Apropos of Jody’s post earlier today:
On Feb. 12, I posted this item at my “Inner Workings” blog at Asia Times and on the Spengler blog at First Things:
Although Greece is an EC member, its finances and political system have the character of a banana republic. EC membership, though, enabled Greece to borrow far more money than any banana republic, such that the country’s debt-to-GDP ratio is about triple that of Argentina just before the latter’s bankruptcy in 2000. And because Greece is an EC member, the size and adumbrations of a bankruptcy would be much, much larger than that of any Latin American country.
Earlier I had assumed that we were watching a negotiation: Brussels would shout “Never!,” the Greeks would throw tantrums, and eventually some compromise would be reached and the situation would be stabilized.
Closer examination of the political situation in Greece makes me less optimistic. Greece may be suffering from an inoperable cancer, in the form of a degree of corruption that make a resolution without bankruptcy very difficult to implement.
Here are some comments by a political observer in Athens who has written to me privately:
Corruption in Greece has been systematically cultivated by all governments and parties. Everyone has relatives living off the public sector in cushy, do-nothing jobs. They get paid through various funding sources that successive governments have created so even though the nominal wage is low the actual take home and all benefits are quite high. Another important dimension to the public participation in corruption is that the rich by and large do not pay any taxes. The only people who pay are those who can’t escape the clutches of the state: pensioners and civil servants i.e., sectors where the salaries can be accounted for. According to the President of the National Bank of Greece, 30% of the budget of the last administration was unaccounted for—yes, just disappeared into the coffers of their families and well-wishers, and I would guess the other 70% was never audited.
The common psychological traits of the corruption are what the ancients called alazoneia (brash presumption of knowledge by the ignorant) and anaischuntia (shamelessness). All public institutions have one purpose: Suck money from the EU (or via loans) and redistribute it through an inverted pyramid of chicanery with the the loaf going to the top, the crumbs to the bottom. Most people in their little niches of decay are “expert” at this. They “know” the ropes. As the country psychologically devolves there are no lines demarcating the “good from the “bad”, “responsibility” from irresponsibility”. No one ever goes to jail; no one gets punished.
The Europeans know the state of affairs in the country (which they contributed to for a variety of reasons). They know that no Greek government can implement reforms through a political process of consensus. The people are waiting for their doles; the students are waiting for their payback (cushy jobs somewhere), the unions, the coops are all poised to demand their due from the machines that serve them. Meanwhile the rich are sending money out of the country (Switzerland and Cyprus) in the billions out of fear that the government may have no recourse but to grab part of their accounts in the future.
Hence it seems to me that the only game in town is to put Greece under complete receivership with all orders coming from abroad for fiscal cutbacks and the like. Since the EU has no machinery for doing this and the Greek government could never have a consensus for such a program, these measures will be accomplished through fear. Greeks will be left dangling at the mercy of speculators and others, yet at the same time tacitly supported, so that with each assault the Greek government will be implementing (in a climate of panic and fear) some new unpopular measure to mollify the rating agencies and bondholders. The Greeks have not yet woken up to this new reality. They still think EU is Santa Claus or that someone will bail them out (maybe the Chinese!). The lollipops are being taken away and whatever sweets are left will probably go to prop up the banks.
There are two ways in which this scenario may fail: (1) the growing resentment of the German public especially and their unwillingness to bail out Greece. This raises the possibility that at some critical point the EU (due to populist outrage) may not be able to act decisively to stave off a run on the Greek banks. (2) Slide into anarchy in Greece itself. There is always the possibility that the combustible parts of the corrupt machinery start to ignite patches of fires here and there with hard-to-predict possibilities for touching off more general conflagrations.
For now the scenario is working. But nothing really has yet happened in the country. For the man on the street all of this talk about austerity is still just future legislation, measures in the pipeline, at worst manageable cutbacks that reflect the government’s rosy projections.
If all goes according to plan Greece will be ruled by the bankers from abroad with successive waves of crises leading to new cutback-measures and “reforms”. The road will be bumpy and the ride dangerous but manageable. But one should not discount the possibility that psychological despair and irrationality (fueled with desires to live the good life on a dole) may not spark suicidal actions along the way. Keep in mind that the youth have been completely alienated (corrupted and ‘consumerized’ by their parents) and their despair adds another factor of instability.
The country is sliding into psychological despair within a cocoon of unrequited desires that have been inflamed and legitimized over the years. Anger is rampant. Yesterday on the bus a student gave his ticket to a lady, telling her that she should use his ticket because he was getting off. Someone called out that this was shameful “thievery” to which the youngster responded: “I am stealing 50 cents but the government and the banks have stolen 50 billion!” Many nodded in approval.
Prime Minister Papandreou was on television last night, white as a ghost. He was telling the Greek press that he was thankful that the IMF was “offering” their technical expertise (technognosia) to Greece. Yes money is not coming, but how sweet of the IMF to be sending its experts to dictate terms over the next few weeks. It seems that someone in Europe gave him the unexpected news that the party is over. This reality has not yet even remotely begun to set in here. The media are giving the message that “the Europeans can’t afford to let Greece go under….that Europe stands to lose too much….that Merkel and those stuffy Northerners will have to come to Greece’s aid.”
When the reality does start seeping in—hold on to your hats….
One of the delusions is that there is a moral kernel in the country that we can turn to for consolation and renewal. There is no such thing. The corruption went too deep. The country is completely unprotected on the cultural and moral front. This too has not seeped in. And yet when people become desperate; when their world starts to crumble around them and all their delusions about themselves and their good life not only collapse, but do so without any legacy to fall back on and no dream to look forward to, then beware. We are in unchartered territory where Furies and Ate pilot the ship.