Greece: What’s Going On?

The Greeks are rioting in the extreme cold. They have been rioting now for weeks to protest austerity measures their coalition government is attempting to impose on them. It’s an emergency government trying like hell to borrow money from richer countries, especially Germany so Greece, the state can pay its bills. The creditors and would-be creditor countries headed by Germany are saying such things as (I am paraphrasing):

You have many more public servants per 10,000 citizens than we (Germans etc, ) have. You will have to reduce the number by so many thousands by such and such a year as a condition of our lending.

Your government’s tax receipt as a percentage of GDP is much smaller than ours. There is also abundant evidence of massive tax cheating that is unheard of in our countries. You are going to have to improve the collection of taxes by such and such. (Note that this say nothing about tax increases.)

The creditor countries are all democracies whose tax-payers have the ability to express what they think about the bailouts of other countries. It’s their money. Their national politicians are lending to a nation-state that my local banker in his best days would not have given a second look to. The long and the short of it is that Greece, the country, is a bad credit risk. That’s why its government would have to pay something like fifteen percent interest if it could borrow money on the open market. For a comparison, I have US Government bonds purchased six years ago that pay 4,6 %. That was considered very good then. It’s even better now.

Note that there is no info about what private Greek concerns have to pay to borrow on the open market. I would not be surprised if they were able to borrow at normal rates. I wonder why this information is lacking. Massive privatization surely looks good with respect to a country where government finances are such a debacle. Big innovations work out best when it’s impossible to say: Situation normal; everything working just fine.

Ordinary Greeks are rioting against the prospect of cinching their belts a lot tighter. They are even thinking Communism again because this all comes as a surprise. For thirty years, they were allowed to believe that Greece was economically more or less a kind of southern version of Germany, not quite as prosperous and productive but pretty damn close and on its way there.

It was never true. Greece does not have much to rely on. Its workforce is less productive than that of any number of Third World countries. Its polity is definitely Third World, in the fundamental sense that citizens and businesses there cheat massively on their taxes. It’s like India in that respect, not like fellow European Union member Finland, for example. Greece is a tourist destination well favored by northern Europeans, including Brits and Germans. This means that in hard times, like now, this source of Greek income decreases drastically. Germans whose hours have been cut may cut their Greek vacation by one week, just this one time. No big deal for the Germans; significant unemployment and income loss for Greeks.

Intellectually, Greece is like other European countries but worse. One gets the impression that the reality of capitalism and of its immense capacity to lift ordinary people out of poverty never made it to the public discourse there.

I am well aware of the fact that French public elites make antiquated left-wing statement in public all the time. You can even hear frequently on French media the words “les ouvriers” (though more rarely “la classe ouvrière.”) Yet, it’s fairly clear that they know they are pretending. Not many French intellectuals fail to notice that the 85% or more of the adult French populations who are not “ouvriers,” “workers,” also work. They use the petty Marxist ideology poetically, so to speak. Also, when leftist French coalitions come to power they display a clear sense of their understanding that capitalism is the golden goose one must not kill. The French public discourse reflects this in a sort of disjuncted way: The poor are poor because the rich take all the money but one cannot do anything to discourage the rich. In Greece, only the first part of the sentence emerges. In this respect, Greece is more like Argentina than like Germany.

With this single vision of economic reality, when the state begins to fail financially, there is only one solution that comes to the average Greek’s mind: Raise taxes on the cheating rich (though everyone is cheating, including the poor.) They are flabbergasted when told that it’s not possible, that the Greek state has been living off borrowed for many years and that it now finds itself incapable of borrowing without agreeing to severe “austerity” measures.

Sounds familiar? One big difference: In this country, somewhere around half the electorate understands well the connection between the government’s living within its means and public solvency. Imagine a country where no one but politicians reputed “extremists” dares say anything like this in public.

Not surprisingly, ordinary Greeks fall from on high and suspect a trick or better, a sinister foreign plot when they are told suddenly that they must accept any degree of austerity. (On the foreign plot: There is a sickening picture of Angela Merkel in a Nazi uniform somewhere in the Greek press.)

