Correcting the myths about Greece


If you have been listening over the last year or so to the mainstream media discussing Greece, you would have got the impression that Greece is like a spoiled trust fund child used to living a carefree life at others’ expense and now throwing a major tantrum when the ‘adults’ (i.e., the IMF and the European Commission and Germany) say that they are cutting their allowance and can no longer expect the rest of Europe to subsidize their lazy, hedonistic lives.

Brett Arends caricatures this view (but not by much) in an article titled 10 things the media aren’t telling you about the Greece crisis.

The Greeks are in a crisis because they’re a bunch of lazy deadbeats, right?

After all, they work only 10 months of the year — and get paid for 14. They retire at 25 and lounge around in cafes drinking ouzo. They live on handouts from Germany and cheat on their taxes. The troika of the European Commission, the European Central Bank and the International Monetary Fund have tried and tried and tried to help them, but they just won’t listen. And now they’ve gone full moonbat and are refusing to pay back even a scrap of the money they’ve borrowed.

Right?

But Arends says that “Almost everything you’re being told about the Greek crisis is a load of complete nonsense”, promoted by ‘experts’ who care more about the health of the banks than of the many people who are unemployed and poor. As I read more about this, it turns out that there is plenty of blame to go around and that the so-called ‘adults’ share much of it.

Here’s the first of the 10 correctives to the myths that Arends gives.

The Greeks have already tightened their belts even more than they were asked to. Since the bailout agreement five years ago, the Greek government has slashed spending, raised taxes and turned a primary government deficit (before debt interest) of 24 billion euros into a surplus of 3 billion euros. It has actually cut its debts even more than the bailout demand. No wonder the IMF itself called the austerity measures “exceptional by any standard” and hailed their “important progress” on reforms.

What is happening with Greece seems to have a lot of parallels with what happened prior to the big financial crisis of 2008 when the bubble based on vast numbers of shaky mortgages collapsed. Lenders lent freely to unqualified borrowers without instituting the usual safeguards, and when people could not repay, governments stepped in to bail out the lenders (the banks) using public money, while doing precious little to help the borrowers (the homeowners). It is undoubtedly true that there was irresponsible borrowing. But the borrowers were urged to borrow by irresponsible lenders. The idea of ‘moral hazard’ seems to apply only to the borrowers (i.e., if they are helped they will continue to be irresponsible borrowers) while no moral hazards apply to the banks who were protected from their recklessness and did not suffer any consequences and in fact continue to go their breezy way, making big profits and paying big bonuses to people who should rightly be in jail.

It is good to see more people now trying to rectify this biased narrative. Economist Thomas Piketty, author of the bestselling book Capital in the 21st Century has blasted Germany for its hypocrisy in refusing to find ways to ease Greece’s debt burden when history shows that Germany was allowed to write of its own debts and would not be where it is now if not for that forgiveness.

Germany, Piketty continued, has “no standing” to lecture other nations about debt repayment, having never paid back its own debts after both World Wars.

“However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them,” Piketty said. “The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.”

Piketty criticized the “infantile” moral uprightness of Germany, whose economic success upon reunification has led it to rebuke nations like Greece for being in similarly weakened financial states as Germany itself was in decades ago.

Piketty argued that the same debt relief accorded to Germany after World War II should be granted to Greece today.

“After large crises that created huge debt loads, at some point people need to look toward the future. We cannot demand that new generations must pay for decades for the mistakes of their parents,” Piketty said. “The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s. We need to look ahead. Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance. We need to remember this.”

Economist Mark Blyth also lashes out at the so-called ‘adults’ for spreading myths about Greek profligacy when their woes are largely a consequence of the global recession. Like Arends, he too goes down the list of myths one by one. Here are a few.

Most of the countries in the Eurozone were actually decreasing their debt going into the crisis. And even the Greeks if you look at it over a five year period going at the financial crisis, it was flat. There was no orgy of spending – think just isn’t true. Let’s think about pensions. Why’d the Greeks spend 16% of the GDP on pensions? Because they’re the fifth oldest country in the world.

The Greeks have been given 249 billion Euros in loans, but 205 went straight back to the creditors, otherwise known as the banks. Hardly any of it stayed in Greece. The bit that was used to finance Greece’s government operations was a tiny percentage of the total. And yet all we hear is that the Greeks have got all this money and spent it again, it’s just rubbish. It’s just flatly wrong.

Look up international comparisons of labor hours worked. The Germans work about 1,350. The Greeks work over 2,000. They have an old, unproductive economy and they rely on tourism and everybody works two jobs for low pay, so they’re relatively unproductive. This is a structural fact of an old economy in the wrong place. Not because they’re lazy.

