic value but which we are forced to use by politicians whose primary interest is using it to promote themselves through constant monetary inflation.  When the paper has no value, people will return to other means of trading.

    • The solution for money having no value is a new monetary system. There’s plenty of history, ancient and very recent of this happening. In fact, that’s how Germany got the D-Mark in the first place. It replaced the occupation currency system that had been gumming up the economic works right after WW II. Communism is never the answer.

      RIght now the political ground is shifting quite a bit in the US. I think it is likely that there will be several US states that go bankrupt, NY, CA, and IL being leading contenders. Others will do just fine. The ones operating well will constitute a majority of the electoral college and will tend to elect enough responsible types to avoid a catastrophic default, though I think that we’ve got a good deal of inflation already “baked in” due to the Fed’s easy money policies. The GOP has not had this level of power at the state level in many decades.

      What level of US inflation equals a default is up for discussion but we are unlikely to be talking about actual bondholder haircuts. Rather it is likely to be a moderate level of inflation that’s going to give me the creeps until we get it under control.

      Are there EU community roads that have had the paving converted back to gravel? They do that over here to save money. Half of Michigan’s counties are expected to convert roads this coming year. They turn off street lights and stop shoveling the snow too when the money runs out.

  3. The leaders in Greece knew what was coming and could not and did not do anything about it.

    We owe them no sympathy because their sinful actions have caused many other economies to

    suffer.

  4. Merkel = Hitler sign in background is just plain idiotic.

  5. There’s an expert on economy named  ”Spyros Economides”? That seems really questionable.

    • I really want to believe it, though.

    • Try google, he shows up quite a bit, including photos.

  6. In referendum after referendum – but only when asked by the politicians in their countries with the consent of the bureaucrats in Brussels – European people have been lukewarm to negative on the whole union thing.  Treaties in lieu of popularly approved constitutional documents is what holds it together now.  This was a dream of the few and not the many.  

    And, Brussels must have willfully turned a blind eye to Greek fakery in entering the Eurozone for the incredible and falsifiable information contained in Greece’s financial information and representations and warranties, aided by a major U.S. investment bank.  Current goings on are the result of known behaviors of the political leaders of the peoples of the Mediterranean for centuries if not longer.  Only this time, they cannot simply print money to ruin the savers.  Too many on the dole.  This result is entirely predictable and was predicted.

  7. The problem is … they are running out of other people’s money.

    • Nice Thatcher reference.  They are running out money because they aren’t being permitted to print their own and are therefore being forced to compete directly with Germans.  And they’re not Germans.

      • They knew they wouldn’t be permitted to print their own as part of the bargain.  They were happy to take the easy money (sovereign debt issued at low rates).  Take the risk; pay the price if it doesn’t work out.
         

  8. On the rare occasions when people in Europe have been asked their opinion, they have rejected the EU in its current form- OK I grant the Irish were given a second try and finally gave the desired answer- but nobody asked the French or the Dutch a second time and nobody else got asked at all.
    The EU is less of a democracy than was the USSR, with which it shares a constitution- and very closely a growth rate.
    There is practically zero risk of a European war, the peoples of Europe travel too much and trade too much for that to be possible- except of course if that peoves necessary to free us of the unelected and unelectable oficials of the EU.
    The Euro will fail primarily because it is against the best interests of all participants, whether the EU can survive that depends on how it adapts. If the EU wants to restrict itself to a free trade area with free movement of peoples, which is what Britain voted to join, then it can thrive. If it keeps its ambition to become a unified state it will fail. Without a change in personel I would expect it to stubbornly continue to make a unified state out of an area with more than a dozen different languages, each language embracing several cultures, and it will fail.

    • “On the rare occasions when people in Europe have been asked their opinion, they have rejected the EU in its current form..”

      You are quite correct.  That is why the parts in this article about the “dream” of Europe and it’s devotion to “human rights” ring quite hollow.

      Europe has A LOT of problems now.  Obviously many of the countries (or member states, should we call them?) are on the brink of total financial collapse.

      But besides those issues there are the issues of intra-Europe immigration as well as the issue of radical Islamism in many countries.

      All the problems with the Euro currency were predicted years ago by conservatives, now of course they have come to fruition.

