Paul Buchanan: Explaining the Greek Crisis

Much has been written about the Greek financial crisis and its potential consequences. By and large most coverage is condemnatory of the Greeks for getting into a position that requires a 149 billion dollar rescue package. But much of the analysis has been superficial or short term at best, and avoids the internal response to the event as it unfolds when in fact there is a political rhythm to that response.

Greeks and visitors alike are presently dodging a wave of daily strikes–last Tuesday the transport workers walked out for six hours, Wednesday the wharfies struck all day (which left hundreds of cruise ship passengers stranded in Athens), and Saturday saw the May Day demonstrations (Sunday was a rest day). This week, Monday and Tuesday saw a variety of groups take to the streets, paralysing traffic in downtown Athens, and included a particularly memorable demonstration the Acropolis by Marxist unionists (presumably they did not pay the standard admission price). A general strike in being held on Wednesday, and there are more work stoppages and demonstrations scheduled for the weeks to come. It promises to be a hot Hellenic summer long before the July heat waves arrive.

The foreign press has focused on the violence associated with some of strikes and demonstrations, but the reality is that it is only small groups of anarchists who are clashing with the police, and most of them are teenage students. The unions and other civil associations are led by grey haired folk who may have been prone to street action two or three decades ago, but who now are just trying to protect their collective livelihoods (although two banks were attacked by petrol bombs on Sunday night, followed by similar attacks on retail outlets on Tuesday, the usual anarchist and radical Marxist-Leninist suspects are being blamed and the police do not see the use of political violence spreading beyond them). The issue is that while demonstrations and strikes are wide-spread, there is a sense of ritualistic order to them.

What is also interesting about the Greek economic crisis is how ignorant many foreign observers are about its root causes. This includes members of the supposedly informed press. Most analysis focuses on the inefficiency and waste in the Greek public sector and the supposedly indolent Greek way of life, which even if it were universally true has its causes in something other than the Greek psyche (as some allege). Much of the foreign coverage of the crisis accepts at face value banker’s logics and orthodox economic assessments. Let me offer here a corrective to them.

In the 1950s a strain of developmentalist thought emerged called modernisation theory that claimed that the problem of Latin America and the Mediterranean Rim was a lack of Anglo-Saxon Protestant values resultant from the mix of rigidly hierarchical religious cultures (Catholic, Muslim or Orthodox) and warm climates.

The general drift of this “theory” was encapsulated in the so-called Iberian or Mediterranean Ethos (now renamed the “Mediterranean Attitude”): a culture of indulgence, indolence, patronage, clientalism and fatalism structurally rooted in a benign climate that allowed for easy shelter and food production. If only the Greeks, Italians, Spaniards and Portuguese (which actually is not on the Med) had to live in cold climates where survival depended on industry and resourcefulness–then they would have developed the “proper” entrepreneurial values that would have allowed them to develop along the “proper” lines of the Anglo-Saxon world. In other words, backwardness is a function of culture and climate. For the original modernisation theorists, it was the absence of proper values rooted in life in benign climates that hindered development in the Mediterranean and Latin America.

Leaving aside the fact that there are plenty of temperate climate locations where entrepreneurial spirits have flourished, and plenty of cold climates where it has not, or the fact that lumping together whole regions in a culturalist explanation is ignorant at best and racist at worst, or that the notion of one universally ‘proper” form of development is both, this discredited canard ignored the structures of economic and political power (many overtly shaped by foreign intervention) that emerged in these regions and which were not reducible to either climate, religion, or civic culture.

By the 1970s modernisation theory was shown to be profoundly flawed. On a scale of over-determinism (when not cultural supremacism), it is up there along with the “warm water port” theory of imperialism (whereby cold water nations supposedly engaged in imperialist adventures in order to control warm water ports that allowed for year-round naval operations conducive to securing global sea lines of communication). Yet, in recent years, and specifically with relation to the Greek crisis, modernisation theory has been resurrected in revamped fashion as an explanation for developmental failure. Inspired by neo-liberal thought, the neo-modernisation thesis is that countries with “too much” state involvement in the economy are prone to political nepotism, rent-seeking, corruption and inefficiency.