So it’s not a question of Greece as blameless: of course they’re blameful. But that doesn’t matter if people were giving them money. You can’t have over borrowing without over lending. Why is all the conversation about the terrible over borrowers rather than the reckless over lenders?

Germany and the IMF and the European Commission are acting like thugs, issuing one ultimatum after another to Greece, and in fact have their own ‘hit men’ who act as enforcers of their ultimatums. One of those former hit men explained what he did.

John Perkins is no stranger to making confessions. His well-known book, Confessions of an Economic Hit Man, revealed how international organizations such as the International Monetary Fund (IMF) and the World Bank, while publicly professing to “save” suffering countries and economies, instead pull a bait-and-switch on their governments: promising startling growth, gleaming new infrastructure projects and a future of economic prosperity – all of which would occur if those countries borrow huge loans from those organizations. Far from achieving runaway economic growth and success, however, these countries instead fall victim to a crippling and unsustainable debt burden.

That’s where the “economic hit men” come in: seemingly ordinary men, with ordinary backgrounds, who travel to these countries and impose the harsh austerity policies prescribed by the IMF and World Bank as “solutions” to the economic hardship they are now experiencing. Men like Perkins were trained to squeeze every last drop of wealth and resources from these sputtering economies, and continue to do so to this day.

What we are seeing on an international scale is the same thing we see within nations in the current world. The big banks rule. Under no circumstances must they suffer any consequences for their misdeeds. Instead, the squeeze must be put on the powerless, whether they be individuals or nations, and their pockets picked to make sure that the banks get their pound of flesh.

Why is this narrative of the troika being the adults issuing well-deserved ultimatums to the spoiled children so dominant? As Arends says, this is because the media are heavily tilted towards the financial sector (since their own wealth is tied up in stocks) as can be seen by their almost worshipful attitude towards the stock market. Anything that drives up the stock market is by definition good. They don’t give a damn for the lives of ordinary people who bear the brunt of suffering as long as financial investors are protected and prosper.

As Arends says:

The “experts” being quoted are all biased. Yes, there are lots of smart people on TV and the Internet are wagging their fingers at the Greeks right now. The problem? They pretty much all work in finance. So their focus is on things like stocks, bonds and other financial assets, not on bread-and-butter things like jobs and household incomes in places like Athens and Thessaloniki.

Austerity is only meant for the poor and powerless. The big banks must never face the consequences of their actions. Nations don’t matter. People don’t matter. Only international financial interests matter.

These are the rules of the new global economy.

It will just get worse unless the people force a change from below. This is why I support the Greek people and government in their current fight against the global financial oligarchs.

Comments

  1. Reginald Selkirk says

    Let’s think about pensions. Why’d the Greeks spend 16% of the GDP on pensions? Because they’re the fifth oldest country in the world.

    Not the whole story. The government of Greece subsidizes those pensions, whereas in other countries they would be required to be self-funding.

  2. Rob Grigjanis says

    Germany, Piketty continued, has “no standing” to lecture other nations about debt repayment, having never paid back its own debts after both World Wars.

    This, a thousand times.

  3. Donnie says

    Reginald Selkirk says

    July 8, 2015 at 10:09 am
    Let’s think about pensions. Why’d the Greeks spend 16% of the GDP on pensions? Because they’re the fifth oldest country in the world.

    Not the whole story. The government of Greece subsidizes those pensions, whereas in other countries they would be required to be self-funding.

    Would you consider U.S. social security a subsidized pension fund for lower earning Americans? Everyone in America (not knowing you citizenship) pays into social security based upon a percentage of their earnings with a company match (up to a max of $113k). Therefore, all american receives a pension from the U.S. government. However, those Americans working 2 to 3 part-time, minimum wage jobs – paralleled to the same subset of Greeks above – rely upon the U.S. government funding social security. While social security is no were near the insolvency clamoured by the american right and libertarians, social security is funded by the future earnings of future workers for paying out current retirees.

    Low wage earners require social security to live upon. For the other half of Americans with a 401k, investments, real estate, and other savings, social security is a little something extra. My point is that in the U.S., pensions are not self-funded. In fact, any private organization that has a fully funded pension would be raided via a hostile takeover, using the pension funds to fund the debt, and the remaining company sold for spare parts. Vulture capitalism at its finest.

    Are you saying that other European countries invest their pension funds (aka American social security) and keep them fully funded for retirees whereas Greece does not? Just trying to understand your objection / observation? Cheers!

