Could this Greek Tragedy lead to civil war?

Ambassador Leonidas Chrysanthopoulos on the Greek economic crisis: could this Greek Tragedy lead to civil war?
Published on December 17th 2012
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By Barbara Van Haute
Editorial Note: Of all the nations experiencing traumatic economic difficulties during the course of the current Great Recession, Greece has suffered the most adverse consequences. The country’s five year economic problems have been longer and deeper than that of any developed country. In
fact, Greece has gone through a catastrophic depression otherwise unknown in the West.
The standard of living has dropped drastically; unemployment has reached 26%; the debt to GDP ratio is over 180%; the country’s “fiscal cliff” is looming bankruptcy; social spending and the “safety net” have been eviscerated; while demonstrations and riots target both domestic debt reduction measures and the financial institutions of the European Union power brokers. In response, the European Union and the IMF have authorized a bail-out of 240 billion Euros, some debt relief, and longer repayment schedules in exchange for severe austerity legislation and economic restructuring.
As of last month, the European Union signed off on a further agreement, with mixed benefits and results, to address the crisis. As one analysis put it, “This deal provides little ‘free’ cash for the government to spend. The vast bulk of the package provides for further recapitalization of the banks, repayment of arrears and maturing debt, and a debt buyback from private holders. That leaves only a modest amount of discretionary fiscal spending for the next few months. As before, Greece will depend importantly on sales of government debt to Greek banks to finance itself, which in turn is made possible by liquidity from the ECB. That’s a new definition of recycling, whereby the monetary authority is the ultimate provider of financing to service official debts.” [Council on Foreign Relations website, Nov. 27, 2012: “Greece Gets Its Deal”]
The causes of the crisis and configurations of its long term solutions have been hotly debated. Does the fault (and the resolution) lie primarily with Greek governance, with the financial policies of the European Union, or some combination of the two?
To get an informed insight on how this Greek tragedy is, and should be, playing out, I interviewed Ambassador Leonidas Chrysanthopoulos. Ambassador Chrysanthopoulos and I became friends while he was Ambassador of his country to Canada from 2000-2004. The following is a series of questions and responses conducted by email. As the reader will see, the Ambassador does not pull any punches in his candid comments.
QUESTION: What do you think are the primary causes of the Greek debt crisis? Conventional economic analysis claims that the root problems stem from over-spending, excessive borrowing, crushing debt to GDP margins, tax evasion, and an irresponsible political culture of entitlement and excessive social welfare programs. Recently, Transparency International also placed Greece at the top of its European Union list of corrupt government public sectors and worse than many Third World countries. To what extent are these valid critiques?
RESPONSE: It is a combination of many factors. When Greece joined the EU in 1981, it had flourishing industry, agriculture, tourism and services. Gradually, Greece was obliged to restructure its agricultural production and to reduce the amount of population working in agriculture from 7% to 3 %. We were also obliged to reduce our olive oil production since there was a surplus EU production then. The influx of EU agricultural subsidies also reduced production. Since there was also an overproduction of steel at the time, Greece was obliged to gradually close down its steel industry and at the end it was left only with tourism.
At the same time, the Greeks wanted to have all the luxurious goods, nice cars, houses and other consumer goods. And the banks were giving them loans without checking to see if the individuals had the means to repay the loans. Many EU programs started to help the Greeks increase their standard of living and to help the industrialized countries of the EU to sell their products to Greece. And the Greeks kept on consuming. The new economic trend of globalization added further to this spiral.
In the meantime the EU created a common currency, the euro, a currency that 60% of the Greeks and 90% of the Germans did not want. The eurozone became a collection of markets and nations under one common structure that could not be more diverse. The income structures were greatly different as were the tax, pension and social security systems. All of the eurozone members were obliged to use the euro, but without the possibility of adjusting the competitiveness of their industries by currency devaluation.
Of course, there were rules that had to be followed. According to the Maastricht Treaty, the eurozone countries were not allowed to have over 60% GDP/debt relations. But the Treaty had already been violated: Italy had 105.8%, Greece 97.6%, Belgium 89.6%, France 68%, Portugal 66.4% and Germany 65.9%. So the question then arises why did the EU politicians of the time establish the euro, fully aware that six nations were violating the rules from the outset?
Finally the Lisbon Treaty-which very few EU politicians had ever read-gave all decision making authority on these matters to Brussels.
And then the whole system failed.
Is it the fault of the Greek government? Not only. Of course all Greek governments managed the economy in a dismal way, appointing friends to administrative positions, spending money for no reason, and even being involved in corrupt practices.
