Why the Euro Crisis Goes On and On
The leaders of the Euro zone, Angela Merkel and Nicolas Sarkozy, are apparently unfamiliar with recent Greek history. Otherwise their efforts to solve the Euro crisis might not have lurched from one failed attempt to another.
When the modern Greek state was born, it was virtually bankrupt. It reached the edge of bankruptcy several times later. While the Greeks were not always responsible for starting such crises, Greek political culture often made the crisis far worse.
The Greek War of Independence (1822-1829) left the country devastated. After driving out their Turkish rulers, the Greeks fought two civil wars among themselves. Then the modernized Egyptian navy and army joined in on the Turkish side and overwhelmed the Greeks. Finally, at Navarino in 1827, the Turkish and Egyptian fleets were annihilated by the combined fleets of Britain, France and Russia.
With the further intervention of French and Russian land forces, Greece was reborn, but already deeply in debt. Loans on British banks of nearly £3 million had already been taken out in 1824-1825.
The Greek national hero, Ioannis Kapodistrias, returned from exile to govern the Greek republic, only to be assassinated in 1831. The European powers then forced Greece to become a kingdom under the Bavarian Prince Otto. Part of the settlement was a series of new loans almost as large as the previous ones. Servicing these loans would hobble Greek economic development for decades to come. Already in 1843, the European powers were forcing the Greek state to make immense budget cuts to receive a loan, just like today.
Otto and his German advisors submitted Greece to authoritarian rule until a coup in 1843 forced him to grant a constitution. His lack of respect for the constitution led to his ouster in 1862, whereupon the European powers imposed a Danish prince as his successor.
The transfer of power to an elected parliament, however, made Greece barely governable. The parliamentary opposition would have one aim: to provoke early elections as soon as possible. A new government would then throw out the officials appointed by its predecessors. Central Athens has its Square of Weeping (Klathmonos), a name acquired, Greeks say, because here the ousted officials would be seen bewailing their fate.
That abuse was eventually rectified by granting officials tenure. The result today is the existence of powerful public sector unions that secured unbelievable privileges of employment for their members and now constitute the biggest obstacle to any reform of government expenditure.
Throughout the nineteenth century, Greek political parties were agreed on only one thing: the so-called "Great Idea" (Megali Idea). The original boundary between independent Greece and Turkey lay not far north of Athens; the Great Idea was to expand the state to include all the lands of ancient Greece. For some decades, the three main political groups in Greece were known as the "British," "French" and "Russian" parties, depending on which country they hoped would help them achieve the Great Idea.
Little problem: besides Greeks and Turks, those lands now included Slavs, Albanians and Romanians. They were developing their own nationalisms. But because most of them were Orthodox Christians, in Greece they were regarded as Greeks who were somehow speaking the wrong language.
The European powers therefore mostly blocked Greek expansionism, with military means if necessary. In 1897, on the other hand, they rescued Greece from catastrophic defeat in a war initiated against Turkey. Greece still had to pay Turkey a large indemnity -- this, after the state was declared insolvent in 1893.
During 1910-1920, the perennial prime minister, Eleftherios Venizelos, came close to achieving the Great Idea. The Greek state almost doubled in size after the Balkan Wars of 1912-1913 and after Venizelos deposed the pro-German King, Constantine, in order to join the British and French against Turkey in World War I. In 1920, however, the Greeks voted out Venizelos and reinstated Constantine. So Britain and France stood aside when Turkey renewed war against Greece. The large Greek population of Asia Minor was massacred or expelled, and Greece with its feeble economy had to absorb 1.5 million refugees.
World War II also left Greece in economic ruin, since the German occupation had transferred food to Germany and let the Greeks starve, just as the Germans did in the Netherlands in the "Hunger Winter" of 1944-1945. The difference is that the Dutch banded together to rebuild their country and turn it into one of the best run in the world. The Greeks, instead, embarked on a three-year civil war between the factions that had resisted Germany.
The memory of World War II fuels the current Greek hatred of Germany, as precisely Germany leads the attempt to impose fiscal discipline upon Greece. The Germans, for their part, have forgotten their military occupation and despise the Greeks as a nation of lazy spongers, looking to snatch away Germany's hard-earned billions.
Modern Greece, consequently, has oscillated between incoherent parliamentary democracy and authoritarian dictatorship. The Venizelos government of 1928-1932 was a partial exception, but ended after Greece could no longer pay full interest on its loans.
The last military junta fell in 1974. The Greeks then even solved the language question that had plagued the state since its creation. Like the Arabs, the Greeks had spoken one form of language in daily life and popular culture, the demotic, but used another, the artificially "purified" language, in the administration of the state. The compromise adopted after 1974 was to use popular grammar with a large infusion of "purified" vocabulary.
Today, for the first time in millennia, all Greeks speak and write a single language. Unfortunately, they still do not behave like a single nation.
