The Full Catastrophe (2 page)

By itself, the fiscal demise of Greece, a small nation of some 11 million people until then regarded more for its nice island beaches, marble ruins, and ancient philosophers than for its economic significance, wouldn’t have presented a colossal threat to the global financial system. Yet the country’s euro membership uniquely positioned it to wreak outsized havoc. German and French banks were the biggest foreign owners of Greek debt, and a sudden default could further destabilize the already hobbled European banking system. It also quickly became clear that Europe’s monetary union had some profound design flaws. No one, it seemed, had seriously considered what would happen if a eurozone nation went bankrupt and was forced to return to its own currency. Ireland and Spain were also having a great deal of financial trouble after their housing bubbles burst, forcing their governments to step in and bail out their banks. Italian and Portuguese finances weren’t looking good either. If Greece were to go, who else might follow? The “single and stable currency” initially conceived by European leaders was under grave threat, and it had begun in Greece.

The Hellenic Republic, as Greece is officially called, had been included in Europe’s endeavor to form a closer union in no small part because of its symbolic importance to the continent. The beautiful Europa is a figure of Greek mythology, after all, and where would Europe be it if weren’t for the ancient Hellenes, the fountainhead of Europe’s common heritage, the originators of democracy and Western civilization? At the time Greece applied
for European Community membership in the 1970s, French president Valéry Giscard d’Estaing, one of the architects of the European Union, believed Greece was “the mother of all democracies” and therefore could not be excluded. Yet, later on, Greece’s immense troubles seemed to expose the dreaminess of this thinking. Greece’s creditors, given a license to pull back the veneer of legitimate statehood and take a look at the Greek government’s internal organs, found big problems almost everywhere they looked. A deeply entrenched tradition of political patronage meant politicians handed out social benefits to select groups in exchange for votes, while often leaving the most vulnerable to fend for themselves. Tax evasion was pervasive, and Greek tax collectors frequently cooperated with tax evaders. Public workers were hired for life, often not because of their qualifications, but because an aunt or a cousin knew a mayor or a parliamentarian, leading to profoundly ineffective public administration. An incomprehensible, opaque bureaucracy and lax enforcement of the law allowed politicians to engage in brazen corruption with little fear of getting caught. Greece’s pension system was underfunded and byzantine. Its building codes were frequently ignored, resulting in a million illegally constructed buildings and houses. Its courts were often futilely slow. Its public schools were poor, necessitating parents who wanted their kids to go to college to pay for private tutoring.

This wasn’t the twenty-first-century European state the EU’s founders had envisioned for their club. In a 2012 interview with the German magazine
Der Spiegel,
Giscard d’Estaing seemed to have had a change of heart. “To be perfectly frank, it was a mistake to accept Greece,” he said, speaking alongside his old partner, former German chancellor Helmut Schmidt. “Greece simply wasn’t ready. Greece is basically an Oriental country.” When Europeans use the term “Oriental,” in this context, it’s not meant as a compliment. The Greeks in other words, were other, Middle Eastern, backward when compared to loftier Europeans. Addressing
Schmidt, Giscard d’Estaing added: “Helmut, I recall that you expressed skepticism before Greece was accepted into the European Community in 1981. You were wiser than me.”

Such bipolar feelings about Greece’s “Europeanness” have been evident since the nation won its independence. During the revolution, well-educated Europeans, driven to revive the Ancient Greece they so revered, provided the Greek rebels with financial assistance, and pushed their governments to give the military support that made victory possible. (One should therefore not only ask where Europe would be without Greece, but where Greece would be without Europe.) Britain, France, and Russia eventually backed the independence cause, and provided a guaranteeed loan to the fledgling Greek state (which it later defaulted on). English romantic poets lent ideological reinforcement. In 1821, the year the Greek revolution began, Shelley wrote in
Hellas
:

Another Athens shall arise,

And to remoter time

Bequeath, like sunset to the skies,

The splendour of its prime;

And leave, if nought so bright may live,

All earth can take or Heaven can give.

