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Fixing Greece

By Samantha Chu

Today, an initially peaceful demonstration against a proposed austerity package turned violent, as protestors clashed with police at the edges of the main demonstrations. The violence came at the beginning of a two-day strike which has halted vital public services such as transportation, utilities, and hospitality.

The protests and the strike are a response to the government’s proposed austerity package, deeply unpopular in a country where employment has soared to over 16 percent. If the package is not passed, the EU and the IMF will not release the next installment of Greece’s $156 million bailout loan, and Greece will be at risk of defaulting next month – a devastating outcome that could adversely impact other European banks and countries.

Ioannis N. Grigoriadis, assistant professor of political science at Bilkent University, examines the early origins of Greece’s current predicament in the current issue of World Policy Journal. He traces them back to the era of Andreas Papandreou, who served as the prime minister in the late 1980s to the mid-1990s. (His son, George, is the current prime minister and a central figure in the current crisis.) The elder Papandreou, writes Grigoriadis, presided over an era characterized by “unprecedented levels of borrowing and spending.”

The new funds were spent to subsidize private consumption rather than promote development of infrastructure, which could have boosted growth. Salaries in the public sector kept rising, without generating any parallel growth in productivity. Economic assistance from the European Economic Community (EEC) increase the size of the pie without encouraging investment in long-term growth or fostering a culture of accountability. Under Papandreou, Greeks became accustomed to a perpetually improving standard of living. Yet it was financed not by genuine and sustainable growth, but by an ever-growing mountain of debt. Politicians who warned of the potentially disastrous consequences were repeatedly defeated in parliamentary elections and marginalized. At the same time, the state bureaucracy became infected by inefficiency, nepotism, and corruption.

The crisis has been compounded by years of government profligacy. Grigoriadis believes the required solutions will involve major shifts in cultural thinking.

What’s called for is a transformation of Greek society – a sharp reduction in the size of the state, as well as its role in the economy; an end to the corrupt links between the state and large swaths of the nation’s economic elite; reintroduction of an esprit de corps in a drastically reduced bureaucracy; a ruthless attack on an ever-growing shadow economy; and fostering a creative and entrepreneurial spirit among young people, through a reformed education system based on meritocracy. All of these steps will require courageous political leadership, able to withstand volatile popular reaction during the initial phases of the reform process. It’s fair to wonder whether a political elite that is largely a product of this dysfunctional system can be trusted to promote measures that would eventually lead to its demise.

For more about the history of Greece’s “tragedy,” and the possible steps the government can take to resolve it, read Grigoriadis’s full article.

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Samantha Chu is an editorial assistant at World Policy Journal.

[Photo courtesy of Flickr user Sotiris Farmakidis]

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