The Obligatory Greek Crisis Blog Post

Greece stumbles between disaster and catastrophe this weekend; no one knows how it will turn out, no one is even clear on what they are voting on. We may never be clear on what is or has happened, but it seems to me that there are some things we can start to develop some perspective on.
The Greek state has been badly managed. The taxation system has been a farce, and services have been badly run, delivering poor value. This is a long run historical problem; it is ingrained in the political system to the extent that the concept of a simple, efficient state is beyond the grasp of many in the political class.

Greece should never have been allowed to join the euro. It did not meet the criteria in any way. Even to distorted figures presented for public finances and state debt were not adequate, and we now know that those figures were dishonest. At least some people in Greek politics knew this, and it is quite likely that decision makers in other parts of Europe has a good idea of the truth. However, it is not something which can now be undone: what’s past is past.

It is also true that in the euro, Greek politicians borrowed unwisely. They availed of low interest rates to borrow more than they should have, for projects which did not produce the expected results. This was not solely their fault: actors in the global financial system were willing not to ask enough hard questions, and signed off on poorly judged deals simply in pursuit of short term wins and personal bonuses. The assumptions underlying much of the borrowing were naive. This was not confined to Greece alone: it was a problem which pervaded the entire global system. Blame here goes three ways: to the financial markets, to the politicians who were as naive as the bankers, and, in some measure, to voters who were happy to be bought without regard to the long term.

Some of the excess borrowing can be traced to specific projects. One was defence modernisation – even before the euro, Greek defence spending in the 1980s was 6.9% of GDP. After joining, for a while, Greece was the fourth largest buyer of conventional weapons in the world – and now an ex-Defence minister is serving time in prison for corruption. European Banks, mostly German, lent money to Greece to buy European weapons. Another is the Olympics, which are now a financial nightmare for any host country. Large international sporting events are no longer about sport – they are huge wandering herds of elephantine stadia, dragging along little black holes of financial doom and stinking piles of corruption. When they write the history of the collapse of commercialised sports, the Athens Olympics will probably be marked down as the key point at which the games fell off the edge of reality.

The various bailouts were never meant to help the citizens in countries whose economies were overstretched and whose banks were on the brink of collapse. Some of the benefit went to the people, but the vast bulk went to prevent the collapse of financial institutions who were in over their heads. If those institutions had been allowed to fail, there would have been serious consequences both for the rich and for ordinary people’s savings and pension funds. It was certainly wrong to force ordinary people to secure the bad investment choices of the rich.  It would have been cheaper and fairer  to allow  more banks to fail, and focus the bailouts on pension funds and savings.  When the next squeeze comes, we must not allow that to happen again.

It is also true, within that flawed framework, that Greek governments simply failed to reform their creaking state during the bailouts. Whatever about privatisations, reforms to the tax and welfare systems were dodged, and now that saved pain hangs over the Greek people. Even aside from the depression, the bailouts and the ‘austerity agenda’, a state cannot continue to function without resolving those problems. Certain things, like retiring at 61, are simply not possible, nor are they fair on other euro partners. (Some of whom need to look at their policies as well!)

The current Greek government fought and won an election on the basis of a political agenda that they simply cannot deliver. A blanket determination to try and solve the problems of the state without any further pain is unrealistic. They have not actually demonstrated an ability to lay out a programme which might inspire confidence in their ability to even realise the problems that exist, much less solve them. On the other hand, their European partners, as far as we can see, have failed to lay out any deal which would offer rescheduling impossible debts in return for the reform of the state: a list of demands which focus on repaying the debt quickly without making the state efficient, and while imposing intolerable suffering, is not much use. Youth unemployment in Greece is at least 50%, and possibly up to 60%. Problems like this must be solved first.

Most of the huge Greek debts aren’t real money anyway – there is no such thing as real money anymore.  We go through the depression on the back of printing money – that what “quantitative easing” is, no more and no less, The US Fed printed trillions of dollars, the ECB is committed to printing over a trillion euro.  The world has to come to terms with a new reality – money isn’t real anymore. Right now, this means that ‘printing’ some more for Greece isn’t actually a big problem, as long as the state sorts out its basic financial act.

A key point here is that the state is not the people. In many cases, the state is the enemy of the people, because it makes it easy for small groups to enrich themselves at the expense of the majority. The Greek state is broken; their tax system does not work, many of the laws the created, allegedly to manage the economy, simply entrenched conflicting privileges for interest groups. The Greek state isn’t the only one where this has happened; it just happens to be one where that system is now spectacularly broken. We need to throw away the Greek state and start it from a clean sheet, but we can’t throw the Greek people away at the same time. That will probably require other states to make compromises, not just financially but also in terms of accepting converging systems of tax and welfare – but that is what ‘ever closer union’ is about






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