The Current Crisis
As Greek opinion is deeply fragmented, the electoral system aims to reward the largest party disproportionately. So government since 1974 has alternated between the conservative New Democracy (ND) party and the Panhellenic Socialists (PASOK). When either was in power, any attempts at budgetary reform were met with strikes and demonstrations by the two major trade union confederations. The demonstrations would be taken over by hooded anarchists, using them as a chance to destroy property, and the parliamentary opposition would demand new elections.
In between demonstrations, the anarchists kept in practice by blowing up automatic teller machines. Not for the money, but simply to attack the banking system. Tax evasion and corruption were rampant, habits learned under Turkish rule and never unlearned. If someone needed an operation, for instance, it was common to bribe the doctor in order to get a realistic slot in the hospital timetable. As bribes escape taxation, some Greeks became incredibly rich. This was a country that should never have been allowed into the Eurozone in 2001.
Kostas Karamanlis, an honest and intelligent politician, won the 2004 elections for ND after a particularly spendthrift PASOK administration. He embarked on a program of wide-reaching cutbacks and reforms, which provoked the usual intensive strikes and anarchist violence. The response of George Papandreou, the new leader of PASOK, was to tour the country demanding new elections, which he got and lost in 2007. But ND now had a parliamentary majority of 152 out of 300, undermined by accusations of corruption against one of its members and the threat of defection by another.
So Karamanlis called new elections in 2009; he lost them to Papandreou and resigned. Papandreou's narrow victory – 160 out of 300 – was Pyrrhic: he achieved power just before the Euro crisis began. Moreover, it now turned out that Greek economic statistics had been fiddled with for years, so the economic problems were much greater than commonly supposed.
Papandreou now had to implement all the reforms that he had denounced when in opposition, a reversal which – to his credit – he now undertook. The new leader of ND, Antonis Samaras, responded in classic Greek style by opposing everything that his party had fought for when in government and – of course – by demanding new elections. The only ND member of parliament to vote for the first deal to keep Greece within the Eurozone, Dora Bakoyannis, was immediately thrown out of the party. The trade unions declared a series of strikes and demonstrations, the anarchists seized their opportunity.
So we are back to the old scenario of European powers trying to impose order, especially financial order, in Greece -- this time, it is the governments of Germany and France. We can also state the fatal mistake of Sarkozy and Merkel and what they ought to have done.
Their mistake was to assume that Greece is a normal country where, if the prime minister accepts a major international obligation and the parliament votes for it, the country will implement it. In George Papandreou, they made an agreement not with such a prime minister but just with one political figure among many.
Even within his own party, the crisis was immediately seized upon by his main rival, Evangelos Venizelos, to advance himself. No relation to the earlier Venizelos, but content to flaunt the name, he had stood against Papandreou in a fresh election for party leader after the election defeat of 2007. Papandreou solved this problem by making Venizelos an offer he could not refuse: to become finance minister in an economic crisis. As for ND, it was Bakoyannis who had stood against Samaras for the leadership when Karamanlis resigned. She voted against the party line out of principle, but also in line with personal ambition.
Instead of ignoring Greek history, what the Europeans should have done was to make an agreement not with one Greek but collectively with all the Greeks who mattered. The agreement to bail out Greece needed to be signed by the leaders of the major parties, but also the leaders of the trade union confederations, and preferably with the blessing of the Orthodox Church. There should have been no agreement without a signed commitment of the trade unions to refrain from strikes and demonstrations. Maybe also a signed commitment by employers' organizations to coerce their members into paying real taxes.
Belatedly, the Europeans realized that they could not deal with Papandreou alone. Their next mistake was to assume that they merely needed to force the Greeks to form a coalition government between PASOK and ND. Samaras eagerly agreed, on two conditions: a neutral figure, not Papandreou, should head the government and there should be new elections – what else? – in February 2012.
Samaras sold the agreement to ND simply as the chance for new elections when opinion polls would favor them. Likewise, Venizelos was happy: he continues as finance minister, poised to replace Papandreou at the head of PASOK. Where both miscalculated is that the opinion polls now show that both of their parties have lost most of their support among disgusted voters. There is hardly a difference left between major and minor parties. Also, since the emergency coalition barely started on its agenda by February, elections have been deferred to April. The next parliament may feature a host of little parties.
The European powers have now installed a team in Athens to monitor every financial act of the coalition government. This, too, is a misconception. The government has already legislated everything imaginable. Wages and pensions have been cut, officials have been dismissed. There are now special taxes on such symbols of unexplained wealth as limousines, large houses and yachts. The misconception is to think that in Greece if you control the government, you control how the country is run. Greece is far from being so simple.
Above I explained what the European powers should have done at the beginning of the crisis. In the meantime, so much more harm has been done that – whatever is attempted now – the result is anyone's guess.
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