Posts Tagged ‘Greece’

Loansharking Greece and odious debt.

datePosted on 10:57, July 7th, 2015 by Pablo

I do not purport to be an economist nor would I ever want to be. Theirs is a world of implicit assumptions and pseudoscience that only a brave few have challenged from within. However, theirs is also a discipline that in theory and practice can shape the fate of millions, which is why I pay more than casual attention to them. Thus it is that I came to ponder the financial situation in Greece, a place that I lived in in 2010 at the start of its downward slope towards the current moment (my wife has researched and written on matters of Greek political economy and I have an interest in Greek civil-military relations, so our stay was mutually beneficial). Here is my non-expert view of things.

When lenders charge interest on principal loaned, they prefer to have the interest paid rather than the principal. This loan repayment rationale, which is true for states, firms and individuals, keeps the debtor beholden to the lender so long as the principal remains unpaid. Over time, the interest accrued can well exceed the amount lent, which is perfectly fine from the lenders point of view but keeps the debtor permanently saddled in a cycle of interest payment unless the debtor earns additional income (revenue) that can be directed towards paying down the principal. Short of a lottery win, a pay raise or new sources of revenue, debtors on relatively fixed incomes are locked into the cycle of debt.

Greece is in that situation. Until 2008 it was servicing the interest payments on its debt to international lenders (mostly the European Central Bank, various national banks and private investors). Then the international financial crisis of 2008-09 hit, which had nothing to do with Greece per se but which drove up interest rates. With a stagnant economy and flat tax revenues, Greece quickly found itself unable to make interest payments and, in a dramatic revelation, announced in 2010 that it had been systematically underestimating its fiscal deficit in order to maintain interest payments on its debt at a sustainable rate. At that point many private investors dumped their Greek debt holdings and the IMF assumed a significant portion of them as well as some of that accrued by European public banks.

The Greeks were subsequently offered two “bailout” loans that allowed them to continue to pay the interest on their debt, which together with the principal now amounts to nearly 250 billion Euros. With interest set at approximately 4 percent annually, the figure is set to reach the half trillion euro mark in a few years. Even if interest rates were capped at zero, it is estimated that it would take Greece 81 years to repay the amount currently owed.

There are several questions arising from the Greek debt. Why, since the interest paid is now more than the principal borrowed, does not the ECB and IMF put a cap on the debt? Why did investors continue to offer loans to Greece when it turned out that the Greeks were fiddling the books, and that neither the principal or the repayment loans ever trickled down to the general public in terms of public goods and services? Why does it expect the Greek population to pay via austerity for the risky borrowing of Greek elites and the even riskier lending of European banks?

Asking the Greek people to shoulder the burden of austerity–in a country with 30 percent general unemployment and 50 percent unemployment for those under 30, with a massive brain drain of educated professionals, porous borders and deep cuts to public sector salaries, pensions and basic services–is akin to forcing the children of crack addicts to starve and swab floors in order to pay for the rehab treatment of their parents. And the outcome is just as uncertain.

Let’s look at it this way. Capitalism is about assuming risk for higher reward. In the financial world, the riskier the investment the higher the interest paid on it. And just like quick finance and pawn shops are located in poor rather than rich neighbourhoods, high interest bonds are issued on “risky” countries with poor credit ratings and histories of financial instability. For “courageous” investors riding the line between high interest and junk bonds, the rewards for so-called bailouts are great. But the downside of a default is that they will have to wear losses, just as many ill-advised investors have to.

Greece is one such high risk place and those who lent to it knew this from the beginning.

With that in mind is is easy to see that the behaviour of the “troika” (the European Commission, European Central Bank and IMF) can be (and has been) likened to loansharking and needs to be treated as such. When people seek debt relief from loansharks, banks or credit card providers, they arrange to repay a capped sum and a payment schedule is established. The alternative is bankruptcy, which leaves the creditor with nothing. Although suboptimal from the lender’s point of view, the capped payment alternative is better than nothing.

When it comes to states, the decision to cap debt is a political decision, not a financial one. That is because the stability of states is more important than the returns on risky investment, especially when ample returns have already been received, many creditors are no longer at risk and demands for future returns put state stability at peril. In the case of Greece there is a twist, in that the referendum on whether to accept austerity was the first political iteration in a multi-step process. Now that the Greeks have refused more austerity, it is the turn of the EC to make a political decision of its own.

Let’s be clear: this is not a Greek crisis; it is a crisis of European finance capital. The demand for more Greek austerity is not about servicing the debt but about humiliation, punishment and deterrence of others who might dare to do the same.

The people who should seek answers are those who invested in the agencies that undertook the high risk lending strategies that have brought us to this moment. The people who are responsible for the crisis are not average Greeks but suits sitting in fancy offices in Athens, Brussels, Frankfurt and London. They are the ones who took the risk on Greece and they are the ones who need to be held to account.

This does not absolve Greeks from their own mistakes. Certainly the culture of entitlement and the pervasive corruption in Greek society needs to be addressed. But here again, this was well known to foreign creditors at the time they lent money to Greece, and for all the everyday petty corruption in Greece involving phantom war veterans and people faking disabilities, it is the Greek political-economic elite who elevated institutional corruption to an art form. Syriza proposes to confront them as well as the lower-level scams but in order to do so it must show that it can negotiate a debt payment agreement that puts the interests of average Greeks first.

There is a way out of the imbroglio that can leave Greece in the EU without undergoing more austerity punishment. In international law there is a concept known as “odious debt.” Odious debts are those that are incurred by governments that do not go to their stated purposes or are ill-gotten from the onset. Under international law, odious debts are the responsibility of the incurring parties and are not the responsibility of their successors. As such, they do not have to be serviced by others if the responsible parties cannot be made to pay.

One can argue that the debt incurred by pre-Syriza governments from 1999-2008 fall into the odious debt category and should be forgiven as such. If anything the political parties in government during the time the debts were incurred can be sued for repayment (these being the Panhellenic Socialist Party (PASOK) and New Democracy (ND)). Whatever happens, it is clear that Greece has not seen the purported benefits of the loans incurred by previous governments (to include the now abandoned or derelict Olympic facilities) but it has paid more than its fair share of interest on them. By any reasonable measure the remaining debt is now odious.