Yet at the same time Europeans often expressed disappointment that the modern Hellenes didn’t match the splendor of their classical predecessors. Even Shelley was apparently not free from doubt about the prospects for the rising of another Athens of the sort he had in mind. While visiting an Italian port during the time of the Greek revolution, Shelley and a friend, Edward John Trelawny, boarded a Greek trading ship in order to meet the crew. The pair was not impressed, according to Trelawny’s later written account of the encounter. “They squatted about the decks in small knots, shrieking, gesticulating, smoking, eating, and gambling
like savages,” Trelawny wrote. He also noted that the ship’s captain did not support the revolution on account of what it might do to his business.

“Does this realize your idea of Hellenism, Shelley?” Trelawny said.

“No! But it does of Hell,” said Shelley, according to Trelawny. “Come away! There is not a drop of the old Hellenic blood here. These are not the men to rekindle the ancient Greek fire.” Shelley added: “I had rather not have any more of my hopes and illusions mocked by sad realities.”

Greeks, too, have long suffered similar vacillations of self-image. At the time the country achieved independence, agrarian Greeks did not have the same level of consciousness or reverence for the storied Hellenic past as did, say, the English romantic poets. They had never read Plato or Euripides, and were far more faithful to Christian Orthodox conservativism than to the Enlightenment ideals they were said to have inspired. The new Hellenic state would succeed in inculcating its masses with immense pride in their ancient past, but this came with its own unique burden. Doomed to perpetually contrast themselves with the unmatchable splendor of their predecessors, Greeks often confront a nagging sense of inadequacy and strain under the weight of their own historical narrative like few other people on the planet. This sentiment is expressed by a common Greek quip: “We gave light to the world and held on to the darkness.” And yet Greeks also often see themselves, on account of their ancient legacy, as a kind of chosen people, superior to others. “We had culture when they were still living in caves!” I have repeatedly heard Greeks say of their northern European counterparts. Greeks consequently often feel that Europeans should be grateful for being shown the way out of the cave and into the light. This sometimes grand self-image has also had the effect of making the country’s perceived subjugation at the hands of its creditors all the more bitter. After all, the Europeans owed them.

The cave dwellers of old, for their part, openly deliberated whether it would be wiser to sever Greece from the eurozone like a gangrenous limb. Germany, which, as Europe’s biggest economy, was Greece’s biggest state lender, was particularly hesitant to help the Greeks, which only worsened the market’s fear of impending doom for both Greece and the euro. Other eurozone nations—Ireland, Spain, Portugal, Cyprus—also needed bailouts, but German disdain was mostly reserved for Greece. That was not only because Greece needed more money than all those other countries combined, but because most of the other governments got into financial problems after having to bail out their irresponsible banks. In Greece, the banks were doing fine until the government got into financial trouble on account of its own considerable failings. Germans judged the excesses of politicians and citizens more harshly than those of banks and consumers, and saw the Greek government’s negligence as a betrayal of the European project itself. In February 2012, Timothy Geithner, then U.S. Treasury secretary, had dinner with some of his European counterparts and, according to an interview transcript obtained by the
Financial Times,
later summed up the feelings they expressed to him about Greece like this: “We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.” The attitude, Geithner added, was: “Definitely get out the bats.”

