How Greece was destroyed

 

Angela Merkel watching Manuel Barroso lecturing George Papandreou

 

Right from the beginning, the scenario of the Greek financial tragedy was criticised as fake. Towards the end of 2009, the newly elected government of George Papandreou, son and grandson of prime ministers, found out that his PASOK socialist party had won the election on populist promises that could not be fulfilled. Papandreou himself had told the Greeks, “there is money”, despite the then on going credit crunch. It was an old trick of the opposition parties to win elections in Greece and elsewhere, but this time everything was different.

The world was deep in an unseen before financial crisis, which culminated with the bankruptcy of Lehman Brothers in September 2008. Banks had stopped not only to lend to governments and businesses, they didn’t even lend to each other.

In such an environment Papandreou couldn’t follow the good old Greek government tradition of borrowing to fulfil electoral promises. Judging Papandreou in retrospect, he must be a very clumsy politician, because he could have won the November 2009 general election without making costly promises. He also underestimated the credit crisis which was developing uncontrollable, tearing apart huge multinational groups and countries. Even his predecessor, Constantine Karamanlis, a bon viveur and opportunist politician, had seen the incoming calamity and swiftly handed out the steering wheel to Papandreou, by holding early elections with no constitutionally sound reason.

It was a deplorable spectacle to watch those two sorcerer’s apprentices to succeed each other in Greece’s top job. Karamanlis had borrowed more than €50 billion earlier in 2009 and Papandreou didn’t understand that it was impossible to repeat that. At that time, the global financial environment was deteriorating fast with lenders one day giving out €50 billion in new loans and the next snivelling over their empty coffers.

In short, the old Greek tradition of recruiting thousands of party militants in the public sector and handing out hefty wage increases to civil servants was not any more available to Papandreou. Without those traditional governing ‘tools’ he panicked and asked his minister of Finance, George Papaconstantinou, to politically justify that to voters. This last ‘brilliant’ economist didn’t give it much thought. He had the solution ready-made from his predecessor in the Ministry, George Alogoskoufis, also an economist.

What Alogoskousfis did back in 2004 had shaken the Eurozone and the financial world, as he declared that Greece had joined the Eurozone on faked statistics, concerning state debt and government deficits. Blaming the previous government for everything was another Greek political ‘tool’. The country’s political life at that time was reminiscent of the joke with the three envelops, every outgoing prime minster must deliver hand by hand to the next top guy and tell him to open them one by one at times of difficulties.

The first envelop contains a letter with two words:  “blame me”. The second one says “blame everybody else” and the third one contains an advice, “prepare three envelops”. So Papaconstantinou didn’t think for a second. He also denounced the previous government of falsifying state debt statistics, insisting that the real government budget deficit for 2009 was no around 6.5% of the Gross Domestic Product as Aloghoskoufis had estimated but more than the double. In this way, he thought to block internal demands for more state jobs and wage increases. At the same time, however, the other Eurozone governments and all and every financial market were shocked. Unfortunately, this time the world credit crunch had changed everything and Papaconstantinou in 2009 didn’t have the option Alogoskoufis had in 2004, to continue borrowing.

To cut a long story short, Papandreou turned the 2009 state budget deficit problem into a creditworthiness one for the entire country. Then cold political winds start blowing and destroyed the Papandreou administration, sending Greece and the Eurozone to the hands of the troika of International Monetary Fund, the European Central Bank and the European Commission. The IMF got mixed up in this exclusively European problem on the insistence of Berlin, because the Fund reputedly had the expertise to help reshape the over borrowed countries and cut down their fiscal deficits. It turned out that it was not like that.

The IMF’s chief economist acknowledged from the Tokyo general Assembly of the World Bank and IMF that the Fund made wrong predictions for the Greek economy. He also accepted that the programme applied had to be drastically changed. In the meantime (2010-2012) Greece lost almost a quarter of its Gross Domestic Product and income, unemployment surpassed 25% and the government debt from 115% of the GDP at the end of 2009 is today 165%. All that despite the fact, that the country applies almost to the letter whatever troika says, and after Athens have agreed a haircut of 53.5% of the privately held Greek government debt.

Not to say anything about the damage on the country’s social coherence and the damage to the prospects of at least two generations. If this is a salvation, then words have lost their meaning. Most irritating in now the fact that Papandreou travels around the world giving paid lectures over all that. Presumably he tells his audiences how a wealthy country can be destroyed. Who would pay a ticket to hear from him anything else than that? In any case Greece is now caught in a vicious cycle of recession and expenditure cuts.

the sting Milestone

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Comments

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