In the end this is a cautionary tale with minor and major sub-plots. The minor plot is about sustainable debt and the limits of debt relief. The major plot is about the perils of political union. The EU needs to understand that how it addresses the minor plot will determine the conclusion of the major one.

Bonus read: Although I do not agree with some of his observations, Brian Easton has a nice short piece on the Greek situation here.

 

In Hellas, out with the new and in with the old.

datePosted on 17:55, June 20th, 2012 by Pablo

The outcome of the latest Greek election is not surprising. When faced with uncertainty and dire predictions of collective and individual doom in the event that radical change occurs, voters often tend to go with the status quo or what is already in place. Confronted with the “valley of transition” to an unknown future, voters rationally calculate that their interests are best served by staying with what is known rather than leap into the unknown. Add to that the orchestrated litany of woes predicted by bankers, capitalist-oriented politicians, and lender nations, who pretty much predicted the end of the world as we know it if Greece were to default on its debts and withdraw from the Eurozone currency market, and it is easy to see why a plurality of Greeks decided to stay with the hand that they have been dealt with.

The trouble is that hand, in the form of a New Democracy/PASOK coalition (the so-called “bailout coalition”) is exactly the hand that got Greece into the debt crisis in the first place. It was first New Democracy, then PASOK governments that set new records of corruption, clientalism, patronage and nepotism while running up the public debt on state-centered labor absorption and entitlement projects that did nothing for productivity or the revitalization of the Greek private sector (which remains fragmented and dominated by oligarchic interests in the few globally viable Greek industries such as shipping). It is to this pro-Euro political cabal that the responsibility for “rescuing” Greece is entrusted. That is not going to happen.

True, the terms of the bailout will be relaxed even further now that a pro-Euro government can be formed. That much is clear given that Andrea Merkel has hinted that the repayment terms can be “softened.” The hard truth is that repayment can be softened because what is being repaid in Greece is the compound interest on the foreign loans. The logic is that of the credit card: the issuer of the card would prefer for users to not pay off their total debt on a monthly basis and instead accumulate interest-accruing cumulative debt while paying off less than the total owed. If the user reachers a credit limit with interest debt accruing, the limit is raised. If the user defaults on the debt after a series of credit limit raises, measures are taken to seize assets of worth comparable to the outstanding amount.

States are different than individual credit card users because as sovereign entities they can avoid asset seizure on home soil even while bankrupt. As Argentina proved in 2000, they can default and renegotiate the terms of debt repayment according to local conditions (after Argentina defaulted on its foreign debts it was eventually able to negotiate a repayment to creditors of US 36 cents on every dollar owed. The creditors took the deal, then began lending again, albeit more cautiously. The devalued Argentine peso sparked an export boom of agricultural commodities that led to post-default growth rates unseen for 50 years). The short-term impact of default can be painful (witness the run on Greek banks as people try to cash in and export Euros), but measures can be taken to curtail capital flight and to mitigate the deleterious effects of moving to a devalued currency (the Argentines did this by placing stringent limits on currency transfers abroad in the first months after they de-coupled the Argentine peso from the US dollar while at the same time issuing interest-bearing government bonds to dollar holders in the amount valid at the exchange rate of the day before the de-coupling). Greece has not adopted any of these measures as of yet, but that is because a pro-Euro caretaker government, as well as the PASOK government that preceded it, wanted to heighten the sense of doom should an anti-Euro coalition look to be winning majority support.

That scenario emerged in the form of Syriza. Although it is formally known as the Coalition of the Radical Left it is anything but “radical” (no matter how many times the corporate media tries to emphasize that point). Instead, it is a coalition of Socialists, Social Democrats, Greens, Trotskyites, Maoists and independents not associated with the Greek Communist Party (KKE). It has an agenda that includes a possible default, and will now be the largest opposition bloc in the Greek parliament. Contrary to the perception that it came out of nowhere in this year’s elections, Syriza has been steadily building a popular voting base since 2004, increasing its electoral percentage significantly in 2007, 2009 and May 2012. Although it has had splits and defections (which are endemic in Greek politics, particularly on the Left), Syriza was the second largest vote-getter in the May 2012 elections and its margin of loss to New Democracy in the second-round elections held last weekend is less than it was in May. The bailout coalition may have a narrow majority, but Syriza and other Left minority parties will prove to be a formidable parliamentary obstacle to the implementation of  its pro-Euro agenda.

That is why the new Greek “bailout” government will not be successful even if it renegotiates the terms of the bailout along more favorable lines than in previous iterations. It will be forced to deal with the combined pressures of Syriza opposition in parliament and the angry–and I reckon increasingly violent–opposition of the non-parliamentary Left in the street. Greece has a long tradition of student and union militancy and urban guerrilla warfare. Even during the best of times militant groups have used irregular violence to make their points about Greek capitalism and its ties to Western imperialism. They have burned and they have killed (including a CIA station chief, a British embassy official and various Greek security officers) during the decades after the Colonel’s dictatorship fell in 1973. These militant strands have not gone away and instead have been reinforced as the debt crisis drags on and the impact of austerity measures take their toll on the average (and increasingly unemployed) wage-earner. With unemployment at 20 percent and youth unemployment at 50 percent, the recruitment pool for Greek militants has grown exponentially.

Some of this has been siphoned off my neo-fascist parties like Golden Dawn. But the bulk of popular rage has been channeled by the Left, divided into the institutional vehicles of Syriza and the KKE (and various off-shoots), and the direct action, non-institutionalized vehicles comprised by the likes of Revolutionary Sect (who favor political assassinations) or Conspiracy of Fire Nuclei (who appropriately enough favor arson), that follow a long line of militant groups with a penchant for violence such as the N-17 and Revolutionary Struggle (and may in fact include former members of the latter), to say nothing of various anarchist cells.