      The liberal elites running Europe have screwed up mightily and they will NEVER admit it.  Neither will the liberal elites in the US.

      What will solve this?  I don’t know.  Voters vote and the courts reject their mandates.  For right now, we’ll keep voting.  Well, the tea partiers will keep voting, some others are sleeping in parks, right now.

      But, what can’t go on, won’t go on.

      Maybe you Canadians have been more sensible.  I hope so.

      Let Europe devolve. 

  9. What, exactly, does it mean to be “European”?  Has anyone ever defined that, precisely?  And, more importantly, do the vast majority of Europeans know that definition?

    I have a strange feeling that being a “European” is an elite feeling, more than it is a feeling of the common man.

  10. Have no fear.  The average European will sell his right to have a say in his destiny to an unanswerable government.  They’ve done it before. They’ll do it again. What I fear is what comes after doing so doesn’t work out. It will either be a world war or a dark age.  Real dark.

  11. “Europe” is only an abstract concept that *should* come in second to any individual country’s history, language and culture. And the so called unifying concept of “liberal democracy” is a nice term for continued nanny-state policies, except the redistribution of wealth happens now at a level beyond the influence of voters and is administered by unelected bureaucrats. The EU as envisioned by the Euroelites is a con job, perpetrated upon the dwindling productive few for the benefit of the elites themselves and all the other parasites. The present furor isn’t really about changing the basic scenario, it’s about propping up the farce for as long as possible; and international financial blackmail has become the tool of choice. Second tier members of the EU had better accustom themselves to the role of lackey because that, in flowery language, is their inescapable future in a surviving EU.

  12. Stop throwing money down that drain; better to let them collapse and see how it goes. With all the other countries lined up to follow, the EU needs facts on what will happen, not projections and theories. 

  13. >>> A referendum would at least give us a voice, a chance to speak up for our future

    Yeah, a future where you borrowed a fortune and refused to pay it back.

    These lazy, greedy former communists went 15 years without paying taxes, granting themselves gold-plated benefits and retiring at 50.  And now they have the nerve, after having defrauded their bond buyers, to ^&%$ing WHINE about the hole they dug for themselves?

    Please.  Cry me a river.

  14. The “peripheral” countries that have supported the phenomenal growth in German exports (best customers were their southern sundrenched neighbors, including Ireland)are being asked, in fact, to bail out the German and French bankers who got drunk on the Derivatives Casinos and expanded their credit default swaps (phony insurance for which there’s no real collateral) gambling on Greek bonds.  Now they want to be paid back for their bad ‘bets’ by the very euro-citizens they’ve been stealing cards from!

    Back in 1998, Brooksley Born, head of CFTC, was forced to resign by failed neocon ideologue Greenspan (self-confessed at the Inquiry) because she threatened to expose the quadrillion Derivatives Shadow Market that exists in a surreal world where only financial engineers on Wall Street can become mega-rich at the touch of a frequency-trading button! 

    Larry Summers, Rubin and Timmy Geithner were sent in to silence her.  She did not; therefore, she quit honourably while these jackals and Goldman Sachs alumni went on to rape the world’s global economies.

    In 1998, Paul Martin kicked out of his office the Royal Bank chairman who wanted to deregulate Canadian banking.  Canada was lucky to have a ‘Brooksley Born’ in charge and not some half-baked “Markets can do no wrong” ideologue like Greenspan or Geithner or our current bunch of myopic “leaders”.    Greece is just the scapegoats of the excesses of the toxic derivatives that have destroyed our world–and the Wall Street thugs are getting away with it and thriving on the taxpayers’ dollars!

  15. Re: Accopolis Now…….
    Nobody screams and protests louder than somebody about to lose an entitlement, simply because entitlements carry no rationale and defensible argumentation other than “I want it…I need it”.  They originate from political cultures which  particularly reward voter support in exchange for unearned benefits. Interestingly, entitlements not only include rights to financial payments but also what seems to be a right not to pay taxes, witness the lack of prosecution.   Many Greeks blame Germany and France, as some dark sinister force, for the cause of their troubles rather than the “enlightened” Greek government that got them into the mess in the first place.  More tantrums by adults are to be expected; but who will ignore them?

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