Sunday, July 5, 2015

Welcome to Grimbo: why Greece has passed the point of no return



With Greece now in Grimbo, a journalist, James Angelos, formerly of the Wall Street Journal, has produced a timely book, The Full Catastrophe: Travels among the New Greek Ruins, which details the endemic cynicism which brought Greece to its knees.

Millions of people, not just Greek governments, played their part. Among the many examples: the Athens subway services a population of five million people but operates in a constant state of insolvency and subsidy because it uses an honour system, which is routinely dishonoured.

Then there are the swimming pools. According to tax records, the affluent suburbs of Athens had 300 swimming pools and the households paid a resulting luxury tax. When the tax department started using Google Earth, it discovered 20,000 pools. When word of Google Earth got out, there was a boom in sales of tarpaulins, to hide the pools rather than pay the tax.

 

In the first week of March, first-year students at the University of Sydney began gathering for their first lecture in political economy. They found a slide already up on the screen behind the lectern. It was entitled, 'the Communist Manifesto'. A young man at the front of the room began espousing the virtues of Marxism. He urged students to protest against the government and "bring down Tony Abbott".

He was not the lecturer. He was a member of a Marxist fringe group calling itself Socialist Alternative. When the actual lecturer turned up, the self-parody departed, knowing he would get away with his antics. 

 

Imagine what would happen if the Socialist Alternative, via a twist of Greens, GetUp! and Ricky Muir-type political machinations, achieved a position of power in Australian politics.

Nightmare. Because this year Greece chose its own version of the Socialist Alternative as the government. The country is now in a predictable state of paralysis.

The situation is so dire that it no longer really matters whether the vote was "yes" or "no" in the national referendum on how to respond to its mountainous debt obligations. 

Greece has already entered a condition being called Grimbo.

Greek limbo.

The emergency referendum is so shambolic that it is a vote about an agreement which no longer exists.

The referendum document is 34 pages of convoluted obfuscation which does not even accurately represent the agreement proposed to Greece by the European Union, the European Central Bank and the International Monetary Fund. And the agreement has lapsed.

Chaos has taken precedence. Greece is now in such a parlous position, with economic paralysis a reality, that its politics has been overtaken by an economic crisis that requires foreign intervention to avoid widespread privation.  

Without this foreign intervention, Greece will face economic disintegration and a mass exodus.

Greece may have the most generous pension scheme in Europe but it ceases to be generous when the font of other people's money runs out. The Other People have had enough.

The shape of the foreign intervention in Greece is now what must be negotiated. Greece is now a mendicant state.

The Greeks are not entirely to blame for this. At the heart of the crisis is the fundamental flaw within the European Monetary Union – the eurozone – which at its centre is deeply undemocratic. Since 2010, the European Union, the European Central Bank and the IMF have also embarked on a course of action which, to protect the eurozone, has imposed an economic depression on Greece.

If the Greeks are not entirely to blame for their predicament, they are still largely to blame.

They borrowed the money. They wasted the money. They refused to reform. They did not follow the paths taken by Ireland, Spain, Latvia and Estonia, all much healthier after much sacrifice.

It began with the original sin. The Greek government lied its way into European Monetary Union in 2001 by understating its liabilities and giving false commitments to reform its bloated, unsustainable and inefficient public sector. In the words of Otmar Issing, the former chief economist of the European Central Bank, "Greece cheated its way in".

Greece should never have been in the eurozone, was never equipped, and the eurozone would have been stronger without Greece, and would be stronger for its exit, known as Grexit. Instead we'll get Grimbo.

In January, the Greek people held a national election. The centre collapsed, not a good omen, and the country elected a Communist-led government with no experience and a platform to end austerity.

Greece voted against austerity. It got calamity.

The leader of the victorious Syriza party, Alexis Tsipras, 40, became Prime Minister on promises to reverse some reforms already undertaken, oppose further reforms, re-hire 12,000 government employees, protect the most generous pension scheme in Europe and stand up to the European Union, the European Central Bank and the International Monetary Fund, who, he claimed, were trying to "humiliate" Greece.

It was never made clear how the Greek government would pay for its promises or induce its creditors to keep lending money and wipe out much of the debt.

Tsipras chose Yanis Varoufakis as his finance minister, an academic economist with no experience in government, specialising in game theory and with a long record of open contempt for successful, pragmatic conservative governments.

When their game theory did not accord with reality, Tsipras and Varoufakis ramped up the rhetoric.

Yet Greece has low borrowing costs, a manageable debt service burden (2.5 per cent of GDP) and has been given the widest latitude ever afforded by the IMF.

It is not just Greek governments, right and left, that refused to reform. It is the Greek people, who have made tax avoidance and welfare scamming the national sports.

With Greece now in Grimbo, a journalist, James Angelos, formerly of the Wall Street Journal, has produced a timely book, The Full Catastrophe: Travels among the New Greek Ruins, which details the endemic cynicism which brought Greece to its knees.

Millions of people, not just Greek governments, played their part. Among the many examples: the Athens subway services a population of five million people but operates in a constant state of insolvency and subsidy because it uses an honour system, which is routinely dishonoured.

Then there are the swimming pools. According to tax records, the affluent suburbs of Athens had 300 swimming pools and the households paid a resulting luxury tax. When the tax department started using Google Earth, it discovered 20,000 pools. When word of Google Earth got out, there was a boom in sales of tarpaulins, to hide the pools rather than pay the tax.


Sydney Morning Herald columnist

 

Illsutration: Michael Mucci

 

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