These militant groups are not going stay quiet. Instead, I foresee a rising and relentless tide of irregular violence coupled with acts of passive resistance and civil disobedience so long as the political elite continues to play by the Euro rules of the  game. Every Greek knows that the solution to the crisis is political rather than economic because the bankers have made more than enough profit on their loans and it is now time for them to draw down or write off the remaining interest owed. A softened bailout package only goes halfway towards easing the collective burden of debt, and the continued imposition of fiscal austerity deepens the stresses on Greek society (urban crime has ramped up significantly this year, and it already was pretty bad when I lived in Athens in 2010). Instead of continuing to cater to banks, the political decision palatable to most (non-elite) Greeks is not a softened bailout package, now into its fourth iteration. It is a complete re-structuring, with or without default, of the economic apparatus so that national rather than foreign interests prevail on matters of employment, income and production. This may require a retrenchment and drop in standards of living over the short-term, but it at least gives Greeks a voice in the economic decisions that heretofore and presently are made by Euro-focused elites more attuned to the preferences and interests of European finance capital than they are to those of their own people.

If there is a domino effect in other countries in the event that Greece eventually (I would say inevitably) defaults, then so be it simply because that is the risk that bankers and their host governments assumed when they lent to PASOK and New Democracy governments in the past. Perhaps it is time for bankers to pay the piper as well. After all, although their profit margins may fall as a result of the Greek default, they have already insured against the eventuality (the write-off of Greek debt by large financial institutions in the US, UK and Europe is the story that never gets mentioned by the corporate media). Moreover, and most importantly, the banks can accept the default and take their losses on projected interest as a means of keeping Greece in the Eurozone market, thereby avoiding the contagion effect so widely predicted at the moment. Default does not have to mean leaving the Euro currency market. Greece can default and stay in the Eurozone so long as the banks accept that it is in their long-term interest to shoulder the diminished profits (not real losses) that a default will bring.

Again, the economic decisions about Greece had already been made by the European banks, and they are now simply waiting, while claiming gloom and doom, for the political decision to terminate their interest-based revenue streams. The PASOK/New Democracy bailout coalition only delays that political inevitability, and Syriza and the militant Left will ensure that the next bailout is just another stopgap on the road to default and regeneration along more sustainable lines.

Whatever happens, it looks to be another long hot summer in the Peloponnese. Expect a lot of wildfires.

The US as the new Greece.

datePosted on 12:33, October 23rd, 2010 by Pablo

Watching the lead up to what will be a major Republican and Tea Party comeback in the upcoming US midterm elections, and having spent an earlier part of the year in Greece, I cannot but help but be struck by the parallels between the two countries. This may seem crazy, but sometimes what is obvious is not necessarily apparent.

The US and Greece are saddled with immense debt, most of it public. Both have extremely large state bureacracies that consume an inordinate amount of the tax base. Both have lived, in their personal and public consumption, way beyond their means over the last two decades, riding the wave of financial sector excess and lving off real estate and other speculative bubbles that did not, in fact, significantly contribute to national productive rates.

In each case immediate past centre-right governments contributed to the false sense of security by allowing the financial sector to operate with considerable degrees of autonomy and lack of oversight, reduced taxes for the wealthiest sectors of the population and corporations, and spent money well in excess of state revenues. In Greece state expenditures went into a bloated welfare system that was designed to prop up living standards that are seen as a birthright of all Greeks; in the US, the excess state spending went into war. In both instances the center-right governments increased state spending and the public deficits that accompanied them. In both cases they were turned out at the polls in the past two years.

Center-left governments replaced the discredited right. They inherited unsustainable deficits that will take years to redress and embarked on economic reform programs that were designed to cut the public deficit and increase economic efficiency over the long term. In Greece this meant slashing the public workforce, decreasing public salaries and welfare benefits while offering a package of tax incentives to small and medium business so that they could innovate, expand and thereby take up the slack produced by reductions in the public workforce.

In the US the economic stimulus program was designed to prop up and revitalise at-risk major industries (the automobile and financial sectors in particular) while providing tax relief for 95 percent of the working population. A national health program was instituted that, even though watered down and more pro-business than pro-consumer and nowhere close to socialised medicine,  provides for minimum health coverage for the majority of the population. Selective regulation on the financial sector was legislated, although this worked more on the margins of the system rather than at its core. Military spending was cut at the corners, and in a number of cases companies that received financial bail-out packages have begun to re-pay their debts.  In effect, although in the US public spending increased over the short term with the stimulus and health care packages, the design is oriented towards lowering the overall public spending bill within five to ten years while maintaining a  disproportionate emphasis on “defense.” That is the American way.

In both instances some or most of the center-right opposition in the legislature supported the economic reform packages of the government, but backtracked when confronted by public reaction. In both cases that backtracking led them to move towards the zealot wing of their popular base. That has consequences.

The reason? In each case there was an immediate, reflexive and largely unthinking  public backlash against the reform measures. Following Greek protest tradition, often violent strikes and demonstrations have engulfed the country from the moment austerity measures were announced. Although the protests are led by unions and other elements of the agitational Left, the real beneficiaries of the crisis are the hard Right, who have seen an opportunity to engage in nationalist-populist demagogery in which “foreign interests,’ illegal migrants, “Communists” and a host of other suspected culprits are blamed for the country’s woes.

In the US attempts at reform have been met by a wave of right wing backlash among the mostly white middle classes, who also blame illegal migrants, “Socialists” and other purported “progressives” as well as atheistic liberal homosexual-enabling secular humanists for the decline of Empire. At public forums many vented their anger by calling for a “revolution” or at least the ovethrow of the Washington elite. Some of them turned up armed to make their point.  They have a movement not unlike the Greek ultra-nationalists. It is called the Tea Party.

What is striking about both hard right wing resurgences is that they stand to gain the most from upcoming elections simply by blaming the governing center left administrations without offering a plausible solution to the problems of the day and near future. Both want to return to something long gone. Both want lower, not more taxes, apparently not understanding that in the case of Greece that national pasttimes of tax avoidance, island vacation homes and reliance on the state for pensions, social security and universal health care are contradictory and incompatible. In the US the pejoratively labeled “Tea Baggers” apparently have not connected the dots between maintaining a massive military apparatus that consumes 6 percent of GDP, is fighting two wars of occupation and at least a dozen small irregular conflicts simultaneously, has a presence in 150 countries and deploys three carrier task forces comprised of 7 ships and 75 aircraft at sea at any one time (no other country can deploy even one), and the need for a substantial tax base. Nor can they see that the party that they support is the one that has the most extensive ties to the Wall Street giants that played loose with their money in the game of financial roulette known as the sub-prime lending market that has now come a cropper. Instead they rail against welfare queens and “illegals” stealing the jobs most Americans disdain.

