The mounting crisis in Greece

Greeks feel angry, scared and humiliated. They feel let down by successive governments and consider that they are now being punished by the EU and the IMF through no fault of their own. They fear the loss of their economic sovereignty to suited hard hearts in Brussels more interested in balance sheets than sympathizing with the hardships the Greek people are being asked to endure.

On Sunday, that simmering fury erupted in the center of Athens in answer to the EU-imposed austerity plan, the implementation of which was approved by Parliament to secure a 130 billion euro bailout loan which would postpone the country defaulting on its massive sovereign debt repayments and avert bankruptcy. Few parliamentarians of any political persuasion were enthusiastic, some resigned in protest and at least 40 deputies were expelled by their parties for refusing to toe the line. The 199 who voted ‘yes’ were convinced by the argument of Greek Prime Minister Lucas Papademos who warned of “an imminent catastrophe,” saying “Greece was just a breath away from Ground Zero.”

The people are clearly unconvinced. On Sunday, tens of thousands gathered in the iconic Syntagma Square to demonstrate peacefully, but tempers flared, leading to clashes with riot police. Historic buildings along with cinemas, restaurants and cafes were set on fire and some 150 shops were looted. “Vandalism and destruction have no place in a democracy and will not be tolerated,” Papademos responded. “I call on the public to show calm. At these crucial times, we do not have the luxury of this type of protest. I think everyone is aware of how serious the situation is.”

He is, of course, correct but at the same time many of us will empathize with the frustration felt by Greeks as their standard of living goes south year-upon-year and it injures their pride to feel their homeland is perceived to be the begging bowl of Europe.

The fat cats in Brussels may be relieved by the outcome of the parliamentary vote, but the Greek government is damned if it does and damned if it doesn’t. There are no magic bullets to return the country to the kind of economic stability it enjoyed prior to the 2008 global downturn.

Certainly, the bailout—conditional upon cuts in pensions, benefits, a 20-percent reduction of the minimum wage and the loss of 15,000 public sector jobs—won’t do it because, in the first place, most of that money will go to ensure banking liquidity. And, secondly, the cuts will mean less money in people’s pockets and a rocketing unemployment rate, currently standing at an unacceptably high 20 percent; hardly a recipe for stimulating a fragile economy! The situation is already dire. Greeks are emptying their bank accounts and, for the first time ever, cash-strapped families unable to feed their children are handing them over to state care. The worry is that when bailout monies run out, unless Greece can put its house in order, it will find itself back to square one with nowhere else to go.

When Greece joined the euro zone in 2001, I was living in Athens. There was great optimism in the air as the capital was being spruced up, new highways constructed and posh apartment blocks were mushrooming in the suburbs. To the casual observer, people appeared to be basking in a newfound affluence, especially owners of small plots of land who often became millionaires overnight as the building boom continued. No one I knew was unhappy about losing the drachma; almost everyone embraced the new currency as the key to a bright future; it was far from that. The euro bought with it inflation as businesses used the change-over to substantially up their prices until Greece eventually priced itself out of the market as a popular holiday destination. At the same time, wealthy business people I spoke with were almost proud of their skills in evading taxes.

Although Greeks were essentially keen to call themselves Europeans, they tend to be insular, and did not encourage foreign business or investment, wrapping such ventures in red tape. If you stroll around Athens, you’ll be hard put to come across a foreign-owned shop, restaurant or café other than those under the ownership of foreigners with Greek spouses—admittedly, this is not the case on some of the islands.

I think it’s beyond time for the Greek government to emerge from a state of denial. The euro hasn’t benefited the Greek economy and, as painful as returning to the drachma will be, it’s the better option. If Athens can once again take charge of its destiny, it can devalue the drachma making its service sector and manufacturing exports more competitive and attracting European tourists seeking value for money. Greece only has to look at its neighbor Turkey for a precedent.

In February, 2001, the Turkish lira plunged by 50 percent, growth fell from six percent to minus four percent, prices went sky high and hundreds of thousands found themselves without jobs. In this case, the government and the people worked together to swiftly solve this crisis.

Today, Turkey is a newly industrialized country with an economy growing faster than Germany’s, a stable currency and a respected banking system. If Turkey had been a euro zone member at the time bound to take its marching orders from Brussels, who knows what its fate might have been. Moreover, the UK and Sterling have benefited from the Blair government’s decision to opt out of the euro. Any pullout of the euro zone can’t be done overnight but the government should work toward it and, in the meantime, should accept it has little choice but to default sooner or later, which as Argentina and Ukraine discovered was a way to kick-start their economies.

That old adage ‘Beware of Greeks bearing gifts’ needs to be rewritten. It’s the Greeks who should beware of ‘gifts’ from foreign capitals that could end up exploding in their face.

Linda S. Heard is a British specialist writer on Middle East affairs. She welcomes feedback and can be contacted by email at heardonthegrapevines@yahoo.co.uk.