The Greek financial crisis is a drama that has dominated the news for some months now. It is a drama with many actors, and it illustrates failures at many levels.
First, it illustrates a failure at the national level. Successive Greek governments, especially the last one, are responsible for bad policies and a squandering of the public wealth. This is symptomatic of a general culture of rampant corruption and nepotism, from the highest levels of government down to the last civil servant. Indeed, public institutions in Greece serve more as political devices where party loyalists are appointed, and less as functional, meritocratic bureaucracies. This incompetence seeps into the economy. For years, while credit was cheap and the international economic climate was favorable, Greece grew but didn’t address its structural deficiencies: high costs, low competitiveness and corrupt public institutions. On the contrary, cheap credit functioned as an enabler to these same problems.
The Greek case has also highlighted fault lines at the EU level: namely, the problem of fiscal imbalances between EU countries. Granted, Europe is not a political union – far from it – and therefore it does not have any mechanisms to coordinate socio-economic policy. Given the loose nature of the Union, countries produce economic policies whose content is a blend of national and EU priorities. What Germany’s conservative government is currently doing, however, is to deliberately transfer the political cost of its domestic policies to the countries of the south, thus exacerbating the problem. For years Germany has followed deflationary policies to keep labor costs down (thus effecting a real exchange rate differential with other countries), and has amassed a big trade surplus. So, despite the export orgy, little has trickled down to the (now disaffected) German worker. The German surplus is, of course, other countries’ deficit. But the Euro was introduced to stop such beggar-thy-neighbor mercantilist policies of devaluation and export. In our view a competitive economy that exports 2/3 of its products to other EU countries needs them, and should care about fiscal imbalances, given that Europe is now a Union – even if a loose one. We don’t see the reason for huge surpluses coupled with keeping costs low, while at the same time being on the Euro, other than economic nationalism. Furthermore, insult is added to injury when the political cost of these policies is transferred to outsiders. Its extremely misleading when, in view of the upcoming elections, Angela Merkel defends her government’s economic policies by saying that Germany is not going to save any Greek pensioners: Greek pensioners did not ask to be saved; Greece asked for a loan, not a transfer. The German economic hardship, and the resulting unpopularity of the current government, is a result of strictly German economic preferences (described above) and not German magnanimity towards Greek pensioners – or anybody else for that matter.
Finally, a note about the some of the criticism Greece is receiving: it is extremely hypocritical – not because its inaccurate, but because its true for everybody, not just Greece. Take the constant accusations in the international press and some political circles that Greece has been living beyond its means. Its true. But the current credit crisis is about everyone living beyond their means – not just Greece. That’s why it’s called a credit crisis, and that’s why it’s international. Take a look at the numbers for Spain and Ireland, not to mention Italy (some say that Greeks are saints compared to what Italians have done in their national accounts). And what about the US?
Or take the accusations about corruption. Corruption is indeed a reality in Greece. It is condemnable and has to be amended. Any argument beyond that we find unreasonable, especially when we see so much corruption coming from the same sources who hold this holier-than-thou attitude. Berating the Greeks for their corrupt practices is very convenient. It is also very convenient to overlook facts such as that tiny corrupt Greece (which is stealing away German entitlements according to Angela Merkel) is the #4 buyer of German weapons – and given its size, that is a lot. And what about Daimler and Siemens that had setup an elaborate account system to bribe their way through most major contracts they “deserved”, and not just in Greece, but all over Europe? While we are at it, what about the credit default swap deals between Greece and Goldman Sachs, deals which were perfectly legal and, of course, unregulated. Who was the on the other end of this transaction? And what about big corruption: Goldman Sachs stealing some poor guys pensions while some fat cat made 1 billion in some CDS that remained unregulated because Wall Street owns the US senate, without anyone challenging the deregulation orthodoxy? This is the same orthodoxy that allowed shadowy lending to European countries.
The list is endless. We for one, abhor corruption wherever we encounter it.
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