That makes for a lazy, supplicant, and over-indulgent civil society. In this view structural deficiencies in the form of an overly large public sector hindered the development of entrepreneurial values in civil society, thereby contributing to social stagnation. The key to development thus lies in reducing the role of the public sector so that private enterprise can flourish. The private sector is seen as THE panacea for developmental retardation, and elites in places like Germany believe that the Greeks need to accept this.

While there may be truth to the need for private sector leadership in capitalist economies,  the root causes of the current Greek crisis are, again, not as simple as the overbearing role of the state, nor is the solution simply a matter of reducing it. The true causes lie in the state-capital nexus and the elites that manage it.

Greece has an underdeveloped private sector. Other than shipping and small-scale value added and niche agricultural production, it has few internationally competitive private industries. But the weakness of the Greek private sector preceded rather than followed the advent of the modern Greek state, and the private sector has never attempted to become the motor force for the entire society. To the contrary, it has often acted in a very egotistic fashion. If one considers the nature of internecine conflict in Greece dating back two  millennia (for the historically disinclined, please think about Athens and Sparta, or better yet, the Peloponnesian Wars, as well as the 1948 civil war and 1967 colonel’s coup), one realises how parochial local, sectarian and island interests can be.  That worldview continues today. Greek private industry, such as it is, has little concern about contributing to the public good. 

In light of Greek capitalist myopia and parochialism, the recipe for social peace has rested on the public sector being used as a means of absorbing excess labour (along with emigration). That means the Greek state’s primary role is as an employer because, to put it bluntly, the private sector is not up to the task of ongoing job creation. At present, one in three Greeks is employed in the public sector. Moreover, the labour market and welfare systems are two-tiered: there are few protections for workers in the private sector outside of employer generosity or union strength, while the public sector adheres to ILO standards. In effect, the public sector has traditionally provided long-term employment stability and the welfare nets common to European countries, but in an increased fashion owing to the historical lack of private sector initiative. Now that must change.

To this dilemma can be added the problem of meagre internal revenue generation.

Tax-evasion is a national sport. The problem is not as much with individuals as it is with politically-connected corporations and agricultural interests as well as religious organisations who do not pay anywhere close to their due share of the tax burden but who do put serious money into the main political parties and individual politicians so as to protect their (often monopoly) profits (since the money spent on politics is infinitesimal when compared to the valuated tax assessment of their worth). In order to conceal the results of this long-standing practice, successive governments, be they centre-right or centre-left, cooked the Treasury books and left it for their successors to sort out, in what has become an elaborate wink and nod shell game played between themselves and their foreign creditors.

Greeks are by and large a nation of small property owners. Owning a home is, like in NZ, their core objective. The private sector is dominated by small and micro-enterprises run by owner-operators (often familial in nature) who eak out small margins catering to immediate needs (think dairies, dry cleaners. locksmiths and the like). The state does not direct investment capital towards these people, not does it focus on developing a comprehensive industrial development strategy. What large-scale investment exists comes from foreign-connected sectors such as shipping, and much of the profit generated by the handful of such firms goes off-shore. As for public investment, most of that goes towards transportation and infrastructure upkeep and not towards research and innovation.

To this can be added a large black market fuelled by unchecked migration across Greece’s incredibly porous borders. One in ten inhabitants in Greece is foreign born and the majority are undocumented.  This unregulated cash and barter economy circulates outside the confines of the state, yet is vital to filling the demand for basic necessities as well as for labour in the agricultural and service (including tourism) industries. Relatively little of the economic activity generated by undocumented non-citizens provides revenue for the state, and with little immigration enforcement available (and largely impossible to regularise in the near term), that situation will only get worse as the official economy shrinks under the austerity regime now being imposed.

Thus the historical source of income stability is public service jobs. But without an efficient tax system owing to the political cronyism of the major economic players, public budgets require external financing, which has led to more than two decades of deficit spending happily financed by foreign financial speculators trading in risk derivatives. Greek public borrowing is to international finance what consumer credit card debt is to private lending in the US: with easy terms of credit readily available the attitude was to spend sooner rather than later, pay interest and borrow more once payments ballooned. From the standpoint of the lenders as well as the Greek government the rationale behind this play is that while firms may go bankrupt nations do not. Compounded interest ensures the investor’s profitability even if the principle is lost in a default (as Argentina showed in 2000). Hence the bottom line is that the system now under siege worked for everyone–the Greek elite enjoyed its privileges, the Greek population remained relatively content and peaceful even if economically underdeveloped by modernisation theory standards, and foreign financiers made money off Greek debt. That is, until 2008 when the house of cards known as derivative speculation collapsed.