In both countries the conscious anti-intellectualism of the Right is manifest.  They want simple solutions to complex problems, they want the solutions to benefit them without requiring any sacrifice, and they want it all to happen yesterday. Reflexively ignorant political champions lead the charge and rally the masses in each case.

Most of all, it is historical myopia, an overdeveloped sense of entitlement, the lack of acceptance of responsibility and the shifting of blame that ties the US and Greek public together in their rightwards march. Both cultures prefer to forget the immediate past that led to these tough times and instead focus on a mythical past in which the Nation was strong, proud and united in its demographic homogeneity and cultural mores. Both cultures believe that they are special and especially deserving because fortuitous circumstance determined that they were born Greek or American. Neither culture embraces the notion of individual and collective responsibility as a majority ethos anymore. Instead, the common approach is to blame others for individual failure and collective misfortune.  Both right wing movements have little to offer than hatred for central government elites, current reform policy, bankers of “dubious” persuasion and all the “others” who instigated the entire mess. Mutatis mutandis, there are faint echoes of interwar Europe in all of this.

That may be a basis for victory in any contemporary elections given the circumstances, but it is certainly no blueprint for national regeneration. History has repeatedly shown that national-populist lurches to the right produce more anomie and retrogression than progress. For the latter to occur, people will have to first take individual and collective responsibility about their role in the process of decline. Then they will have to accept the costs of redressing that decline which means that they will need to assume the burden of altered lifestyles no longer easily bought on the back of cheap credit, deficit spending and overinflated notions of national grandeur. They will then have to grin and bear it during the tough times so that their children and grandchildren will prosper under different conditions.

None of that is going to happen anytime soon.

Brekekekex koax koax

datePosted on 12:35, May 27th, 2010 by Lew

The Associated Press reports a horde of frogs has forced the closure of a main highway in Greece:

Speculation is rife as to what this omen portends. The direst prediction I’ve come across reckons the frogs could be predicting an earthquake. For reals.

So perhaps Greece has bigger — or at least more elemental — things to worry about than elite capture of the political process, broken public-private sector relations and massive indebtedness. Hopefully not. Those things are bad enough.

L

A chronicle of deaths foretold.

datePosted on 04:02, May 11th, 2010 by Pablo

On Wednesday May 5 there was a general strike in Greece. It was much publicised and anticipated, with posters hung throughout Athens in the week before calling for a day of “action” in protest against the IMF/European Central Bank austerity regime required for the approval of US$141 billion in bridge loans to the financially beleaguered Greek government. The general strike was called for the day the Greek parliament, controlled by the ruling PASOK (nominally centre-left) party, would vote on the financial rescue package. Athens was therefore the epicenter and focal point of the day of ‘action.” In Greek political parlance a day of “action” means a day of ritualised and raw violence against the status quo. Everyone knows this and prepares accordingly. The transportation workers were kind enough to delay joining the strike until 11 AM (with a return to work at 5PM) so as to accommodate the needs of the demonstrators looking to head downtown (ticket monitors declined to enforce paid passage on the day).

For unions and other disgruntled groups the strike meant preparation of their cadres and organisation of their marching columns, to include stockpiling improvised weapons and going over marching discipline. On the day itself communist (KKE) party-affiliated unions manned the perimeter of their columns with large tough men, since the columns include pensioners and families while unaffiliated provocateurs attempt to infiltrate the ranks (see below). The toughs move to the front of the column once the destination of the protest is reached (in this case, Parliament), where they provide a buffer between the security forces and the leadership while the support masses supply voice, placards, medical aid and replacements for the front line stalwarts.

Other counter-hegemonic factions, particularly anarchist groups and Marxist-Leninist militants such as those in the “Revolutionary Uprising” group, organise more furtively. Unwelcome by the KKE unionists and virtually all other protest groups, these radical elements trail the larger union columns wearing hoods and tear gas masks while carrying pavement stones and petrol bombs. Comprised less of proletarians and more of disgruntled middle class and unemployed youth, they organise into small group cells so as to infiltrate the rear of the union columns where the KKE toughs are less visible, and they use the shelter of the larger columns to stage hit and run attacks on symbols of government or capitalist authority. Their actions are not coordinated with the KKE or other groups, and are designed to inflame the situation so as to provoke a violent police response and wide spread chaos.

On the day of the general strike tens of thousands of demonstrators descended on the Syntagma (Constitution) square outside of Parliament. The unions intended to disrupt the vote by storming parliament. The riot police understood this and protected the building. Other groups filled the square in support for the union vanguard, and by noon there were full-frontal clashes between demonstrators and riot police on the parliament steps. These clashes were remarkable for their restraint–the demonstrators threw small stones and an assortment of wooden objects, plastic water bottles and other light projectiles while grappling with the police over their riot shields. The police responded by episodically using hand-held tear gas dispersal units (rather than grenades) at close quarters when the mob threatened to overwhelm a point in the police line. In sum, there was much shouting, pushing and shoving but it was all rather stylised and everyone made their point (it is widely believed that the Police and unions have an understanding about how these demonstrations should proceed, particularly under PASOK governments).

All of that changed at 1:30PM when hooded youths firebombed a branch of the Marfin Egnatia Bank a few blocks from the square. Located in a century old building lacking fire escapes, the bank branch was shuttered but its door left unlocked because its employees had been ordered to work in spite of the strike (leaves were apparently cancelled or not taken). Of the twenty employees inside the branch when the firebombs came through the door, three died of smoke inhalation as they scrambled up a stairwell to escape the toxic fumes of the burning bank lobby. The others were rescued from second floor balconies as smoke billowed from the windows and doors behind them. The rioters on the street below prevented would-be rescuers from entering the front entrance and pelted arriving firefighting units with rocks and Molotov’s. Among the dead was a pregnant first time mother.

The deaths of three innocent Greeks cast a pall on the country. Everyone, politicians and unionists alike, agreed that storming parliament was fair game, but murder was not. The hunt is now on for the perpetrators, who escaped, and the blame game is in full swing.

