The Thing to Know About Greece

For the umpteenth time Greece is in the news over its debt and the possibility of defaulting on its obligations. Yet so much of the commentary is missing an important perspective that is necessary to really understand the dilemma that the Greek people and leaders face (I was in Greece last October and reported on it for Washington Monthly, see my post here, and a video of the talk I gave at the Foreign Ministry here).

What so many news reports and commentators are failing to note is that many of those very same protestors in Syntagma Square have benefited from Greece’s corrupt system. For example, public employees in Greece have been part of the patronage machine fostered by past governments. Many of those protestors are protesting precisely because Prime Minister George Papandreou, in a mythic father-son struggle to change the past corrupt practices that were formulated by his father and his party PASOK, is trying to dismantle certain parts of that patronage machine. In other words, many are protesting because they are RESISTING THE CHANGE that Greece undeniably needs.

Beyond the public employees, many other protestors have benefitted from the corruption of the Greek system in one way or another. Greece relies on an informal economy of family and social networks which too often translates into nepotism, back room deals, and tax dodging. Greece is a country that was plagued throughout the 20th century by bitter schisms between monarchists, democrats, and communists, with dictators and elected governments rotating in complicated power alignments right up to the 1970s when the last military dictatorship withdrew and the monarchy was abolished. Not paying taxes to the corrupt honchos who ran things for so long and relying instead on informal networks became the fiber holding it all together, a well-founded Greek tradition, even celebrated nostalgically in films like Zorba the Greek. In Greece there is a long-standing practice of doing everything with a wink and a nod, and that “system” pervades at every level of society, right down to the neighborhood and household levels.

During the crisis, those networks can act as a safety net; longer term, they will prevent the modernization of Greece because in an economy designed to provide for a mass society one has to be able to count things: revenues, expenditures, imports, exports, surpluses and deficits, these things have to be tracked as accurately as possible. But if everything is being done hush-hush, on the sly, in backrooms, without receipts or records, stored in cookie jars, under mattresses, in brassieres and petticoats, with a bit of payola in the right palms for looking the other way (“there’s your ‘tax'”), you can’t count anything. You can’t be sure of how much your government has to spend because you can’t be sure how much revenues it has taken in. So you just make up figures and hide that too, deficits become surpluses with a few whisks of the computer mouse. That got Greece into a heckuva lot of trouble when it was discovered under the previous government that its budget deficit was much larger than it had disclosed, and suddenly the bond markets got spooked and turned and attacked. The rest is history.

So in actual fact many of the Greek protestors are resisting the type of change that Greece so badly needs. They are protesting the Papandreou government’s efforts to turn the ship of state toward a better direction.

It’s really a shame that Greece has become the public face of Europe’s sovereign debt crisis, rather than Ireland or Spain, because Ireland and Spain didn’t have huge public debts before this global economic crisis. Both were models of government transparency and accountability. Greece however is a different story. If the EU simply bailed it out — which it easily could do, Greece is a small country and it wouldn’t take much money — what would push the Greeks to change? Greece, in other words, is like a nation-state version of Goldman Sachs in which the dilemmas of “moral hazard” pervade its situation. If the conditions of a bail out are too easy, then past practices will prevail. The Papandreou government, for the most part, is doing the right thing, and represents the best hope that Greece has to become a modern economy. He has a vision not only for the immediate crisis but for a new Greece (see the interview I did with him here.

And yes, there are similarities to the U.S. situation, in the way our economy came to depend on unsustainable and even corrupt economic practices. In our case, it’s been a case of lurching from economic bubble to bubble, most recently a housing mortgage system that pervaded America, from Main Street to Wall Street, from your local bank handing out mortgages people couldn’t afford to the large investment banks taking those mortgages and bundling them into derivates and credit default swaps and reselling them again and again until they became seeded like “financial weapons of mass destruction” (as Warren Buffet called them) throughout the global financial system.

In both Greece and America the dysfunctional systems provided economic stimulus for a time, with nearly everyone sucking from the teat–until the house of cards came crashing down. Yes, Greece and America have more in common than Americans want to believe, and I don’t just mean that both have large budget deficits. It’s actually far worse: both Greece and the U.S. have development models that no longer work. Economic sustainability is the order of the day, but we Americans have no idea how to enact that.

Steven Hill

Steven Hill is a U.S. journalist and author of seven books, including Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers. He is currently in residence at the Berlin Social Science Center.