Gross misinformation is one sources of the current Greek trauma. They did not know they were poor. Life in Greece was pretty good after all. There is another source that’s more difficult to grasp. I will describe it with a story.

Around 2003, my wife and I landed in Athens where her baggage failed to follow. We found ourselves downtown, in a business district trying hard to buy her some emergency closing. We were not dawdling because the temperature was in the 90s. It was about 2:30 p.m. on a Saturday. (The day of the week matters.) Quickly, it became clear to me that the clothing stores and the department stores around us were trying to close for the rest of the week. I recognized this phenomenon because I was familiar with France, another European Union country. Anyway, my guess was correct. All the stores were closed by 3:30 at the latest. (Yes, my wife was able to buy some clothes. Thanks for asking.)

Now, think about it: In rather prosperous France, long Sundays are common in the retail industry. And perhaps even more so in Germany and in Sweden and in Denmark. On the other hand, long Sundays don’t exist in the US or in Canada. They are unknown in Mexico and in India. And any one full closing day is unknown in Turkey, right next door to Greece. There, business is thriving seven days a week and far into the evening. Whoever makes the law in Greece thought that Greece was like France and Germany rather than like either the US or Turkey.

That’s a fatal if common mistake: By belonging to the same economic ensemble, the European Union, the Greeks came to believe that they had earned the same self-indulgent privileges as the Germans or the French. Belonging to the Union freed them mentally from the worry of catching up. In fact, the GDP (PPP) per capita gap between Greece and Turkey is smaller than is the gap between Greece and Germany. Economically, the Greeks are closer to the Turks, who would not dream of making laws to close on Saturday at 3 than to the Germans who having been making laws rolling back precisely this sort of practice.

Joining the European Union had some blessings for Greece. It also gave the country practices and delusions that were exactly what they did not need. With the notable and unfortunately highly visible exception of countries to which Allah gave a sea of petroleum, becoming rich involves hard work and long working days and weeks. It helps if you are able to sell the product of your efforts to the many, as belonging to the EU allows. It does not replace work.

4 thoughts on “Greece: What’s Going On?

  1. I found your post very interesting. One thing I found particularly interesting was your remarks on the French left. Since the presidential election is coming up soon, what do you think would happen to how the financial mess in Europe is being handled if the Socialist candidate were elected considering the major role France plays? How likely do you think it is that Hollande could win?

    • The first thing to know is that France is a country where common conservative and libertarian ideas about market efficacy are rare. A conservative stance is absent from the public discourse.

      I think Hollande is going to be elected. He is the worst the French Socialist Party has to offer. He has never done anything in his life, like our current president, or worse. He does not even have the merit of being a member of an interesting minority. He is the pale consort of a former big loser in a French presidential election (Segolene Royal). How much lower can you get?

      All this because Sarkozy annoyed too many people, swing voters, with his bad manners and because Strauss-Khan couldn’t keep his second thinking tool where it belongs long enough. Yes, Strauss-Khan was going to be the Socialist candidate. He understands money, unlike Hollande who knows nothing about money except that the “rich” have too much of it and that it’s the root of all evil.

      Hollande is the worst of a Socialist Party that has had few new ideas, has not updated itself, in the past thirty years. However, his colorlessness, the fact that he barely exists may be a blessing. It’s possible that economic technocrats in his party, or close to it, will be able to make him do what’s needed: many reforms leaning toward austerity under some other name.

      The alternative scenario is that several eastern and southern European countries leave the Euro zone one by one and that France follows. The Euro is kept alive in name early as a virtual currency to pay for cross-border transactions within Europe. It’s a good face-saving solution. Individual countries resurrect their independent currencies. Some will keep a formal vestiges of the Euro: the Eurofranc, the Eurolira, etc. Some small countries: Netherlands, Belgium, Austria, may form mini currency unions.

      In the aftermath, the cost of living rises quickly in the individual European countries but not but much. The rise corresponds to the rebirth of intra-European transaction costs the Euro had reduced to next to nothing. I think the rise will be a lot less than 10%. Soon, there will be competitive devaluations between countries, impoverishing several of them and making trouble for several American industries.

      I can’t read the future beyond this.

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