The government blames the anarchists and other usual “agitators.” Most of the country appears to agree with this view because the bank bombing was part of a larger orgy of violence in which private vehicles, storefronts, media vans and assorted other private property and government offices were stoned, torched or otherwise vandalised. The KKE and most of the union movement chose to blame government policies and its kowtowing to foreign financial interests for setting ther stage for the tragedy. Others blame the bank workers for not shuttering the front door once the mob on the street outside morphed from a well organised column into random groupings of armed youth. Others blame local government regulations that allow the use of old buildings for housing and commercial purposes without fire prevention or escape retrofits. But so far one culprit has remained unscathed by criticism–the bank itself.

Marfim Egnatia Bank is the largest majority Greek owned bank. It controls the Greek Investment Bank and has stakes in a number of commercial enterprises including the likes of Olympic Airways. It borrows heavily from foreign financial institutions in order to maintain and expand its commercial presence. Its Board of Directors is entirely Greek. And yet this bank ordered its workers in downtown Athens to report to work on a day when all of Greece knew that it would become a low intensity conflict zone. No banking business was (or could have been) done at that branch on May 5. But 20 workers, clerical staff and branch management alike, were told to effectively risk their lives and keep ther front door open as a sign that Marfin Egnatia supported the government decision to accept the terms of the bailout and as a symbol of rejection of the general strike. But it was not the Board of Directors or upper management who were going to make that stand. Instead it t was the retail (mostly female) foot soldiers who were made to face the much anticipated wrath of the disaffected children of the bourgeoisie, unemployed working class and assorted lumpenproletarians.

That, in a nutshell, is the problem of Greece. An utterly contemptuous corporate (often hereditary) elite that indulges the political classes and orchestrates oligopolistic control of the national economy from the comfort and safety of the Athenian north and western far suburbs. An elite that weekends in the islands and watches the strikes on TV. An elite that will, by all measures, be singularly unaccountable or untroubled by the austerity regime now imposed on their fellow citizens.

Their disgrace is paralleled by that of the murderous hooded street thugs who enjoy violence for violence sake, and who take advantage of the Greek indulgence of ritualised confrontation to pursue their anti-social agendas, agendas that have zero political purpose other than to demonstrate contempt for the status quo. Both the Marfin Egnatia Bank bosses and the hooded street thugs who threw the firebombs into the bank knew that innocent, working people were being placed in the line of fire.  And in both cases, they simply did not care.  In their contempt for others, it turns out that  Greek elites and street cretins are alike.

That is why the deaths on May 5 were so quintessentially Hellenic: avoidable, unnecessary, preventable, pointless and yet palpable as well as inevitable.

PS: For those interested in English language news coverage of Greece, check out www.ekathimerini.com (but be aware that it has a right-centre orientation).

Headline/pic of the day

datePosted on 10:43, May 6th, 2010 by Lew

Acropolis Now!, at Not PC.

But it looks like The Economist got there a week ago.

And they did a photoshop hack to go with it.

L

Its all Greek to me.

datePosted on 22:49, May 3rd, 2010 by Pablo

There is a political rhythm to the Greek economic crisis. We spent a long weekend on Santorini dodging strikes–Tuesday was the transport workers, Wednesday was the wharfies, Saturday was the May Day demonstrations. Next Wednesday there is a general strike. Our timing has so far been impeccable. We took a ferry last Thursday, so missed the wharfie action that paralyzed Pireus and left a bunch of cruise ship passengers stranded. We returned on Sunday evening so missed the May Day demonstrations that disrupted the Metro rail. We fly to Samos this upcoming Thursday, so will miss the general strike as well. Fingers crossed that nothing happens next Monday, when we fly back. Given recent strike patterns, Monday is due for one so our luck may run out (not that getting stuck on Samos is a bad thing). But we are getting the hang of the flow of things and look forward to seeing how the general strike goes. Although the foreign press has focused on some violence, the reality is that it is only small groups of anarchists who are clashing with the police, and most of them are teenage students. The unions and other civil associations are led by grey haired folk who may have been prone to street action two or three decades ago, but who now are just trying to protect their collective livelihoods (although two banks were attacked by petrol bombs last night, the usual anarchist and Marxist-Leninist suspects are being blamed).

What is interesting about the unfolding of the Greek economic crisis is how ignorant most foreign observers are about its root causes. Most focus on inefficiency and waste in the public sector and the supposedly indolent Greek way of life, which even if true has its causes in something other than the Greek psyche (as some allege). Let me explain.

In the 1950s a strain of developmentalist thought emerged called modernisation theory that claimed that the problem of Latin America and the Mediterranean Rim was a lack of Anglo-Saxon Protestant values resultant from the mix of rigidly hierarchical religious cultures (Catholic, Muslim or Orthodox) and warm climates. The general drift of this “theory” was encapsulated in the so-called Iberian or Mediterranean Ethos: a culture of indulgence, indolence, patronage, clientalism and fatalism structurally rooted in a benign climate that allowed for easy shelter and food production. If only the Greeks, Italians, Spaniards and Portuguese (which actually is not on the Med) had to live in cold climates where survival depended on industry and resourcefulness–then they would have developed the “proper” entrepreneurial values that would have allowed them to develop along the “proper” lines of the Anglo-Saxon world. In other words, backwardness is a function of culture and climate.

Leaving aside the fact that there are plenty of temperate climate locations where entrepreneurial spirits have flourished, and plenty of cold climates where it has not, or the fact that lumping together whole regions in a culturalist explanation is ignorant at best and racist at worst, or that the notion of one universally ‘proper” form of development is both, this discredited canard ignored the structures of economic and political power (many overtly shaped by foreign intervention) that emerged in these regions and which were not reducible to either climate, religion, or civic culture.

By the 1970s modernisation theory was shown to be profoundly flawed. On a scale of over-determinism (when not cultural supremecism), it is up there along with the “warm water port” theory of imperialism. Yet, in recent years, and specifically with relation to the Greek crisis, it has been resurrected in revamped fashion as an explanation for developmental failure. Inspired by neo-liberal thought, the neo-modernisation thesis is that countries with “too much” state involvement in the economy are prone to political nepotism, rent-seeking, corruption and inefficiency. That makes for a lazy, supplicant, and favour-seeking society. The key to development lies in reducing the role of the public sector so that private enterpise can flourish. The private sector is seen as THE panacea for developmental retardation, and elites in places like Germany believe that the Greeks need to accept this.

