Monastiraki Square
I travelled to Athens this summer fearing I’d find a volatile cocktail of anger and despair. With my ‘get outta Dodge’ hard currency concealed in a money belt, I half expected to find Angela Merkel burning in effigy in Monastiraki Square while rioters laid siege to the German embassy. Instead I found deep sadness, pitch black humour, and a profound sense of embarrassment at the supplicant position the Greeks now find themselves in.
I was there in early August, so the lines at the banks had already disappeared and the mass protests had dissipated like dark storm clouds that never brought a real downpour. At least on the surface, there was a semblance of normality. But it would be wrong to think that the latest bailout signifies any sort of turning point in this long running drama.
In classical Greek tragedy the noble but defeated hero wins a pyrrhic victory over the forces that destroy him, and in the process provides a cleansing catharsis (originally a religious rite) for the audience. Having reluctantly agreed to decades of fiscal waterboarding, the Greeks have been deprived of that sort of clear denouement. Instead, they are stuck in an economic doom loop of penal austerity that means the prime minister may be required to constantly ask Frankfurt’s permission before he buys a kebab for lunch.
The locals we talked to recognised that in hindsight the bail-out referendum was likely nothing more than a negotiating ploy by the Syriza government. A gamble that the Germans would flinch at the prospect of the first Eurozone domino toppling and then compromise at the possibility of bond market hawks lining up Portugal, Spain, Ireland and Italy as the next targets. Instead, when the German finance minister, Wolfgang Schäuble, started talking about a temporary ‘Grexit’ coupled with massive humanitarian aid, it was clear that Germanic fiscal puritanism was trumping any fear of the Eurozone unravelling. Having strapped on the economic suicide vest and voted overwhelmingly to press the detonator, the Greek people were forced into a weak capitulation with the added embarrassment of having their bluff called.
After a few days in Athens I had a far better understanding of why – despite the humiliation – the Greeks had stepped back from the economic edge rather than just hold their collective breath and leap into a sea of drachmas. It wasn’t out of fear. As one of our guides pointed out, the Greeks are no strangers to hard times imposed by the Germans. The Greek death rate in the second world war was 10% of the population, an order of magnitude higher than that suffered by the UK. Ironically, I think it was pride that caused the Greeks to blink first in late July.
Despite their storied history, modern Greek national identity is less than 200 years old, as the fragmentation of Alexander the Great’s empire was followed by 2,000 years in which what is now Greece was merely a province of someone else’s empire. Even when they got their independence from the Ottomans in 1830, the establishment of the modern Greek state was more a side effect of Great Power manoeuvring than the result of a heroic war of independence. Maybe because of that inauspicious rebirth, the classical period was the rock on which the Greeks chose to build their new national identity.
From the military heroics of Marathon, Salamis and Thermopylae, to the first flowering of drama, philosophy, science and democratic government, the modern Greeks have worked hard to buttress their claim that they were Europe’s first developed civilisation. The classical period is also the foundation on which the Greeks have built their economy, and with 17 UNESCO world heritage sites to choose from, that makes a lot of sense. But outside tourism, small-scale agriculture and shipping, there appears to be almost no industrial base in Greece to speak of. As a very dry Athenian pointed out to us, Pericles was the best finance minister Greece ever had, as his infrastructure project on the Acropolis is still providing plenty of Greek jobs over 2,000 years after the first marble slab of the Parthenon was laid.
Having defined themselves by how they protected Europe from the Persians and incubated what we now think of as European culture, it’s easy to understand why the Greeks might be a little sensitive and insecure about voluntarily exiting the club. Being reduced to a banana republic in need of dehydrated food packages would immediately lump them back in with the chaotic Middle East that the modern Greeks have done so much to distance themselves from.
But while at least temporarily compliant, the Greeks are clearly not happy about the situation they find themselves in. There was no mistaking the resentment about having the scarlet letter ‘D for debtor’ hung around their necks and being paraded through the Eurozone public square as an example to other southern European countries. Coming primarily from the Germans, this is both bad macroeconomics and rank hypocrisy.
The bad economics is that study after study has shown that austerity is a very poor treatment for the ills of excessive sovereign debt, as it is both ineffective and self-perpetuating. Public sector belt tightening, rather than encouraging private sector investment, tends to undermine economic growth, so for every extra euro of austerity output tends to shrink by more than a euro, causing the debt to GDP ratio to rise, even as the absolute level of debt falls.
