A Greek tragedy: Austerity, the Euro, and debt peonage

Last week ago a massive 24 hour strike was launched in Greece, halting ports, trains, flights and  schools. Several hospitals operated with minimal staff, lawyers cancelled trials and even journalists joined in, stopping on air news, websites and newspapers. [1][2] This is the second 24 hour strike Greece has had in under a month, both seeing tens of thousands taking to protest, some of them turning violent.

What’s going on?

The strikes and protests have been over the austerity measures the Greek government accepted earlier this year. This isn’t new, there have been strikes and protests happening in Greece for years now, all over the same issue. This has caused quite a backlash against the people of Greece. For years we’ve been hearing about how “They want the bailouts, but not the responsibility” how they are lazy, spoiled, and need work hard like the rest of Europe. During the last bailout/austerity discussion I saw comments about how Greece was trying to hold Europe hostage: threatening to leave the Euro, causing trouble for all, so they don’t have to pay what they owe.

These were not just internet comments, major news sources discussed how Greece was a “party” and analysis from mainstream media and academia was not much less harsh than what I said above. Greece was after all labeled one of the “PIGS” whose irresponsible behavior created all this mess, (along with Portugal, Italy (or Ireland) and Spain), and was the worst of them. The attitude towards Greece, from regular people to leaders at the top, could be summed up by this cartoon I once saw portraying the situation:

greece meme

While Greece is far from clean in this whole situation, I want to shed some light on the whole picture.With all the talk about Greece’s high public debt, and all the debt they owe to the Troika, (the European Commission, European Central Bank and IMF) I’d like to start with some other numbers.

Since 2008 Greece has seen: 63 consecutive months of economic contraction, GDP shrink by 33%, unemployment peaked at 28%, youth unemployment at over 60%, as of the third quarter 2014 25% of the unemployed have been so for at least four years, those who are working face lower wages, social security and pensions have been cut, and in 2013 44% of Greeks had an income below the poverty line. [3][4][5]

Many have simply left the country. Estimates say that since the great recession 160,000 – 200,000 college graduates have left Greece since the crisis hit. [6]

In my book this constitutes an economic and social tragedy. There is a bigger tragedy to all this however. It was forced upon Greece. This has not been simply an economic cycle. It has been the result of austerity. Austerity which was forced upon Greece in exchange for the bailout packages.

On the surface, this sounds OK. If someone is to be bailed out, it’s only right it comes with strings attached. Since the Euro is a community, Greece’s instability threatens all the others. Indeed, the whole basis for these bailouts have been for the stability of the Euro currency. So it’s only fair Greece has to accept some measures, since their poor behavior has forced the rest to bail out their mess. There are some issues with this however.

Austerity harms the economy, (more on this in another post). This makes it harder to pay the debts owed. One can see how can this can become a catch 22, and that’s precisely what happened. In 2010 there was intense discussion about the damage to the Euro if Greece was to default or even be forced to leave. This prompted the first bailout. In 2015 there was intense discussion about how Greece could not pay its debts, and what would happen if they were forced to leave the Euro. 5 years later, back in the exact same spot, and the result? Another, (the third now) bailout for Greece. The country now owes $352.7 billion to its creditors, 175% of its GDP. [7] I can’t imagine how this would be paid off, especially with austerity which will continue to weaken the Greek economy.

Could the debt ever be forgiven? Its creditors, spearheaded by Germany, have been vehemently opposed to even restructuring its debt obligation. As Nobel Prize winning economist Joe Stiglitz said, “Perhaps a depleted country – one that has sold off all of its assets, and whose bright young people have emigrated – might finally get debt forgiveness; perhaps, having shriveled into a middle-income economy, Greece might finally be able to get assistance from the World Bank. All of this might happen in the next decade, or perhaps in the decade after that.”[8] A grim picture.

Cruel irony is Germany, which has consistently refused to back down and insists on austerity and repayment, (even as other countries and the IMF started to back down a bit)  should understand better than any the folly of imposing high debts on a country in depression….