While there may be some truth to the need for private sector leadership,  the root causes of the current Greek crisis are, again, not as simple as the overbearing role of the state, nor is the solution simply a matter of reducing it.

As I mentioned in the previous post, Greece has an underdeveloped private sector. But–and this is a very big but– the weakness of  the Greek private sector preceded rather than followed the advent of the modern Greek state, and the private sector never attempted to become the motor force for the entire society. If one considers the nature of internecine conflict in Greece dating back two  milenia (for the historically disinclined, please think about Athens and Sparta, or better yet, the Peloponnesian Wars), one realises how parochial local, sectoral and island interests can be.  That worldview continues today. Greek private industry, such as it is, has little concern about contributing to the public good. 

In light of Greek capitalist myopia and parochialism, the recipe for social peace has rested on the public sector being used as a means of absorbing excess labour (along with emigration). The labour market and welfare systems are two-tiered: there are few protections for workers in the private sector outside of employer generosity or union strength, while the public sector adheres to ILO standards. Tax-evasion is a national sport, but the problem is not with individuals but with politically-connected corporations and agricultural interests as well as religious organisations who do not pay anywhere close to their due share of the tax burden but who do put serious money into the main political parties and individual politicians in order to protect their profits (since the money spent on politics is infinitesimal when compared to the valuated tax assessment of their worth). In order to conceal the results of this long-standing practice, successive governments, be they centre-right or centre-left, cook the Treasury books and leave it for their successors to sort out, in what has become an elaborate wink and nod shell game played between themselves and their foreign creditors.

Greeks are by and large a nation of small property owners. Owning a home is, like in NZ, their core objective. The private sector is dominated by small and micro-enterprises run by owner-operators (often familial in nature) who eek out small margins catering to immediate needs (think dairies, dry cleaners. locksmiths and the like). The state does not direct investment capital towards these people, not does it particularly focus investment in large corporations either. What large-scale investment exists comes from foreign-connected sectors such as shipping, and much of the profit generated by the handful of such firms goes off-shore.

To this can be added a large black market fueled by unchecked migration across Greece’s incredibly porous borders. One in ten inhabitants in Greece are foreign born and the majority are undocumented.  This cash economy circulates outside the confines of the state (remember my anecdote about the gypsy street fair in the last post), yet is vital to filling the demand for basic necessities as well as for labour in the agricultural and service (including tourism) industries. Relatively little of the economic activity generated by these non-citizens provides revenue for the state, and with little immigration enforcement available (and largely impossible to regularise in the near term), that situation will only get worse as the official economy shrinks under the austerity regime now being imposed.

Thus the historical source of income stability (at least since the end of the colonel’s dictatorship in 1973) are public service jobs. But without an efficient tax system owing to the political cronyism of the major economic players, public budgets require external financing, which has led to more than two decades of deficit spending happily financed by foreign financial speculators trading in risk derivatives. The idea behind this play, which I accept, is that while firms may go bankrupt nations do not. Compounded interest ensures the investor’s profitability even if the principle is lost in a default (as Argentina showed in 2001-02). So the bottom line is that the system now under siege worked for everyone–the Greek elite enjoyed its privileges, the Greek population remained relatively content and peaceful even if economically underdeveloped by modernisation theory standards, and foreign financiers made money off Greek debt.

The trouble is that with the creation of the Eurozone currency system controlled by one central bank, countries such as Greece were placed in a financial straitjacket that eliminated the autonomy and cushion provided by independent national currencies.  It cannot devalue or overvalue its currency based on market conditions (as for example, Singapore does regularly), and thus is locked into a monetary (supply and demand) framework over which it has not control. Hence, should it default on its debt to its European backers, one major option would be to defect from the Eurozone and re-establish its national currency. There will be pain involved but it would allow Greece to reorganise its finances in more independent, if austere terms. It has enough investment to ensure that even with defection it will not sink (consider that tourism constitutes 20 percent of the Greek economy and its limited niche export markets could actually be favoured by such a move). That in turn might encourage others, particularly the other members of the so-called “Club Med,” to follow suit, which could well spell the end of the Eurozone (especially when considering that a Tory victory in the UK will mean an end  of talk of its ever joining and that Turkish incorporation into the EU could set the stage for an even bigger Greek-type scenario). Thus the Greek bail-out is not so much about Greece as it is about protecting the Eurozone as a currency market.

Which means that the strikes are going to continue, at an increased pace and on a potentially broader scale. In the face of elite indifference to their plight, it is the only means of defense for most Greeks. They have just been told that the public sector will take a 25 percent wage cut on top of a ten percent cut six months ago, then have wages frozen for three years. Imagine if that happened in NZ. Do you think that even the placid Kiwi public worker would take that lying down when s/he had no part in the deficit debacle? The retirement age will also rise while pension benefits will be cut. Although most people appear to accept the former, the latter is a major source of aggravation because as I mentioned before, there is little to no private sector pension plans. Prices of public utilities are set to rise and there is talk of privatising the bulk of the health system (which already is a two-tier system in which private health providers are used by the wealthy). All of which is to say that the burden of sacrifice will be shouldered by those who had nothing to do with creating the crisis in the first place. In fact, although improvements in tax enforcement are mentioned, that remains to be seen, and nowhere has it been mentioned that politicians will take a wage cut or corporations will be required to offer non-wage employment benefits in order to off-set cutbacks in public benefit programs while encouraging labour migration to the private sector. 

Which makes me think that the recently announced IMF/ECB Greek rescue package is more cosmetic than substantive and could well provoke a public backlash that could provoke renewed military interest in internal security. That, indeed, would be a disaster.

Note: As always, my observations on Greece are indebted to the insight of my partner as much as my own. I will take blame for any errors.

PS: I have been thinking of writing a post about our brushes with petty crime and come curious Greek mores, but do not want to turn this into a travelogue.  I shall try to integrate any such thoughts into a larger discussion of more serious subjects.

