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By Peter Atwater
It is time to stop focusing on Greece’s bailout negotiations and pay attention to the socio-political revolution that is about to be triggered by mounting hopelessness.
As if there was any lingering doubt, Greek confidence has officially collapsed. This week, Markit Economics reported that the country’s Purchasing Managers’ Index , an indicator of the economic health of the manufacturing sector, fell to a record low 30.2 from 46.9 in June.
A reading below 50 indicates contraction, but Greece’s latest figure of 30.2 reflects hopelessness.
At the same time, the country’s stock market fell by more than 20 percent on Monday after it reopened following a five-week closure. From its peak in November 2007, the ASE, Greece’s benchmark stock index, has fallen by almost 90 percent - matching the Great Depression decline in the Dow Jones Industrial Average from its 1929 peak. Takis Zamanis, chief trader at Beta Securities in Athens was quoted in USA Today warning that “there is a great deal of tension, and it seems like the worst is still yet to come.”
History shows that it is in moments like this that major political and social change is unfurled. As a species, we don’t handle extreme uncertainty and hopelessness well. When we can’t take the stress anymore, we act impulsively to somehow change the future. We revolt. We act out against those we believe are causing or contributing to our extreme anxiety. It is in these moments that citizens overthrow governments, nations go to war, and terrorists undertake major attacks.
While Greeks have been portrayed in the media and by policymakers as resigned to their plight, that characterization is about to come to an abrupt end as deteriorating social conditions and widespread hopelessness lead to a spontaneous new social movement.
I don’t pretend to know the specific spark that will set off the explosion or the target of the crowd’s anger, but the social mood conditions in Greece today are very similar to Tunisia in December 2010, when Mohammed Bouazizi's self-immolation triggered the Arab Spring.
One of the reasons that I believe that we are so close to this moment is the possible charge of treason to be brought against former Greek Finance Minister Yanis Varoufakis, following revelations of his secret plan to establish an alternative currency in the event of the country leaving the eurozone. When confidence falls, punishments become more extreme. As such, charges of treason only happen around extreme lows in social mood.
Recently, using the New York Times’s Chronicle database, I looked at how often the word “treason” has been used in the paper’s articles. As you can see from the chart below, high usage ties to periods of extreme low social mood — the early 1860’s, around the time of the American Civil War, and 1915-1918 the era of World War I.
Treason and the exceptionally low confidence that fuels civil war go hand in hand. In the 1970s, weak social mood – no different from what we are witnessing today - led to a Greek civil war. That could happen again, with the far-right Golden Dawn Party mobilizing against the far-left. Another equally likely alternative would be a government takeover by the Greek military. If social unrest and violence rise, the military may be seen as viable alternative to a collapsing elected government.
While the specific form of uprising is unclear, what is not is how fertile current social mood conditions are for a Greek revolution.
Rather than fixating on the financial elements of Greece’s crisis, policymakers must quickly turn their attention to the country’s social crisis. As European leaders evaluate options, they must consider the implications to Greek confidence. Actions that reduce voter confidence must be reconsidered. At the same time, jobs programs and investment initiatives must be launched. Chronic unemployment, especially youth unemployment, undermines social mood. Given Greece’s current depressed state, now is not a time to impose further austerity measures which enrage voters.
The more European leaders overlook the true cause of the country’s challenges – a devastating collapse in confidence – and focus only on the symptoms, the worse things will get. While I don’t wish for it, unless confidence rises sharply, Greece will soon revolt.
Peter Atwater is the President of Financial Insyghts, a research firm focused on the role of confidence in economic, financial, political, and social decision making.