The Greek Way of Sorrow

How a charismatic politician with the slogan “Change” launched Greece on the path to ruin

Napoleon Linardatos
Tuesday, June 28, 2011

Thirty years ago this fall, on October 18, 1981, a charismatic academic with rather limited government experience and with a one-word slogan, “Change,” was elected prime minister of Greece. His name was Andreas Papandreou. Greeks may now wish that 30 years ago they had had a Tea Party movement. Things could have turned out differently.

Thirty years ago, Greece was in an enviable position on the matter of national debt, with its debt just 28.6 percent of GDP. Few advanced countries can manage that kind of debt-to-GDP ratio. By the end of Papandreou’s first term in office, that ratio had nearly doubled, with debt at 54.7 percent of GDP. By the end of his second term, the figure was in the mid 80s.

The 1980s in Greece were a time of dramatic expansion of government. Papandreou and his Socialist party created a new government-run health-care system, dramatically expanded employment in the public sector, nationalized failing companies, and increased government handouts of every shape and form.

It was a government expansion so large and many-sided that in the end it generated a revolution of expectations and attitudes about the role of government in society. No government since then has been able to reverse that revolution, no matter how willing it was or how pressing the circumstances.

It is in this detrimental position that the current prime minister, George Papandreou, son of Andreas, finds himself. A sorry state of affairs created by one generation to be dealt with by another, the sins of the father to be paid for by the son — this is the material that Greek tragedies are made of.

The statism of the Eighties got another boost when subsidies from the European Union started to pour in, and yet another boost in 2001 when Greece adopted the euro and discovered that she could borrow at very cheap rates. The euro and the subsidies played the same role in Greece that oil has played in the Middle East: the lifeline of an unsustainable economic system, the enabler of a demagogic political class.

Now the Greek government finds itself with a debt-to-GDP ratio somewhere north of 140 percent and quickly rising. Since May of 2010, that problem has also become the European Union’s problem. Because Greece is a member of the EU and the eurozone, it is feared that her instability will lead to the destabilization of other weak members of the EU. Greece cannot go out to the markets to service her debt and finance her new deficits; that has become the care now of other nations’ taxpayers across the continent.

The agreement between the EU and Greece stipulated that Greece would drastically reduce her deficits in return for European aid. That was to be achieved by budget cuts and tax increases. The Greek government since then has mostly intended budget cuts and vigorously pursued tax increases.

Such an approach is not surprising considering the political clout that government employees enjoy in Greece. One of every four working adults is a government employee. The government at the beginning made some across-the-board cuts in salaries and pensions, but since then it has basically tried to address the issue of public finance with tax increases.

The absolutely dismal results of those tax increases have not persuaded the younger Papandreou and his colleagues to reduce the size of government and its tax, regulatory, and corruption burden on the economy. The Greek government employs lots of people, even by European standards; the increase in unemployment since the crisis started has come exclusively from the private sector. Finland may have the best educational system in Europe, but its ratio of students to teachers is double that of Greece, which has one of the worst educational systems. In area after area of governmental activity, Greece has the most people employed per population but also the worst results: a way-above-average number of tax collectors but very poor tax collection; an above-average number of policemen but dismal public order; a record number of local courts but perhaps the slowest justice system on the continent; a record number of hospitals but one of the worst systems of health care.

There are hundreds of governmental organizations that employ thousands of people and no one knows what they do, how they do it, or indeed if they do anything at all. Recently it was found that there was a government agency for the preservation of a lake that was drained decades ago.

Then there are the companies owned or controlled by the government. One of them is the Railroad Organization, which has annual revenues of €100 million, pays annual salaries of €400 million, and each year has a loss of about €1 billion. Now the government pretends that it is cleaning up the Railroad Organization’s finances by transferring the employees from the company to the central bureaucracy of the government. That kind of cleaning up would embarrass even an Enron executive.

On the other hand, the Greek government has no problem increasing taxes. Taxes on income and property, on sodas and swimming pools, on cars and natural gas, on corporate profits of years past, on everyone’s electricity bill. The Valued Added Tax (VAT) for many goods is now at 23 percent.

The Greek government finds itself in a very difficult place. It cannot continue to squeeze the private sector for more euros. The Greek private sector, which has become a kind of new serf class, is very weak and rapidly shrinking. On the other hand, the public sector — with salaries two and three times that of the private sector, plum benefits, egregious pensions, and early retirements — is just too politically powerful to be messed with. There is a solution to the Greek crisis; the only problem is that solutions in Greece tend not be to politically viable things.

Greeks like me cringe when we hear people like Paul Krugman lecturing Americans on how a government takeover in a certain sector of the economy will facilitate in the future reforms that are necessary now.

There stands Greece today, a year after it was bailed out by the taxpayers of other countries, facing the choice of reforming itself or going to utter ruin, and it cannot make up its mind.

The thirty years of hardcore statism have destroyed not only the economy of the nation, but also its ability to do politics, to articulate choices and ideas for the crisis at hand. Everything seems already decided, pre-determined, and set in stone, like the annual government budgets with their immovable expenditures tied to vote-rich constituencies.

Back in the mid-Eighties I was a primary-school student. I didn’t understand the politics, but I could feel the pathos of a country that had just “discovered” that there is a thing called a free lunch. Oftentimes, one is asked what one most missed having in one’s childhood. I couldn’t have told you at the time, but I can with certainty answer today: a Tea Party.

There are Americans who wonder what American exceptionalism is. I know.