They have to want it as much as you do.*

datePosted on 06:51, April 27th, 2010 by Pablo

I spoke with an old Pentagon friend today (a person with whom I shared strategic planning duties in a specific area of concern, and who went on to far greater things than me), relating to him my early observations about Greece in crisis. I mentioned that the Greeks, who have a public sector that dwarfs the private sector, in which the public sector average wage is far above that of the private sector, have a huge sense of collective entitlement and natural rights. For example, university students (as public entitles) are currently demonstrating daily against proposed cuts in their free lunch and bus pass benefits, but not at the university. Instead, they disrupt downtown traffic. Tomorrow the seafarers, bus drivers and railway workers go on a 12 hour strike to protest wage freezes or labour market infringement  (the train and bus workers are public servants facing wage freezes and the seafarers are striking to protest non-EU ships being allowed berthing rights in Greek ports. Their combined walkout will paralyze the transportation network for 8 hours ). 

But media coverage of the issues is somewhat odd. Rather than look inward, the popular press is full of anti-German rants because the Germans will determine the conditions of the Greek debt bailout (which only delays the inevitable default), and the conditions imposed by the Germans (as majority holders of Greek debt) are considered to be the reasons why Greek workers will not get their entitled, perfunctory raises.  All the while  life goes on–the cafes and supermarkets are full, people crowd the trains, there are few demonstrations outside downtown. People do not appear to connect the impending default to their lifestyle.

Usually wages are tied to productivity, which means that if the public service is well paid it is also efficient (such as in Singapore). But in Greece it is not. From what I have observed and what my Greek interlocutors have told me, nothing gets done or it is waste of time to demand action. For example, on Saturday an illegal gypsy market spung up on the street outside our apartment building. It closed the street to vehicular traffic and vendors camped out on the apartment footsteps. The neighbours shut the front entrance doorway, which is usually propped open, out of fear of robbery. I asked my landlord if that was commonplace and she said that yes, although illegal the gyspy market had run for years because neighbours had zero success in complaining and bribes may have been paid for the authorities to look the other way (which indeed they did–I saw not a single cop during the entire afternoon the market was running).  In other words, Greek public service is as much a hindrance as a help to civil society, hence the proliferation of grey and black market activity. The curious thing is that this situation is tolerated by both of the dominant Greek parties, respectively left and right centre as they may be, because public sector employment and benefits is a common source of patronage and clientilism. Neither one wants to upset that apple cart (even if the latter is foreign debt-bought and effectively owned). 

Mind you, not that all Greek public services stink. When compared to the Auckland raillway system, for example, the Athenian Metro is stellar. There are few delays on the six inter city lines, complete integration with buses and suburban rail lines, and close integration with ferry and airport schedules. The only visible problem, from my non-expert viewpoint, is that there appears to be way too many people (or too little, depending on the station) doing nothing in pursuit of this goal. Then again, I tried the Henderson-Auckland (before and after Britomart) route for years, before and after it was privatised,  and the public-controlled Athens Metro system has it beat by a country mile.

Not that the Greek private sector is a beacon of innovation and entrepeneurship. To the contrary, it is mostly low skilled small holdings with no growth or technological ambition (think butchers, cosmetic vendors and locksmiths), and the political-economic elite (they are the same, crossing familial ties in many instances) in this rigid two party system have no interest in promoting the sort of capitalist ambition that would erode their joint lock on power. Cuba is similar in this regard, because in both cases oligarchic control supplants popular innovation as the motor of progress and majority consent is bought with public sector employment (not that I am drawing a direct line between the two regimes as a whole).

Which is to say, Greek economic backwardness is cultural, contrived and perpetuated by the Greek status quo. The elite see no need to change because deficit spending is a double edged sword, as many US banks found out to their dismay. Deficit-laden countries intimately locked into the European financial system such as Greece will not be allowed to collapse  becuase if they do the financial run is on given that Spain, Portugal and Ireland are all in the same predicament–too much debt, too little ability to pay within IMF/ECB guidlelines.  Hence, Greece may default, but it will not be allowed to financially collapse if for no other reasons than that the repercussions would be catastrophic on the European banking system itself.

Which is where my fomer Pentagon friend comes in. I noted to him that the problem with EU expansion is that the leading EU economies, France and Germany, viewed EU monetary expansion into Southern and Eastern Europe as a development project in which the lagging peripheral economies would be modernised by virtue of their connection with the European core (first via labour-intensive investment, then by value added industrial growth). The Euro giants emulated the US when it engaged Latin America in the 1960s and 1970s under the rubric of modernisation theory: just expose the backward masses to a little capitalist entrepenurialism and all will eventually be right.

Err…wrong.  As my friend noted, the locals have to want the change as much as we/you (external agents) do. And that is a cultural issue more than anything else. 

Developmentalist views such as that of the EU and US ignore the cultural component of investment climates. National preferences are different, cultural mores vary, and collective notions of rights and entitlements are not transferable across borders. The Germans and French may have thought that lending money to Greece to fund the Olympics would promote its modernisation, but like the Yanks in Latin America, they failed to understand that Greek culture–what it means to be Greek–supercedes any IMF/European Central Bank prescriptions. Hosting the Olympics was temporary; to be Greek is forever, and that is not reducible to a current deficit repayment schedule. To the contrary. It is reducible to notions of rights and entitlements crafted over milleniua and mytholoigised as such. That bottom line is not within an IMF  or European Central Bank purview.

Which is why my friend Ray’s point is well taken: an external actor can only help as much as the locals want to help themselves. There is no point in offering assistance and prescriptions if the locals do not see the need to change. Absent a local consensus on the need for change (which can be influenced by externally driven media manipulation but which ultimately has to resonate in the hearts  of the citiznery) better then  for external actors to cut bait than to engage in futile hope that the local conditions will change.

In fact, the opposite may be true: the less a country is propped up by external actors and the more it is forced to look inside itself for solutions, then the more it may eventually address the root causes of its backwardness, decline or stagnation (New Zealand could well be a case in point). In any event, only after internal failure is acknowledged that external assistance will make a difference in Greece or elsewhere, and that difference is not material but attitudinal.

 According to my buddy, that fact is as true for Greece as it is for Somalia, Irag and Afghanistan, and in the latter instances, the stakes are arguably much greater. I disagree with his summary assessment as it applies to Afghanistan (as I believe that there is more at stake than local self-realisation), but cannot help but recognise the truth in his words. At the end of the day in this age, no matter the degree of previous exploitation and subserviance, the root problem of backwardness lies within. Or to put it in my friend’s terms, “if the locals do not want to do it, it aint gonna happen.”

