aNewDomain — Greek Prime Minister Alex Tsipras this week convinced the Greek Parliament to accept tough austerity measures imposed by Eurozone finance ministers. Yet he still absolves Greece from fault in its debt crisis, even though the Greek debt crisis is entirely of the country’s own making — and over more than a generation.
What’s worse is that no one in Greece seems willing to step up and take responsibility. Not Tsipras. Not his party, Syriza. And not former finance minister Yanis Varoufakis, who now is blaming everyone who is not Greek for this mess.
Greeks need to understand that they themselves caused this mess — and that no one tricked this developed, democratic country into it. Until they do understand this, they’ll find it difficult to embark on the job ahead of them now: to clean up their badly damaged financial house. Or whatever is left of the house.
And what did they do with all that money, anyway?
Retire at 57 and collect 80 percent of your pay …
The Greeks borrowed money to fund an array of social benefits similar to those found in other European countries like France, Germany, and Sweden. But unlike those other countries, the Greek government didn’t collect enough in taxes to pay for them.
They charged up benefit upon benefit. Like retirement with a full pension at 57. In fact, for years Greek civil servants could retire after 35 years service at 80 percent of their salary. Greece covered the healthcare for its citizens, including five months of paid maternity leave. As for tuition at Greece’s 17 universities and 30 technical institutes? No worries. It was free for all Greek citizens.
Greek taxes never could pay for these rich benefits of Greek citizenship. The difference between Greece’s ability to pay for these benefits and the cost of the benefits now amounts to $320 billion euro or 180 percent of Greece’s GDP.
The country’s tax rate was too low to pay for the benefits. And with tax evasion practically “a national sport” in Greece, the country was lucky to collect taxes at all. Upwards of 30 billion euros per year go uncollected, according to some estimates. That in fact amounts to a hefty percentage (roughly 3/8ths) of the bailout that Greece is seeking now from its Eurozone partners. Better, apparently, to have Germans pay than to collect the money yourself.
Now the benefits are drying up. Most notably, retirement age is going up to the age of 67, the same age as it is in Germany. That’s up from 62, the retirement age Greece was required to use as a result of a previous bailout. Times will be harder than ever for Greek citizens, it’s true, but that is to be expected as this is such a huge debt — and such an old one.
To many Greeks, Greek debt feels as old as The Iliad.
Greece’s debt is exceedingly old and large. By 2006, well before the worldwide economic downturn, Greece’s debt was an estimated 103 percent of GDP. And by 2012, Greece’s debt had risen to an estimated 156 percent of GDP, according to the European Commission.
For comparison’s sake: At the same time that Greece’s debt was 156 percent of GDP, U.S. public debt was 87 percent of GDP, by the same measures used to measure Greece’s debt-to-GDP ratio.
How could Greece join the Eurozone in the first place with such a debt? Simple. It lied. Greece was the last country to join the Eurozone before the currency launched in 1999. In 2004, Eurozone auditors discovered that Greece had fudged its debt figures on entry. Had it been honest, Greece would have had a far more difficult time getting in on the Euro.
Greece wanted to be a member of the Euro club without paying its dues. This is primarily why the later joiners to the Euro, notably Latvia, Lithuania, Slovakia, and Slovenia side with Germany in the bailout politics. When those countries joined the Euro, they were spun, shaken, and stirred to make sure they could handle the common currency.
And Greece’s politicians went into this debt with eyes wide shut.
You’d expect that Greece’s political leaders would have set about getting the country’s financial house in order as soon as it became clear, in 2004, the extent of its growing debt problem. But they didn’t.
Instead, they began aggressive, expensive preparations for the 2004 Olympic Summer Games in Athens. Costly international sports event – no problem – charge it!
Sure, Greek politicians paid lots and lots of lip service over the last decade to stabilizing the country’s budget in the interest of reducing its deficit. But it was only lip service.
Politicians had a full decade to solve this problem. They never really tried.