In fact Germany had half of its debt forgiven, with the rest to be paid over 30 years, after WWII. This “clean slate” was the major force behind Germany’s post war economic miracle. [9] It was shocking to find this out, given Germany’s behavior today. Is it a failure to remember history, or just hypocrisy? Neither would surprise me.

Hypocrisy has abounded in this crisis. Before the recession Germany didn’t always meet the gov deficit/debt criteria of the Maastricht Treaty, while Spain, (one of the PIGS) did consistently. The “lazy Greeks” actually work the most hours in Europe.[10]

greece hours1

In fact, checking the OECD data revealed that Greece has consistently  worked the 3rd or 4th most hours of all developed countries![11] Germany, as well as the Netherlands, has pursued a policy of working less hours to spread work around, while chastising the lazy Greeks who work far more hours. Yes, Germany is greatly more productive than Greece, they do more with fewer hours, and I’ve seen comments along the lines of “It’s about working better not harder”. However, productivity is not really an individual effort but a national resource/efficiency issue. It’s best explained with, “Germans — armed with large and scaled-up firms, low corruption, state-of-the-art technologies, financing opportunities, and smart global supply chain management — get a lot more product out of each hour worked.”[12] Basically, due to overall nature of their states/economies, Greeks work a lot for less pay, while Germans can work less for more pay and thus are afforded leisure time, like vacationing on Greek beaches.

In the last round of bailout/austerity discussions Greece, especially finance minister Yanis Varoufakis, was aggressively called unrealistic, uncompromising and uncooperative, again by many but led by Germany. Greece, while unhappy, has adopted the harsh austerity measures, has been paying its debts. Yanis said he would pay as much of the debt as possible, but it’s simply too much to be all paid and thus can’t be. He spoke about continuing privatization, market reforms, said that austerity “is self defeating because debt rises as a result of a collapse of GDP” but that he would strive to avoid government deficits.[15] Makes sense to me, but the German led Troika refused to budge, leading some to wonder who were actually the unrealistic, uncompromising ones.

The government debt issue can’t be put solely on Greece. In 2001 Goldman Sachs used some creative finance to fudge the numbers of how high Greece’s debt really was. Sound familiar? Anyway…yes, the country took the easy way out, paying Goldman $793 million[13] to mask the issue, instead of actually addressing said issues, but Goldman was not innocent in all this. They were also irresponsible in agreeing to, (maybe even offering) this. It should be noted two important Greek officials involved with this deal, Petros Christodoulou and Lucas Papademos, were both former Goldman Sachs employees.[14]  Note: In the late 90s JP Morgan did a similar thing with Italy helping to mask the true scope of its debt as well.[13]

In fact, despite all the comments about how Greece, (and the other PIIGS) maybe shouldn’t have been let into the Euro, and how Greece wanted to reap the benefits but without the responsibility…it’s never discussed in the media that German and French banks sure had no problem tapping into the new markets of Greece and the other “PIIGS” taking advantage of the new low interest rates these countries saw. Much like the US crisis, this flood of credit was pushed with little regard. While I knew this through general knowledge, this article I found while doing research for this post beautifully showcases the scale of it. German and French banks lent over $1.1 trillion to the “PIIGS” and notes that while the Greek government “borrowed money for unwise projects” the bankers “pushed them to take money that they would never have been able to approved under normal circumstances.”[17] Responsibility in the creditor-debtor situation is a two way street.

This brings us to the next point. These bailouts that have launched so much vitriol at Greece have actually been a bailout of the creditors, not Greece. Out of a $7.8 billion stop gap disbursement, only $10 million went to Greece. The rest went to the ECB and IMF.[7] It’s been estimated that about 11% of all the bailout money has actually gone to Greece[16] while the rest “has gone to pay out private-sector creditors – including German and French banks.” as said by Joe Stiglitz.[8] These creditor bailouts have basically been passed onto the people of Greece to pay for, in the form of austerity, despite currently experiencing a second great depression.

