For Greece to Reach Austerity, History Must Repeat Itself
Much ink has been expended on discussing how to deal with Greece’s debt troubles, its social unrest, and its future. It would serve the discusson well, though, if we address the future of the country by comparing Greece’s current debt troubles to the socio-economic collapse following the end of the socialist regimes in the former Eastern bloc.
Regime change in 1989-91 came with several economic shocks to post-communist states. The first was the rapid de-capitalization of social security systems, state coffers, and currency reserves. That capital was re-routed in off-shore accounts and re-distributed to former Communist party members, apparatchiks, and loyalists who then formed a nascent, artificial capitalist class. The second shock was a sharp decline in wages, productivity, employment, available goods, and the rise of hyperinflation. The final shock was the inability of the state-planned economic system to compete with the more market-oriented Western models in the wake of the collapse. In other words, an unsustainable socio-economic model ended up collapsing under its own weight when it became too costly to maintain.
Greeks will face many of the same challenges, especially related to unemployment, low wages and a re-orientation of the entire Greek socio-economic model. Of course, Europe will not allow a junta or a radical government to seize power in Athens in a coup d’état — such an outcome would seriously de-value the EU’s position, ideals, and efforts in the whole crisis. The overwhelming debt problem was caused largely by the acquiescence of the Greeks, as they received aid from Washington in the height of the Cold War under the Truman Doctrine to prevent a Communist revolution. For the same political purpose of keeping Greece in the Western orbit of influence, it was inaugurated in the European Community in 1981 and given access to the Eurozone in 2002. The strategic geopolitical value of the country was profitable for decades, until now, allowing Greece to exist unsustainably without improving its competitive position or productivity relative to other countries in the global marketplace. In other words, Greece lacked the structure and resources to support its artificially high standard of living.
So, what’s next? In the neighboring Balkan countries, the post-communist experience has generally resulted in a painful, decades-long transition to effective market economies. Those countries still have fundamental problems, including structural weaknesses in political systems, inadequate resources for running effective social security systems, low wages and high unemployment, and demographic pressures that are among the worst in the world. It is likely that another generation will need to pass before there is any measurable light in the tunnel.
For Greece, the prospect is the same. The country’s de facto sovereignty is compromised, as its public and private finances will be on systems support via the EU and the International Monetary Fund through the periodic billion-euro-bailout tranches. Reducing the over-bloated public sector and moving to a more sustainable economic model requires a mindset shift, which is only possible through a change in leadership. Greece’s neighbors are more or less underway to developing better socio-economic policies, but Athens is just about to embark on that painful journey. So, the carrot of incentive is gone — it is time to build the foundations for 30 years.
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