Greece is the Sick Man of Europe and Should Never Have Been Part of the EU


Last week were held the legislative elections in Greece. Quite unsurprisingly, the ruling socialist party PASOK was pounded, mainly for its compliance with the harsh belt-tightening measures imposed on Greece by Brussels. Quite worryingly, though, the PASOK all-time rival, the conservative New Democracy (ND), fell short of securing an absolute majority, while the concomitant rise of two up-and-coming extremist parties, the far-left Syriza and the neo-Nazi Golden Dawn, both displaying anti-austerity programs, is dangerously jeopardizing the joint efforts of Greece and its European partners to solve the crisis. Syriza and Golden Dawn respectively garnered no less than 16.8% and 7% of the popular suffrage.

Since December 2011, the Euro Area (EA) had enjoyed a modest appeasement on the sovereign-debt market thanks to the urgent injection of €1 trillion in the EU banking system by the ECB. Last week's political outcome in Greece and the prospect of a prolonged instability in absence of a clear majority, have caused renewed market jittery and revived the painful but possible scenario of a precipitated exit of the Hellenic Republic. However tragic this situation may be, it comes as no surprise that Greece is definitely the sick man of Europe. 

In 1854, following a two-years stay in Greece, French thinker Edmond About opines: "Greece is the only known example of a country that has lived in bankruptcy since the day that it was born."Indeed, since its hard-won independence from 3 centuries of Ottoman domination, Greece has become by definition a perennially indebted state. Continuously broke due to the imperial ambitions of its rulers, incapable of keeping its public expenditures in check, Greece was doomed to live under financial constraint. 

Greece defaulted on its debt four times. Highly indebted to Britain in 1828 in the wake of the independence war against the Ottomans, Greece is forced to go bust. Bankrupt again in 1843 because of ruinous wars against the Ottomans, Greece found itself once more in debt. After a return to fiscal discipline, the opening of the global capital markets provided cheap credit, which Greece abundantly overused to finance its megalomaniac projects. 1893 marks Greece's third bankruptcy. This time, it was because of unsustainable level of indebtedness. The last and maybe not least Greek default occurred in 1932, amid a world economy depressed by the Great Depression, and prolonged up to 1964, giving Greece the prize of the longest default in history.

How is it, then, that Greece has been all along the 20th century unable to keep a rein on its finances? 

First, Greece was never able to build a legitimate and fiscally-responsible state. Greece has remained dogged by a sort of cultural duality between the orientalist tradition (Byzantine-Ottoman) and the European modernity. This dualism explains many economic and cultural aberrations Greece along with Europeans never succeeded in erasing. Both its fiscal and land tenure systems obey an Ottoman logic: a loose fiscal mosaic of decentralized local communities answering to lower lords whose bargaining power remained over-sized compared to state's. 

Combined this with the traditional structure of the Greek economy -overabundance of overpaid liberal professions and the dominance of small agricultural properties and small family business- and the pending fear of taxation inherited from the jack-booted Ottoman rule and you get a weak state devolved into strong and reticent local elites. Hence, the Greek state has never been endowed with any central tax and spend capacity, relying as a substitute on indirect consumption taxes and indebtedness when seeking new resources. 

Consequently, the Greek state always had to finance new investments and purchases by contracting huge debts to European creditors. Despite its official independence in 1832, Greece has never been a free and autonomous country since the Ottoman invasion (16th century). After the war of independence, Greece had contracted unsustainable debts to Britain that it was partly unable to pay back. As a result, the new Greek Republic was put under the command of a Bavarian monarchy. 

The latter embarked the country in a costly war in the end of 19th century that led to the bankruptcy of 1893. The European states rubbed elbows with each other and bailed out the Hellenic Republic, swapping its sovereignty with the technocratic tutelage of the International Financial Commission (IFC) until WWII. Most economic decisions were made by the Commission and not by elected governments. Later on, when the civil war broke out in the post-war era, Greece was once more buttressed by the loans and grants of U.S.-led Marshall Plan set up to fend off the Communist threat. Finally, following a bumpy democratic transition, Greece fell under the EU Commission's dominion and is drip-fed by the EU regional aids ever since. 

Third, even after Greece and its European partners constructed a quasi-modern state apparatus, the latter grew too big, too inefficient and too corrupt for a modern capitalist market-economy to take root. Whenever the Greek state managed to stabilize, it impeded a prosperous private sector to establish. Greece never experienced any industrial revolution, and confined its economy to the traditional sectors of agriculture, naval commerce, and more recently tourism. An important private sector still flourished throughout the 20th century. Nevertheless, it is chiefly composed of minuscule companies closer to ancient forms of craftsmanship and local commerce than international corporations integrated in world competition. 

This private sector lacks scope and tenor. Most of big corporations are still state-owned, and thus lack the competitiveness and the entrepreneurial spirit necessary to compete at the world scale. What is more, the public sector is bloated and hires a plethora of overpaid and incompetent civil servants solely selected on political biases. Each time the Greek state properly worked, it veered towards an overloaded and authoritarian state ruled by a caste of plutocrats keener on getting wealthier than modernizing Greece. 

In 1948, Paul Porter, the American emissary to Greece in the post-WWII era, says:  "The economy has come to a stand still, all the while extravagant amounts of money are splurged in dodgy financial operations and imports of luxury goods. The government {…} clings on to power and cuddles the interests of a clique of merchants and banksters." Therefore, the complacency of the Greeks with their inflated state and the widespread clientelism characteristic of the Greek society have durably undermined the efforts of modernizing the state and led to a structural inefficacy in the political organization of Greece. 

Today's political and economic stalemate comes as no surprise regarding Greece's past. Within thirty years, Greece made its way out of big troubles and eventually stabilize. The state-building process could have made headway and the Greek political elite could have capitalized on this exceptional growth to reform and modernize the economy. However, the same excesses that plagued Greece in times of turmoil grew ever more salient with stability. The Ottoman logic exacerbated and the loose state centralization was not fixed. Gradually, the state expanded its role in the economy without gaining in efficiency. 

Under André Papandreous' "socialism on credit," the Greek state became a genuine welfare state, implementing the range of distributive and redistributive policies that one would expect of any modern state (health, education, retirement, etc.). Greece’s budget deficit and debt ratcheted up in the eighties. At first, devaluations of the drachma and inflation softened the blow. However, upon entering the euro, the Greek economy benefited from broad access to cheap credit and was barred to use the monetary devaluation as a way to monetize its debt burden. 

In the light of Greece's recent history, we can ask ourselves a simple question: "Why did Greece enter the EU, and a fortiori the euro zone with this level of credibility and robustness?" The answer's also very simple. France and Germany co-opted Greece in the European project, because Greece is "the crib of the European civilization." This naïve justification overshadowed the bad economic records of the country and its systemic instability in its recent history. 

Greece should never have been part of the euro. Denying the Greek membership would have rendered a great service to the country, namely its true autonomy. Europe has gratuitously bailed out Greece at several occasions and during long time spans. Now the situation is just as dire as in 1898. The frugal and Lutheran Europe has to pay the high price for the country's maintaining. Whether Greece leaves the EU or not does not make a big difference. It remains the sick man of Europe. As Georges Vayssié once said: "Economic distress is the effect, not the cause. The real cause is the moral decline of this country. Greece is living through a self-incurred suffering. It is dying of politics."