It seems to me that everyone has lost their bearings over the Greek situation, and now is a good moment to reflect a bit on Greece’s history and its future prospects.
The history is relatively simple. For years, Greece has been living larger than its means, and everyone, both citizens and government, were spending more than they brought in. Private citizens padded their incomes with a level of tax evasion that surpassed even Italy, while a lazy and inefficient public administration weighed heavily on the balance sheet of the state. The deficit grew continually, with gold-medal leaps during the years leading up to the Olympics. Wealthier citizens, possibly recognizing the dangers ahead, moved their assets abroad, jockeying with Russian oligarchs and Arab sheiks for the most luxurious real estate in Paris, London, and New York.
The only way to keep playing the game for so long was to fudge the numbers of the public balance sheet, and so it was done.
At this point one should ask himself how all of this was allowed to happen in a country that part of a monetary union. The answer to this question is also quite simple: in 2003, despite repeated requests by the European Commission, Germany, France, and Italy all forcibly refused to adopt any sort of control whatsoever over the individual economies of members of the Eurozone. Their reasoning was that this would have constituted an uncalled for infringement of national sovereignty.
And so in a sense it became ok for everyone to fudge their numbers; the Greeks certainly did.
In the end, when the financial crisis reached critical mass and the truth came to light, the other members of the Eurozone rightly expected Greece to adopt the same recovery measures to shore up the accounts of the treasury and of a banking system heavily indebted abroad.
Clearly the debt and deficit were so profound, that it was not enough to force the Hellenic government to reform its fiscal policy, and help from the outside was urgently needed to prevent speculative attacks on both banks and treasury.
At the beginning of the “crisis” it would have taken but a few billion Euros to “buy” the time necessary to enact recovery measures. It just so happens that an important electoral battle was underway in Germany at the time (does NordReno – Westphalia ring a bell?), and the decision on a rescue package waited four months because the German voters were firmly against helping the “lazy Mediterranean’s). Time went by and speculation drove the cost of a bailout to hundreds of billions of dollars, while the crisis spread among the fragile Eurozone members, eventually reaching Spain and Italy via Portugal and Greece. We have all seen the last two years of this tragicomedy, where speculation drives up interest rates and hinders the rescue package. The word “spread” reminds us that Germany is the strongest member of the Eurozone, and although this strength is mostly thanks to the Euro, Germany has no intention of facing its own responsibilities. Meetings followed summits, but the decisions made were always too little, too late. The only result was the imposition of austerity, first in Greece and then in all of Europe, a difficult but necessary policy that was nevertheless implemented without any strategy for recovery. The Greeks were forced to take corrective action to an unusual degree, but the subsequent fall of GDP of nearly 20% only served to worsen the living standards of its citizens without offering them any kind of hope. Being left behind by Europe sent debt and interest rates skyrocketing, making a recovery of the economy and impossible task, even in the face of the most severe internal policies. This pointless suffering has pushed the people of Greece towards ever more radical positions. However not even Syriza, the most radical left wing party, seeks and exit from the Euro, asking instead to see the light at the end of the tunnel.
The tragicomedy doesn’t appear to have an ending. Everyone has come to grips with the fact that a Greek exit from the European currency would be the beginning of the end. Even the British Prime Minister has said that the end of the Euro would be a catastrophe. Obama fears that contagion from Europe would kill his chances of reelection, and the German business community understands that without the Euro, their party is over. The Chancellor herself was rebuked in the NordReno – Westphalia elections, but her policies have been pushed so hard and filled with such ethical baggage that she seems to now be a prisoner of her own actions. France, Italy, and Spain need to coax her out of her cell and convince her that saving Greece means saving Europe means saving Germany, and that cases like Greece cannot happen again if common rules are adopted, and that good politics is for building a better future, not giving lessons on the past.