  4. says

    As Arends says, this is because the media are heavily tilted towards the financial sector (since their own wealth is tied up in stocks) as can be seen bythe almost worshipful attitude towards the stock market. Anything that drives up the stock market is by definition good. They don’t give a damn for the lives of ordinary people who bear the brunt of suffering as long as financial investors are protected and prosper.

    When I first heard of profitable companies laying off workers to increase their profits, I started on the road to where I am today – having the belief that the stock market (as it currently exists) is just evil.

    If you look at all the stock market indicators, we’re doing better than ever. Well, except for the widening wealth gap and the dying middle class.

    Almost every time you hear about job growth, they don’t talk about what kind of jobs (often low paying and part time). They also don’t talk about what lead to declining jobs in the first place.

    Jobs going overseas? This can usually be traced back to one of two sources. Walmart is privately owned, but so big that they can force suppliers to have to cut back on their own expenses.

    “Economic growth” my ass. That economic growth only benefits a very small percentage of the population, and nothing is going to improve for the majority until more of us finally accept that the economy that surrounds most of us is shrinking in the name of growth.

  5. Pierce R. Butler says

    Piketty: Until 2009, the government in Athens forged its books.

    With, as almost every financial writer in the world tends to omit, abundant assistance from Goldman Sachs.

    The US could make a major positive contribution to sorting things by out subpoenaing and making public the relevant records from GS & other big money houses. But if anyone in the current administration even mentioned such a prospect, somebody might suggest we do the same regarding the financial industry’s involvement with domestic economic disasters, and that would simply never do.

  6. NL says

    This situation doesn’t sound much different from a good old fashioned mob shakedown. The Greeks should start calling their debt repayments “Vig”.

  7. Who Cares says

    There is thing that Mark Blyth misses about the Greek pensions and which has set the narrative.
    When the first bailout happened Greeks did indeed retire early (at an age of 57). but the retirement age has been raised in steps since 2009 and has now reached 67.
    Further the monthly pension at that time was about 80% of the wage earned (an average of €1,350).
    This has dropped significantly (€833 almost a 40% drop). Wages have dropped as well (by about 20%-25%) making pensions drop to about 65% of the salary.
    This is still above the 45% in Germany but that is because the Greece government provides the whole pension as opposed to the German/Dutch model of part paid by the government part paid by pension fund. If you add the government and private pensions in Germany together a pension there is 70% or more of the average wage.
    Thus at the moment Greeks have a less generous pension then the Germans.
      
    Mano wrote:

    Austerity is only meant for the poor and powerless. The big banks must never face the consequences of their actions. Nations don’t matter. People don’t matter. Only international financial interests matter.

    It is more then that. Europe and the IMF follow neo-liberal economic theory. Boils down to don’t over tax the job creators and the banks, doing the first will drop the number of jobs, etc, etc, etc., while taxing banks to much will cause a too big drop in liquidity.
    Tsipras and Varoufakis follow a classical/Keynesian economic model. In short don’t over tax the average wage earner since they spend most of that money, if you tax them to much you’ll crush the economy.
    This conflict could be seen when the Greeks came in with a proposal that was 90% taxation of the people who could afford it and 10% others, the Troika (at that point the IMF was still involved on the European side) grabbed a red pencil and handed back a proposal that almost reversed those numbers (20%, 80%).
    Normally is neither side completely correct but, as shown above, the average Greek has already lost 20%-25% of their income and quite a few of them have dropped below the poverty line. With that knowledge it’d makes sense to tax the people who can still afford it.
      
    The problem at this point however isn’t that this about being rational anymore. At the moment it is about crushing the uppity Greeks who dared to stand up against the benevolent technocrats that govern the EU.
      
    @augustpamplona(#7):
    Both WWs but that was because the US, France and Great Britain met in 1953 to grant debt relief of about 50% of the total debt of Germany, and a holiday on most of the remaining war debt until both West and East Germany were re-united (this reduced the effective debt of Germany to 20% GDP at that point) and due to inflation the remainder was easily paid in the 20 years following the start of repayment (1990). So yes you can say that Germany never paid back more then half of what it owed.

  8. mnb0 says

    Pretty good analysis – but points 6 and 7 are wrong.

    @6: exactly because last five years Greek economy has been ruined reintroducing the Drachme won’t work. Due to the high debts and dramatically decreased production no Greek will trust the Drachme; every Greek with Euro’s will export them. As a result Greece won’t have any capital for investments.

    @7: false comparison. Neither Poland nor Britain suffers from the problems Greece suffers from.

