The Greeks Are Being Unfairly Maligned by Global Financiers: The Truth Is Very Different
Stay up to date with the latest headlines via email.
Yiannis manages a small inn in Crete. The 50-year-old from Heraklion with salt-and-pepper hair and a hefty moustache has a son just graduating from college.
“We tell the young people to leave,” he says quietly. “There’s nothing for them here.” Protests and strikes are sweeping the nation, but Yiannis doesn’t like talking about the economy. I sense a feeling of pride holding him back. But he does offer this insight: “We know that it is the ordinary people, not the rich and the powerful, who pay for this.”
The Lazy Greek Meme
Greece is a land of ancient myth. But more recent myths have made Greeks like Yiannis cringe when foreigners start asking questions.
Greeks are lazy. They don’t work. They’re profligates who are taking down Europe. The caricature has become so common that a recent TV commercial in Slovakia used it to sell beer, drawing a contrast between the virtuous Slovak and the paunchy Greek indulging himself on a beach.
Most foreigners know Greece from holidays spent lolling on its beaches and drifting around its magical ruins. You could easily take it for granted that everybody here is just chilling out. They aren’t. The Greek labor force, comprising 5 million souls, works the second highest number of hours per year on average among countries in the Organization for Economic Development (OECD), right after South Korea. Greeks work 42 hours per week, while the industrious Germans toil just 36.
The average Greek worker earns a bit over $1,000 a month. Private sector employees are the most underpaid in the EU. Even before the harsh austerity measures imposed by the EU and the IMF, the Greeks had already cut the real average wages in the private sector to 1984 levels. This week the Greek parliament is expected to vote on measures that would place 30,000 public sector workers in a “labor reserve” at slashed pay – up to 40 percent.
Greeks retire a bit later than the European average. And the average pension, $990, is less than that of Ireland, Spain, Belgium, and the Netherlands. Thirty percent of the labor force works with zero Social Security or protections, while in the rest of the EU only 5-10 percent of workers are in this precarious situation.
So much for the myth of the overpaid, lazy Greek.
The reality is simple, though rarely admitted – except maybe by Yiannis, who seems to know exactly what’s happening. The “bailout" of Greece is really a bailout of big European banks. A game of smoke and mirrors leads us to think that Greek indolence led to financial ruin. The Greeks have done some things wrong, to be sure. But it was a dangerous mix of stupid economic theories and high-flying finance, fueled by a corrupt government, that exploded the economy. If all this sounds sickeningly familiar, it should. We’re witnessing Round 2 of the Great Global Shakedown by the banks.
Mini-History of the Modern Greek Economy
In modern history, southern economies have typically been weaker than those in the north. They industrialized later and only fitfully; large landowners often dominated them far into the 20th century. Economic growth was painful, marked by big deficits, bloody political conflicts and instability. You can see this in the history of Italy, Spain, and even France to a degree, but especially in Greece. The Greeks got socked in WWII and then creamed again by a brutal civil war (1946–1949), in which American military aid to the Greek governmental army ensured the defeat of the Greek Communist Party.
After WWII, the Truman Doctrine and the Marshall Plan determined relations between the U.S. and Europe. The economic recovery of Germany—designed to benefit American multinationals like IBM, Ford and General Motors – was a high priority. (Watch a fascinating lecture by economist Joseph Halevi here.) Greece mattered to the U.S. as a strategic barrier against the USSR in the Cold War, so it decided to support Greece with economic and military aid, fearing that another communist domino would fall.
Meanwhile, a resurgent Greek Left began to demand fair labor practices and human rights. It was duly answered with brutal repression. Executions and exile were common. In 1967, the army, back by the CIA, overthrew the government in a Cold War right-wing military coup. The new government, known as the Regime of the Colonels, engaged in stupid military adventures like a disastrous attempt to annex Cyprus, which led to its collapse in 1974. But the Greeks maintained a ridiculously oversized army and navy, underwritten by the U.S., to keep those Russians at bay. When the Cold War ended, the Russians were no longer a threat to the U.S., and, accordingly, financial support for Greece was drawn down.
Through the '80s and most of the '90s, the Greeks economy faltered. The Greeks had to pay super-high interest rates when they borrowed money. The government, mired in bureaucracy, mismanaged things badly. Taxes were not collected. Bitter class conflicts emerged. Horribly high unemployment persisted.
But in 1992, something called the Maasticht Treaty brought hope, getting the ball rolling for the creation of the euro. Unfortunately, the idea of the euro was kind of a fairy tale promoted by European elites (minus the British). Some tried to sound warnings of an epic screwup. Wouldn’t the lack of a shared language, common culture, and big central government be a problem? Paul Krugman notes that European number crunchers who wanted the euro weren’t above fudging results to make the plan look good. The fairy dusters won, and in 1999, the euro became official. In 2000, Greece joined the game.