There is truth in that view and no amount of good intentioned external help will resolve the fundamental issue.

*Update: For a jaded by humorous view of Greek politics check this out.

Field studying democratic crisis.

datePosted on 15:58, April 19th, 2010 by Pablo

I am off to Greece this evening for a one month research and pleasure trip. My partner is working on book that compares family, immigration and higher education policy in three peripheral European democracies, and Greece is one of her case studies. I am tagging along because of our shared interest in studying democracies in crisis. People have asked why we would travel and live in Greece at a time of financial meltdowns, government paralysis, riots and strikes. Our answer is because that is precisely the case. Let me explain.

Most Western political science focuses on stable polities. Scholars prefer stability because, among other things, it provides more complete data sets and long-term institutional analysis.  After all, it is easier to study what is than what is not, and to theorise about what is certain rather than what is uncertain. The study of politics in NZ is one case in point–most of the research conducted in NZ politics departments focuses on voting behavior, party and coalition politics, the structure of parliament, policy formation, leadership issues, public management and other topics amenable to both qualitative and quantitative dissection (I am referring here to NZ domestic politics and not to foreign policy and international relations, which tend to be more fluid by nature).

In the last 30 years a sub-field of “transitology” has developed that studies political societies in transition. The sub-field was pioneered by Latin American and Iberian scholars studying the collapse of democracy and rise of authoritarianism, which was followed in the 1980s by path-breaking works on the collapse of authoritarian regimes and the transition to democracy during the so-called “Third Wave” of democratisation that swept the globe in the decade ending in 1995. I was a student of these pioneers, as was my partner (one generation removed). In my case the interest was also personal, as my upbringing in Latin America in the 1960s and 1970s occurred during a period of rampant political turmoil, including coups, attempted revolutions and virtual civil war in a host of countries.

For people like us the interest is in the politics of change. This involves the fluid dynamics of crisis, which often is chaotic and un-institutionalised, always uncertain, hard to chronicle and which can lead to what is known by neo-Gramscians as the “organic” crisis of the state. Periods of stability, in which politics is regimented, diachronic and orchestrated, tells relatively little about the real fabric or fiber of society. But a society under stress, in which that fabric is loaded by economic, social and political crises, is an excellent candidate for study of what ultimately holds a societal order together. It could be institutions, it could be culture, it could be religion, it could be nationalism, it could be football or some combination thereof, but it is during times of crisis that the fibric stitching of a society is most evident (said plainly: its basic ethno-cultural composition and socio-economic and political organisation). In some societies the crisis leads to regime collapse, in others to government collapse (which is not the same as a regime collapse), and in some cases it leads to regime reform or reconstitution. In many cases, a change of government does not suffice to overcome the crisis (this is less true for mature democracies as it is for new ones, but the crisis of mature democracy is absolutely manifest in places such as Greece).

Like people themselves, how a society responds to crisis is the true measure of its character. Whatever the outcome, all the fissures and seams of the political order are exposed during the moment of crisis. No quantitative data set can fully capture that picture (and in crisis ridden countries data sets are incomplete or unavailable), which is why qualitative field research at the moment of crisis is necessary. The latter is not a matter of sitting in an office on a university-to-university exchange courtesy of a government scholarship, and/or talking to other academics and “important” commentators, but instead involves hitting the streets to get a feel for the public mood, reading, listening to and watching the daily news, then digging through ministerial and interest group archives, interviewing policy makers, sectorial leaders, other interested parties and even casual conversations with taxi drivers, waiters and landlords to get both a structured and unstructured “feel” for how the crisis was caused, is managed, and how it will be resolved (all of which involve linguistic and cultural skills not generally taught in NZ universities).  Although much of what is recorded cannot be used in a book, it gives the observer a better appreciation of contextual depth when addressing the transitional subject.

Which brings us back to Greece. Greece has what could be described as a vigorous civil society burdened by a clientalistic, corporatist and nepotistic political system. Greeks are quick to defend their perceived rights, often by violent means. This approach is not confined to the political fringe but to middle class groups, students, farmers, shopkeepers, unionists and party activists. For example, a few months back university students took their Rector (akin to a Vice Chancellor) hostage, beat him and forced his resignation because of an increase in student fees. Housewives and shopkeepers have joined in violent protest against rising commodity prices than involved molotov versus tear gas clashes with the police. The use of trash can bombs is a common occurence (especially outside of banks), and the occasional political murder has been known to happen.

In the case of demonstrations in Athens, protestors make an obligatory stop at the US embassy to throw rocks, paint and the occasional firebomb just to make the point that the Yanks suck (much the way the Auckland and Wellington rent-a-mobs target the US consulate and embassy during protests against Israel, globalisation, imperialism, climate change, indigenous exploitation and a host of other real and imagined sins that they hold the US responsible for). The point is that Greeks are extremely politically conscious and very staunch when it comes to defending their self-proclaimed rights (the contrast with NZ society could not be starker, because when it comes to politics–and the 100 person rent-a-mobs nothwithstanding–most Kiwis could not be bothered to get off the couch).

Which is why this is the perfect time to go. Greek society is reeling under the weight of a looming credit default that the EU is still attempting to prevent via a financial rescue package crafted by Germany. Government paralysis is such that it can just stand by and hope for the rescue. Greeks are hitting the streets protesting over any number of greviances, one of which is that they are not in control of their collective destiny. Yet, life goes on.

Besides being a traveling companion to my partner, I shall be making my first observations about how the security forces respond to the crisis. I am particularly interested in how the Greek military reacts to the chaos in civil society, and whether it will take a role in internal security after years of working hard to separate internal from external security functions. Given the ever present animosity towards Turkey, issues of foreign-derived terrorism and demographic change tied to EU expansion, it will be interesting to see how the Greek strategic perspective is configured in light of  the internal and external context of crisis in which it is situated.

I shall attempt to write posts once we are settled. In the meantime Lew will hold down the fort until such a time as I get back on line or Anita returns from her hiatus.

PS–the pleasure part involves some weekend island-hopping. Santorini and Samos are on the itinerary.