After the austerity leeches have been applied and the patient is close to collapse, a large economic transfusion is typically required in the form of debt forgiveness. If that transfusion isn’t forthcoming, then you tend to get political dislocation of the sort that we saw in Germany itself in the 1930s. You’ll therefore find it hard to find any respected economist who believes that the current bail-out terms will survive more than a few months, yet the demands of domestic political theatre in Germany are forcing the Greeks into yet another cycle of ‘extend and pretend’.
The hypocrisy comes in two flavours. The first is the convenient amnesia that it was primarily north European banks that encouraged the Greeks to increase their borrowing so that those banks could then benefit from attractive interest rate spreads on that debt. The assumption was that the mantra of ‘ever closer union’ removed the credit risk, as the European Central Bank would always ride to the rescue. But the global financial crisis upended the tables of the money changers and what began as a banking crisis quickly morphed into a sovereign debt crisis.
Then in a sleight of hand worthy of David Copperfield, almost none of the first two Greek bail-outs totalling €240bn actually went to the Greeks. Instead they passed straight through to recapitalise the northern European banks who had loaded up on those now dodgy looking loans. Rather than being a catalyst for structural change in the Greek economy, those bail-outs were just the Germans and the French stabilising their own banks but sending the required euros on a short vacation to Athens first.
The second flavour of hypocrisy is that the current German moralising ignores the fact that, not only were they one of the first countries to breach the European growth and stability pact (which was meant to be the fiscal underpinning of the Eurozone), they also benefited from debt forgiveness many times during the 20th century. The most recent example was the London Agreement of 1953 that cut Germany’s external debt in half to help boost their post-war recovery. So for the Greeks – who fought one of the most effective guerrilla wars against the nazis in the second world war and suffered horrific reprisals as a result – the current lecturing from Berlin on proper debtor etiquette is more than a little galling.
But one of the reasons why there isn’t more anger in Athens is that the Greeks themselves recognise that there is plenty of blame to go round. Rich Greeks park money offshore with impunity and the preference for cash-in-hand payments is endemic, leading to estimates that tax receipts are around €60bn lower than they should be. There is also plenty of public sector ineptitude that makes you think that whatever taxes are being collected are not being well spent. As one Athenian joked to us, the most appropriate modern Greek translation of politics is ‘many blood suckers’.
As one small example, 12,000 people bought tickets for the Acropolis the morning we were there, suggesting a healthy revenue stream, but then ineffectual marshals tried to channel everyone through a single narrow entrance prompting a dangerous crush. Having then fought our way up the steps, the welcome sight of 35c bottles of cold water from very popular government-run vending machines also didn’t make a lot of sense when private vendors were charging over €2 right outside.
The reality is that, outside the historical sites, most of Athens looks like the East Village of New York in the early 1990s, with graffiti-covered walls and potential trouble around every corner. The official rationale is that allowing disaffected youths to spraypaint buildings is a better way of letting them express frustration than throwing bricks through the windows of those same buildings. But as I walked the streets of Athens I couldn’t help but get a strong sense of official apathy and public-sector entropy.
But for every piece of incompetence there was a cultural counterbalance, like our unscheduled stop at a small village bakery north of Marathon for morning coffee. When our guide told them we were visiting from the US we were showered with a free taste of everything in the shop, much to the frustration of the local builder who was standing behind us rolling his eyes as he tried in vain to pay for his regular donut and coffee. That 20 minutes milling around a cramped space getting bombarded with lemon cookies and hot spinach pie was a microcosm of the warmth and generosity that we experienced everywhere we went in Greece.
Despite their problems, my enduring memory will probably be of a country where at the end of every dinner ‘no thank you, just the bill please’ somehow got mistranslated as ‘yes, please bring dessert for everyone and also some free after-dinner liqueurs while you’re at it’.
One of Shakespeare’s many theatrical innovations was to take the desolate end of the traditional Greek tragedy and begin to show a glimmer of hope of something better ahead. Maybe in the forceful figure of Christine Lagarde, the managing director of the IMF who has already publicly said the bail-out deal won’t work, the Greeks can begin to see that future. Once the dust on this deal settles, I hope there will be debt forgiveness and that the Greeks’ austerity life sentence will be reduced to something more manageable, albeit with strict parole terms. But push them too far, and at some point this proud and resilient people will break rather than bend, and who knows what that could mean both for them and for the rest of the Eurozone.
By Alan McIntyre | September 2015