This is why so many Greeks are angry. To add insult to injury, after the people of Greece voted Syriza into power on an anti austerity platform, and after a decisive “NO” vote by the people on whether to accept more austerity, Syriza accepted the austerity package. I checked numerous sources to see if Greece was given any compromise in return for this capitulation, and it seems the answer is no. Seems there is potential for some small debt relief, but if it happens probably not much, and the austerity wasn’t any less harsh than before.

Greece has been weakened, made poorer, and ceded its economic policy, and even much of its political power, to international banks, organizatons and increasingly Germany, seemingly tethered to them by their debt obligations. While much of the bailout money has gone to Greece’s creditors, including European Banks, the people have been forced to accept harsh austerity, basically paying these bailouts.The way I see it, Greece has been turned into a debt colony.

Hopefully this has shed more light on the Greek debt situation, especially the hypocrisy involved, economic damage done, and the political nature of it all. This has been a long post  so I’ll end it here, but in my next I’ll address what actually led us to the crisis, why the Euro has made it worse, real issues Greece must deal with and what would need to happen to resolve the issue long term.





1: http://news.yahoo.com/greek-workers-walk-off-job-111705355.html

2: http://news.yahoo.com/greek-journalists-stage-walkout-ahead-121218040.html

3: http://www.tradingeconomics.com/greece/indicators

4: http://www.levyinstitute.org/pubs/rpr_may_15.pdf

5: http://www.bbc.com/news/world-europe-26917679

6: http://www.cnbc.com/2015/02/25/the-real-greek-tragedy-the-worlds-biggest-brain-drain.html

7: http://moneymorning.com/2015/03/25/how-much-does-greece-owe-4-charts-that-put-greek-debt-in-perspective/

8: http://www.theguardian.com/business/2015/jun/29/joseph-stiglitz-how-i-would-vote-in-the-greek-referendum

9: http://www.theguardian.com/commentisfree/2013/feb/27/greece-spain-helped-germany-recover

10: http://www.newstatesman.com/blogs/world-affairs/2012/05/exploding-myth-feckless-lazy-greeks

11: http://stats.oecd.org/Index.aspx?DataSetCode=ANHRS

12: http://www.theatlantic.com/business/archive/2012/05/why-does-the-laziest-country-in-europe-work-the-most/257792/

13: http://www.thenation.com/article/goldmans-greek-gambit/

14: http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html

15: http://www.reuters.com/article/us-eurozone-greece-finmin-idUSKBN0N01DB20150409#Smjxqqk1VhIbuOHy.97

16: http://www.macropolis.gr/?i=portal.en.the-agora.2080

17: http://www.commondreams.org/views/2015/06/30/eurozone-profiteers-how-german-and-french-banks-helped-bankrupt-greece



2 thoughts on “A Greek tragedy: Austerity, the Euro, and debt peonage”

  1. Hi, this is ‘rogerthat’. Nice blog. And as for the issue at hand, we have discussed it several times in that good old thread. Nothing much to add, the results of the imposed austerity are predictable. By forcing Tsipras to buckle down and accept tough measures, the IMF-ECB-Germany troika may just have killed the last strain of hope in Greece since Tsipras had come to power with a mandate for change and resistance against the troika. At roughly the same stage as in the last century, Europe is disintegrating and Turkey is playing dirty games which could land it in deep trouble. Why is all this familiar? Have we learnt our lessons from history or are world leaders, as before, simply hellbent on keeping their heads in the sand?


    1. Hey there old friend. Thanks for the comment, just throwing this stuff out there (and on FB) and seeing if anything catches on.
      Please check out my previous posts, there’s not many.

      Seems not my friend. History has been ignored/forgotten and sadly it seems to be repeating.
      I’m working on two posts, one about austerity and it’s impact, and another on what has happened to Europe and it’s eerie familiarity.


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