One fairy tale held that once countries adopted the euro, they wouldn’t default. They would limit their deficits. Every country would become like Germany, where debt was highly secure. Yay! Greek debt, Irish debt and Spanish debt began to trade as if they were super-safe German or French debt. Countries like Greece that had been considered dicey investment became overconfident. The European Central Bank would take care of inflation, they thought. And surely no one could go bankrupt. The Greeks, once forced to pay high interest rates (as high as 18 percent in 1994), could now borrow at low interest. The conservative Greek government went on a reckless borrowing spree and the banks went on a reckless lending spree. Big European banks were delighted to lend them money; more than a few also helped the Greeks hide evidence that all was not well.
Many of these big banks knew perfectly well as early as 2005 that the Greeks wouldn’t be able to pay the money back. But so what? Banks love a little thing called moral hazard– where you know your risky behavior is not going to be punished because somebody out there is going to pay for it. That’s what they counted on with Greece, and accordingly kept the rivers of money flowing.
The Greek government borrowed boatloads for the 2004 Olympics, which cost twice as much as projected. Magician-bankers at Goldman Sachs obligingly helped it disguise the debt -- we’re talking billions -- with clever little financial instruments called derivatives. The public hadn’t a clue what was going on. All the southern countries on the euro continued to borrow heavily, spend heavily, and for a while, they boomed. Until they didn’t.
God of the Winds
The shit hit the fan in 2008. Everybody looked around and said, “Who the hell is going to pay off these debts?” The banks saw big money heading out the door. According to the bible of neoliberal economics, this can’t happen. Human beings and societies are one thing. But banks must be saved at all costs.
When the Greek government changed hands in October 2009, the books were opened and it became obvious that there was a much bigger deficit than anyone thought. Investors ran for the hills. Interest rates shot up. In November, just three months before the Greeks became the epicenter of the European economic crisis, the wizards of Wall Street were back on the scene in Athens, trying to peddle more deals that would allow debt to magically vanish. The New York Times summed up the banks’ role in the crisis:
“As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.
"In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come…Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.”
With evil financial winds gaining hurricane force, it became clear that Greece would need a whole lot of money if the bankers were going to get paid back. They jumped on the austerity train to nowhere– chasing their tails by making draconian cuts, which only increased their deficits, and then having to ask the EU for more money. Public workers were fired to pay the banks. Pensions were slashed to pay the banks. But there still wasn’t enough money to pay the banks.
If you’re a country that has your own sovereign currency – like the U.S. – then you have some options in this situation. You can do monetary expansion to head off deflation, for example, and devalue your currency. But once Greece went on the euro, it say good-bye to such options. So it cut, and cut, and cut, and now it’s going bankrupt anyway. The country is mired in falling income, rising deficits, and sinks even further. It’s in the Herbert Hoover death spiral.
Meanwhile, members of the EU are flipping out. Contributions to the bailout agreed to in July are supposed to be proportional to a country’s economic status, and thus the Germans have the biggest chunk to fork over. They are not keen on the notion of doing so in order for the Greek and French banks to get paid. Hey, they’re thinking, wouldn’t it be cheaper to recapitalize our own banks directly? The French are really flipping out, because after the Greek banks, their banks are holding the biggest hordes of Greek debt. They’re worried about their credit ratings. The bailout decision has been postponed until mid-November so everybody can fight it out.
The realization is dawning that this shitstorm is too big, and that the Greeks can’t fix themselves. So they may have to go bust. And if Greece goes bust, that means the Greek debt will be written down, maybe half of it. Which means the Greeks would only owe half the money they currently owe to the banks. And because these banks were in crap shape anyway, despite their phony stress tests, the possibility of cascading defaults rises.
Now the idea is to try to build a firewall around Greece so that if it does go bust, everybody else will be protected. Good luck with that.
And just wait until the same thing happens in Portugal, Spain, and maybe Italy. In a nutshell, the entire European continent is deflating and collapsing for the sake of the big banks.
Sadly, this doesn’t have to happen. The banks could be taken over, recapitalized, and their management fired – FDR-style. Admittedly, this is as unthinkable in the world of bank-centric, neoliberal economics as a fish riding a bicycle. But the anti-bank constituencies are much bigger now than they were when the financial crisis began. Politically, they are on the left and on the right.
In a way, the Greek crisis is a chance to do things right. But that ain’t going to happen. Because there’s probably not enough money in the EU for a bailout, the International Monetary Fund will likely have to come in. And guess who’s a member of the IMF? The United States! That’s right, there will be smoke, and there will be mirrors, and there will be no one saying to the American taxpayer, “Get ready to hand over some more money to the banks.” But that’s what’s likely to happen, though right now Treasury Secretary Geithner is denying it.
Yiannis waves to me as I head out to explore the Minoan ruins of Zakros in southeastern Crete. “You are from New York!” he says. “They are protesting the Wall Street, yes?”
What’s this? I wonder. It’s only September 23, and I had not realized the European papers were covering the protests. “Yes, they are,” I tell him. “People have had enough.”
Yiannis nods his head. “Yes,” he agrees. “The people everywhere have had enough.”