And now Greece’s national debt, measured as a fraction of GDP, is at roughly 180 percent. The whole crisis is self-inflicted by a democratic government. It has no one to blame but itself for this sad state of affairs.
Why not just devalue the currency?
Good idea, but no go. Greece is a Eurozone country, so it can’t devalue its currency – because Greece doesn’t have one; it voluntarily opted for the Euro.
And Greece’s economy is small, really — just a tiny fraction of the overall Eurozone economy. Its only tools for getting its financial house in order lie in either reducing government expenses, raising revenue (e.g., taxes) or both. And that is what has to happen now.
As if this challenge isn’t tough enough, Greece also needs to figure out how to grow its economy. Getting bigger is the easiest way to simplify debt service. But it’s really hard to do when you’re saddled with the debt from choices freely made decades before.
Greece could have averted this disaster rather than spending the bulk of two loans — 110B Euros in 2010 and 140B Euros in 2012 — and hoping tomorrow would never come. There were two Greece bailouts before this one, you know.
Now, on the third go round, hasty austerity measures must be taken. The ones imposed previously by the Greek government caused massive unemployment, hovering at times near 30 percent. And as my colleague Ted Rall keeps pointing out, things are going to get worse before they get better.
Syriza’s not to blame, but it’s sure not helping.
Greece held an election in the midst of its latest financial crisis. The Syriza party, led by Tsipras, campaigned on an anti-austerity platform. This served as a major obstacle toward solving the problem, practically and philosophically.
Its “No austerity” platform had a better ring to it than “austerity,” and the socialist party won the election.
More subtle but perhaps just as damaging, Syriza then proceeded to negotiate better terms for the financial bailout than the Eurozone partners had offered.
But, after providing two previous loans in the understanding that Greece would put its financial house in order, the Eurozone finance ministers were not in a mood to bargain. Some even said they preferred Greece just leave the Eurozone.
Tsipras’ Syriza then embarked on grabbing a bizarre nationwide protest vote to show that Greeks didn’t want austerity. The protest vote won the majority of votes, but it had no hope of shocking the Eurozone finance ministers into granting more generous terms. Unmoved, Eurozone finance ministers and their political bosses delivered a package that essentially amounted to the original terms.
It was a clever move, perhaps, for Tsipras, politically speaking. Though he got Parliament’s vote in support of the terms, he managed to disavow them, saying that he had no choice and his hands were tied.
Tsipras will always be able to say that Syriza left no stone unturned in trying to improve the terms of Greece’s bailout. But to everyone else — Greek citizens, EU countries and the rest of the world — those are pretty empty words.
Why should Greece’s neighbors pay for Greek benefits, anyway?
Countries should look out for the best interests of their citizens. Most European countries offer an array of social benefits far beyond those offered in the U.S., and these social benefits are paid for by higher taxes.
What is often an optional insurance payment in the U.S. for a few people is simply a mandatory tax in Europe for everyone.
But there’s a general understanding that countries pay for their social benefits and do so through the revenue raised by their government. Germany, the country that has provided the most money to Greece, has social benefits that far outstrip the benefits Americans receive from the U.S. federal government. Still, German benefits are lower than those that Greece has provided its citizens.
Why should the Germans underwrite the Greeks?
The only reason would be for political unity among the Eurozone countries, and in the end that’s probably why the Germans bothered to orchestrate a third bailout. And that’s the same bailout whose terms the Greeks are so bitterly complaining about now.
The Greek debt crisis may turn out to be a mere anecdote in the history of the European Union and the Eurozone — or it may turn out to be another sign that the European Unity Project is slowly unwinding.
Either way, the failure of Greek leaders to accept responsibility for the Greek debt crisis endangers its economic recovery and, perhaps, the stability and well-being of all Greeks and others in the region. What a sad state of affairs.
For aNewDomain, I’m Tom Ewing.
“Aerial view of Olympic complex in Athens 2004 DSC06793“. Licensed under CC BY-SA 1.0 via Wikimedia Commons.