And what about the European politicians? They only care to promote their own personal interests and they lack any kind of vision on the future of Europe. Because if they had a vision, the French would not have obliged a country on the verge of default, Greece, to buy frigates valued at billions of euros on the eve of the first austerity measures in 2010; nor would the Germans have exercised pressure on Athens to buy aircrafts and submarines. On the contrary, it should have been prohibited for members of the eurozone to sell armaments to other members who are on the verge of defaulting. Which brings us to an interesting fact: Greece has been spending roughly 4% of its GDP for armaments since 1974, and the biggest amount of armament purchases has gone to Germany at a cost of 300 million euros per year; for a total of 2.6 billion euros in the last five years. And it is not right for the people of Greece to support financially the German workers of the armament industry.
QUESTION: How would you describe, in general terms, the impact of the economic crisis on the lives of average Greeks? Can you provide some examples of creative and productive responses that attempt to cope with the crisis?
The implementations of the EU austerity measures have had tragic implications on the lives of the average Greeks. For the first time since the German occupation of 1941 we have seen food lines in Athens giving free food to the many needy. For the first time we are witnessing Greek citizens searching the garbage bins for food. There are, for the first time, 25,000 homeless in Athens. People have restricted their consumption to the minimum necessary to survive. The population is suffering and the suicide rate has reached 2000 per year in comparison with 200-300 in the pre-crisis period. People are coping by creating balcony vegetable production and by reverting to bartering, particularly in the country side. Agricultural associations are being created that bring the products directly to the market at low cost because they avoid the middleman.
QUESTION: Many observers also believe the crisis has been aggravated by political trends in Greece: prime ministers with their “heads in the sand” to avoid tough decisions, weak minority governments, destructive protest movements, the growth in extremism, etc. How do you assess the contemporary state of Greek democracy and the ability of political parties to create an environment that can promote solutions or create obstacles?
RESPONSE: I believe that the crisis has been aggravated by the wrong measures of austerity imposed on Greece by the so-called Troika (IMF-EU and the European Central Bank) and the lack of courage of Greek governments to oppose or negotiate them. IMF has admitted in public that mistakes were made. Many Greeks are suffering because of these measures .The IMF recently admitted that it did not anticipate the high levels of recession. But mistakes have to be paid. It is a shame that the Greek Government did not estimate the cost of the damages of these mistakes to the country and ask that they be reduced from the so-called debt.
Democracy no longer exists in Greece. The austerity measures recently adopted were unconstitutional according to Greece’s highest courts. One Member of Parliament and former minister said unabashed on television that the measures are unconstitutional but he has to vote for them. In this way, he blatantly violated the oath he took when he was sworn in to protect the Constitution.
The Greek government recently made an agreement with the successor company of Blackwater to hire mercenaries for the protection of Parliament. Parliament, however, in democracies needs no protection. Guidelines have been issued to the mass media of what can be said and tolerated and what cannot be tolerated. Journalists that do not conform are being harassed by government agents or arrested. Another journalist was summarily fired from state television because he showed the Prime Minister being booed at the October 28 National day celebrations. And the EU does not give a damn about democracy in Greece as it does about democracy in other countries like Turkey.
QUESTION: The roles of Germany, the European Central Bank, and other European financial institutions have been heavily criticized in Greece. Given the substantial bail-outs promised and paid out, what do you think is a fair critique of the additional responsibility for the rest of Europe to help Greece get out from under the debt load?
RESPONSE: The bail-outs are money that is given to the lenders of Greece. Nothing goes to the country or to its people. The issue should be seen from the EU more as an attempt to save the EU rather than Greece. Because if Greece collapses then we might have a domino effect leading to the collapse of the other southern EU members. It will cost less to the EU if it agrees today to zero the debt of Greece rather than continuing the bail-outs. This will allow Greece to focus on its development rather on never ending debt payments. And one must not forget the high interest rates of 4% that were imposed for the first bail-out. This is called usury. Fortunately, it was later corrected.
QUESTION: Are the details and amounts of the ECB/IMF recent financing ‘deal’ realistic in terms of allowing Greece’s domestic economy to stabilize and grow?
RESPONSE: No, it is a continuation of the same mistakes. These measures like the previous ones enhance recession and deprive the population of any consuming ability by unfair and heavy taxation. There can be no growth without consumption. The new deal gives priority to the protection of the lenders of Greece.
QUESTION: The Bank of Greece believes that the Greek economy will recover if all of the terms of the EU/IMF deal are implemented by the Greek government. Do you think that the government of Greece can fully implement the terms without further negative impacts for the people of Greece?
RESPONSE: The Bank of Greece is mistaken. It has made such forecasts before. The Minister of Finance was saying last year, in another capacity that in 2012 Greece will start to develop. Today the Prime Minister said yesterday that at the end of 2013 Greece will start to develop. So basically they are telling the people nonsense and thus have lost their credibility. The results of the measures imposed on Greece since 2010 have been disastrous. Unemployment only from 16% in 2010 has now reached 26%, as a result of the measures. The structure of society is unraveling. Criminality has increased, nobody feels safe to walk the streets of Athens anymore, people are asking for loans to pay their taxes. No the tolerance level of the people is on the verge of being breached. However, it should be made clear, that all Greeks would make any kind of sacrifice if they knew that the measures would be effective and the country would be out of the debt crisis. But unfortunately this is not the case. If the aim of the exercise is to reduce the debt GDP ratio to 120% from 190% by 2020, what happens after that? Austerity measures will continue to be imposed. And the people of Greece are not willing to spend the rest of their lives in such conditions.