The trouble for the Greek government is that with the creation of the Eurozone currency system controlled by one central bank, countries such as Greece were placed in a financial straitjacket that eliminated the autonomy and cushion provided by independent national currencies.  It cannot devalue or overvalue its currency based on market conditions (as for example, Singapore does regularly), and thus is locked into a monetary (supply and demand) framework over which it has not control. However, its deficit spending over time has created a context of public entitlements that does not accord with Greek productive reality, which now has to be confronted at a very painful social cost. Even then, the terms of the recently announced IMF/European Central Bank bailout may not suffice to stave off a Greek credit default. In fact, given the precedent of previous defaulting countries resurfacing relatively unscathed and the prospect of major social unrest, the default option not only is possible—it becomes perversely attractive to policy-makers. They can go through the motions of imposing an austerity regime, witness the public backlash, point that out to creditors, and then default rather than risk the collapse of law and order.

In the event that Greece defaults on its debt to its European backers, one option would be to defect from the Eurozone and re-establish its national currency. There will be pain involved but it would allow Greece to reorganise its finances in more independent, if austere terms. It has enough investment to ensure that even with defection it will not sink (consider that tourism constitutes 20 percent of the Greek economy and its limited niche export markets could actually be favoured by such a move). That in turn might encourage others, particularly the other members of the so-called “Club Med,” to follow suit, which could well spell the end of the Eurozone (especially when considering that a Tory victory in the UK will mean an end to talk of its joining and that Turkish incorporation into the EU could set the stage for an even bigger Greek-type scenario). Thus the Greek bail-out is not so much about Greece as it is about protecting the Eurozone as a currency market.

That means that the current wave of strikes is going to continue, at an increased pace and on a potentially broader scale. In the face of elite indifference to their plight, it is the only means of defense for most Greeks. Given that it might force the government to pursue the default option, a strategy of uninstitutionalised mass collective action it is a rational strategy to pursue. Consider the situation. Greeks have just been told that the public sector will take a 25 percent wage cut on top of a ten percent cut six months ago, then have wages frozen for three years. The retirement age will rise by almost a decade while pension benefits will be cut. Although most people appear to accept the former, the latter is a major source of aggravation because as mentioned before, there is little to no private sector pension plans. Prices of public utilities are set to rise and there is talk of privatising the bulk of the health system (which already is a two-tier system in which private health providers are used by the wealthy). All of which is to say that the burden of sacrifice will be shouldered by those who had nothing to do with creating the crisis in the first place. In fact, although improvements in tax enforcement are mentioned, that remains to be seen, and nowhere has it been mentioned that politicians will take more than token wage cuts or corporations will be required to offer non-wage employment benefits in order to off-set cutbacks in public benefit programs while encouraging labour migration to the private sector. 

Hence the rising tide of popular resentment in Greece to the terms of the bailout. Nor is this a particularly Greek response. Imagine if type of austerity regime was imposed in Australia, France, Sweden, Canada or New Zealand? One might make the argument that citizens in those “developed” countries also might rebel even though they are not imbued with the “Mediterranean attitude.”

What all of this means is that Greece could be heading to what Gramscians call an “organic crisis of the state.” This is a situation where the mass public abandon their traditional vehicles of representation and redress and organise new ones unbeholden to the status quo. That in turn can set the stage for major confrontations between dominant and subordinate groups, particularly in a country such as Greece where family dynasties control both major parties and have traditionally acted in concert with a narrow array of special interest groups while buying off public approval via the ill-fated public spending schemes. That, in turn, suggests that the Greek military might be pulled back into an internal security role after three decades of pursuing an external-oriented professional agenda. Should the latter happen, then the moment of truth for modern Greek democracy will have arrived.

Paul G. Buchanan writes about comparative and international politics. Founder of the Foreign Risk Assessment Group, he is temporarily residing in Greece. An earlier version of this essay was published on Kiwipolitico on May 3, 2010.

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