The punitive nature of the initial bailout agreement—the bringing out of the bats, in other words—somewhat quieted the German electorate’s misgivings about helping the Greeks. German chancellor Angela Merkel made sure to emphasize the toughness of the agreement to her voters, assuring them the Greeks were being adequately chastened, that moral hazard was being avoided. Other eurozone countries would “do all they can to avoid this themselves,” Merkel told the German newspaper
Bild am Sonntag
after Greece’s first bailout. For their part, many Greeks did everything
they could to avoid it too. One might imagine the somber mood around a company office after the management announces employee wage cuts and a downsizing plan. In Greece, that was the mood on a national scale. Just before the Greek parliament was to vote on a big austerity bill it had promised in exchange for the first bailout, Greek unions called a general strike and protestors assembled in front of the parliament building. Many of the parliamentarians inside had spent their careers bestowing benefits, and now they were taking them away. This did not sit well with the people outside. At one point, the protestors tried to storm the building. The chaos and plumes of tear gas released by riot police forced the ceremonial guards, wearing revolutionary brigand garb in front of the Tomb of the Unknown Soldier, to abandon their posts. Nearby, a bank was set on fire, killing three employees, including a pregnant woman. This was just the beginning of the strikes and demonstrations. Over the next four years, more than 20,000 protests and rallies took place across the country.

Many protesting Greeks were well aware that foreign control over their country’s affairs represented a historical norm. In 1893, for instance, following a collapse in the global price of currants, the main Greek export, and beset by problems the country still has today—insufficient tax collection, high military expenditure, a wasteful public administration—Greece defaulted. Upset European holders of Greek bonds—particularly in Germany—pushed for international control of Greek finances to ensure repayment of the outstanding debts. For this purpose, an entity called the International Financial Commission was established in Greece a few years later, during a moment of national weakness following the country’s defeat in a short war with the Ottoman Empire. The commission presided over Greek finances until the Second World War, taxing Greek stamps and tobacco, establishing customs duties, and absorbing revenues from state-owned manufacturers of match sticks, cigarette paper, and salt. While the commission had
some positive effects—under its control, Greece was able to establish creditworthiness that allowed it to take additional public loans—Greeks deeply resented the foreign domination.

Now, Greeks felt, the country’s fate was in the hands of creditor overseers once more. In contrast to the Greeks, these new overseers made some rather bright predictions. The structural reforms and wage cuts demanded under the first bailout would correct the excesses of the boom years and rapidly improve economic competitiveness. According to the Troika’s initial forecast, the measures would start to bear fruit by 2012, when Greece would begin growing again and be able to resume market borrowing. Unemployment would peak at around 15 percent, and though the national debt would reach hazardous levels, Greece would be able to pay it all back. The country would have to “swim against the tide” in order to meet these objectives, a European Commission report at the time acknowledged, in no small part because the spending cuts would have to take place while the economy was shrinking. This was, it turned out, quite an understatement, and the Troika’s forecast proved delusionally optimistic. Cutting government spending and people’s incomes in the middle of a recession while also raising taxes, a lot of economists will tell you, is likely to worsen a recession, and the Troika very much underestimated the degree to which this would occur. IMF officials later admitted some errors.

For many Greeks, the worse-than-expected economic free fall and skyrocketing unemployment were evidence that the first
mnimonio
wasn’t working. By the time, therefore, that European and IMF leaders struck a second rescue agreement during a late night of negotiations in Brussels in the fall of 2011, Greeks were loath to abide by another
mnimonio.
The PASOK prime minister at the time, George Papandreou, the son of the Andreas who had founded the party, had the idea of trying to legitimize the agreement by giving Greeks a chance to vote on it with a yes-or-no referendum. When he announced the idea, however, European
leaders were outraged that the deal they had painstakingly negotiated could be subject to the whims of the Greek electorate. Papandreou, who was born in Minnesota, had gone to Amherst College, and retained a trace of an American accent (Greeks derisively called him the “little American”), was already deeply unpopular at home for the first bailout, and amid the chorus of criticism at home and abroad, he abandoned the idea and was compelled to step aside. Lucas Papademos, a former European Central Bank vice president, was ushered into power in order to lead a short-term provisional government tasked solely with pushing through the second bailout agreement. On the winter night the Greek parliament passed a major package of cuts in exchange for the second rescue, the violent protests made Athens look like a war zone, as hooded youths set fire to buildings throughout downtown. So functioned democracy in the mother of all democracies.