    “the IMF has actually admitted that Greece could have avoided such a depression if it still had the drachma and could simply devalue the currency.”
    That would have worked five years ago – preferably by introducing a two-currency system. The country where I live, Suriname, even has three currencies: the local SRD, the USD and the Euro. The global crisis of the last several years has passed Suriname.

    “The idea that Greece needs the euro is rubbish.”
    That’s correct, but that’s half the story. Greece needs a currency the Greeks can trust. That won’t be the Drachme.

    @8: According to this simple calculation (alas only in Dutch)

    https://apoftegma.wordpress.com/2015/07/07/timeo-danaos/

    only 25% of the Greek population can be held responsible for the economical misery the country suffers from.

    @9: Yeah, easy to say if you you’re a Greek and can’t get any cash anymore. That’s what’s happening this week.

    I already wrote that you still suffer from illusions, MS. So does this article. What’s happening is simply this: German and Dutch politicians (and not only Merkel, who is actually one of the more sensible ones), who are involved with dealing with the crisis, are heading for collective punishment the good old Old Testamentical / national socialist way. They do this because that’s the populist sentiment of the German and Dutch electorate. There is no politician in these two countries who displays any solidarity with the suffering Greeks.
    Do some googling to find out how bad this suffering is. What we have is a member of one of the wealthiest political units in the world where the people are worse off than in Third World Suriname, with politicians that are at least as incompetent as the Greek ones. The only remaining question is if those German and Dutch politicians (look up the name Jeroen Dijsselbloem, a social democrat like your favourite Bernie Sanders – he is strongly involved) are evil, incompetent or self delusional. Perhaps it’s some mix – but poisonous it is.

    The really, really stupid thing is that in the long run this disaster – whether Greece will leave the Euro zone or not – might very well cost both Germany and The Netherlands more than the actual Greek debts.

  9. John Morales says

    mnb0:

    What we have is a member of one of the wealthiest political units in the world where the people are worse off than in Third World Suriname, with politicians that are at least as incompetent as the Greek ones.

    Their respective HDIs don’t reflect your position.

    (And I note that “third world” now has vernacular connotations its original referent did not, and is not synonymous with “developing country”, so I consider that loaded language)

  10. doublereed says

    I think this is going to spiral and doom the euro unless they fundamentally change the way things work. The fact is that countries do go bankrupt every now and then, and there has to be a path of recourse without just making everything go to hell. They’ve been completely unreasonable.

    The moment Greece gets off the euro (and at this point I think they will), other countries will also consider it because of just how dangerous it is to give up fundamental aspects of your national sovereignty. What an incredible disaster, and what makes it even more incredible is how the creditors could have turned it around whenever they wanted.

  11. Who Cares says

    @mnb0(#12):

    The only remaining question is if those German and Dutch politicians (look up the name Jeroen Dijsselbloem, a social democrat like your favourite Bernie Sanders – he is strongly involved) are evil, incompetent or self delusional.

    You forgot two reasons. True believer, in this case in Project Europe. And personal.
    The true believers are convinced that the salvation of Europe from chaos (like WW1 & 2) is by integrating, integrating and some more integrating. And as true believers they can’t be wrong so the Greeks are not just wrong they are insane in rejecting the benevolent guidance they offer, this makes negotiations essentially useless as the Greeks have discovered when all they’ve gotten out of the Europeans were cosmetic changes to the demands. And as is usual the case when true believers are in places of power they self select so you can only get the top jobs by being one.
    Note that both Strauss-Kahn (Former head of the IMF) and Lagarde (current head of the IMF) are true believers in Project Europe.
    It is also personal at this point. Juncker for example said that the Greeks betrayed him and by extension Europe when they announced the referendum.
    As for Merkel. Lets say some of the Germans have already dismissed her as the person who will solve this.

  12. Reginald Selkirk says

    Donnie #3: Would you consider U.S. social security a subsidized pension fund for lower earning Americans?…

    No, for a couple of reasons.

    1) It is not strictly speaking a pension, but a safety net. I won’t go into the details because

    2) It is not subsidized. SS is paid for with a special dedicated tax, rather than from general tax revenues. SS is fully self-supporting and has even run surpluses. The problem to date has not been short-funding, but keeping politicians’ hands off that surplus.

    There are projections, based on demographics and with certain extremely conservative assumptions, that some day SS will not be able to support itself at current tax rates and payout rates. This is projected to occur in one Samuelson Unit. If/when that happens, we can simply change the tax formula or the payout formulae.

    The entire rest of your post is premised on the first sentence, so I am done here.

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