QUESTION: IMF and EU finance ministers have acknowledged that total forgiveness of Greek debt may be required at some point in the more distant future. Do you agree with this acknowledgement, or is it possible that debt removal should be considered in the very near future if Greece’s economy is to stabilize and grow within the next few years. Other analysts argue that complete debt forgiveness would be a disastrous precedent and a financial calamity for the lenders. How could the case be made to reluctant European financial institutions and government lenders that this would be in their self-interest?
RESPONSE: As I previously stated, the only solution for Europe and for Greece is the total forgiveness of the Greek debt now. This will be a cheaper cost for the EU since such a measure will also save the eurozone. Once Greece has gotten rid of the debt, then it can focus on true development of the country with investments and increased consumption. If the debt is not forgiven now Greece will default and if it does, it will most likely leave the eurozone with possible domino effects to Portugal, Spain and why not Italy. So if the eurozone collapses it will cost money, much money to the EU. But even if it doesn’t, the EU will have to make many more bailouts to keep Greece afloat. It would be a precedent, of course. But my heart does not bleed for the lenders since they will never become homeless or destitute. The social impact will be much smaller when the lenders lose money than when the people do. These are simple arguments and you do not need much wisdom to find them. One needs, however, guts to implement them; something that is missing from today’s politicians in Europe.
QUESTION: Some observers believe abandoning the euro would be catastrophic even given the current situation. Others claim it is necessary because default and deprivation are inevitable with the euro. What do you think would be the consequences for Greece if the country abandoned the euro and returned to the drachma?
RESPONSE: The situation in Greece is dramatic. If we continue the path of austerity we will end up in disaster. If Greece were to abandon the euro and revert to the drachma, the situation would be difficult but easier to cope with. If we were to return to the drachma, this would be done gradually with both currencies co-existing for a one year period as we did when we adopted the euro. But with a national currency Greece will be able to devalue it and make its economy more competitive in that way. And we must never forget that the drachma worked effectively.
QUESTION: If the crisis is viewed as sustained and structural (regardless of bail-outs and government programs), are there structural socio-economic changes Greece can undertake—regional decentralization, emphasizing commodities over cash, growth of cooperatives, etc?—that could be effective substitutes for austerity?
RESPONSE: Of course there are. For example in order to make investments in Greece more effective, the Troika proposed a drastic reduction of the minimum wage in the private sector. Instead the best solution would have been for the Government to simplify the bureaucratic procedures that are needed in order to obtain an investment permit and also to reduce the cost. But that is not a structural change. Better use of new technologies and innovation and less state intervention in the economy will be helpful also. Restructuring of the State mechanism is another must but it cannot be done overnight. It has to be done gradually and it must be well planned. These are but some small examples.
QUESTION: Finally, are you personally optimistic or pessimistic as to what will happen to Greece over the next five years?
RESPONSE: If the situation continues as it is today then I am pessimistic. It will be difficult to avoid social unrest and perhaps civil war under such circumstances. If the situation changes and the debt is forgiven, one way or another, I would be optimistic in my outlook. However, since we Greeks have been around for a much longer time than our European counterparts, I believe that we will survive this onslaught also. However you cannot save a country by destroying it.
Leonidas Chrysanthopoulos is a Greek career diplomat. In 1977 he was a junior member of the team that negotiated Greece’s accession to the EU. During his service, he also assisted in the negotiations between the Greek and Turkish communities in Cyprus; serving in close contact with the Secretary General’s Office of the UN.
In 1993 he became the first Greek Ambassador to newly independent Armenia, where he also represented the Presidency of the European Union. He has served in legations in Toronto and Beijing, as well as in his country’s missions to the European Union in Brussels and the United Nations in New York. He has served as Consul General of Greece in Istanbul and as ambassador to Poland and Canada.
From 2006 to 2012 he served as Secretary General of the BSEC (Black Sea Economic Corporation Organization) International Secretariat with its Headquarters in Istanbul.
His writings include commentaries in various Greek and international newspapers. The ambassador has also authored publications on the 1974 invasion of Cyprus and nation-building in Armenia.
Barbara Haute is a recent resident of Almonte and has a background in political analysis. She has done graduate work in Political Science and International Relations at Carleton and is currently a Research Fellow for the Centre for Security and Defence Studies at the University of Manitoba. Barbara has also worked with the Conference Board of Canada and various national Aboriginal organizations.
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