A Short Story of a Greek Tragedy, a Euro Crisis and an Inevitable Collapse of The Monetary Union

Greece’s socialist background

The Greeks had two civil wars within the last century. The first one, burst out in 1916, where the supporters of participating in WW I violently imposed their view on the supporters of neutrality. But the worst civil war was the one that occurred in the years 1944-1949, just right after the end of the Nazi occupation. The communists, with unprecedented brutality created a division within the Greek society that still persists. The communists lost the war but their marginalization in the following years was taking advantage from the socialists. Since the latter took over Greece in the 80s, they dedicated themselves into hiring all kinds of leftists into government jobs, imposing their view of "social justice". Needless to say, that those people are avid supporters of statist and cannot conceive a free market environment.

After WW II the Greek state took a leading role in people’s lives with the excuse of "rebuilding" the country. Like in every socialist and communist state, people started having an almost religious faith in the government’s role in running every single industry. Most industries were taken over by the government and state-owned monopolies many oligopolies were created. Europeans and Greeks in particular could still not feel the competition from other countries in the world thanks to protectionism. In the case of Greece, the socialists took over for the first time in 1981. At that time, Greece s debt was barely 20% of its GDP. Nine years later, after the socialists took over almost every single industry through "nationalization", the national debt was already 80% of the GDP.

An army of civil servants was created and their loyalty to the socialists is still demonstrated in every election. At that time, Greece had its own currency, the drachma. It was the easiest way to continue borrowing in order to feed the civil servants. The socialists would just print more drachmas and pass the costs of big government to the rest of the populace. The 90s were no different but the government now had more obligations since the retirees started to be more numerous as compared to the active workforce. In 2002, Greece joined the euro currency, the European common monetary unit. That made it easier to borrow from abroad (by issuing bonds) and continue to have a huge public sector, protected from all kinds of competition. The Greek governments would "conceal" their debt by borrowing secretly money from Goldman Sachs. Since the international crisis took place, most of the weaknesses of the European economies were pretty obvious to the bond traders and thus a bond a sovereign bond crisis started.

The European economies are not competitive since the labor and production costs are too high (thanks to the labor unions) and they are not likely to generate the tax revenue necessary to pay off their bondholders. The problem with Greece is that it is being run by the socialists which are clueless of what to do. They were given a timeline to reduce their debt as a percentage or their GDP but the measures they take are not pro-growth. The current administration has cut down pensions but hasn’t done anything about privatizing many state-owned companies that are not profitable and are being subsidized by the taxpayers. They haven’t lifted many monopoly rules in sectors such as transportation, energy, and electricity, and increased taxation.

This won’t bring foreign investors to Greece and subsequently unemployment will go further up Greece will not be able to increase the tax revenue necessary to get out of the recession. They only positive step they took so far was to make more flexible the labor market but the labor unions are trying to overturn that by saying it s "unconstitutional".

Local bureaucracy and licensing increase the costs to start up a business. Another problem is the "closed" professions, which raise the side costs. For example, in order to own a truck to transport goods, one needs to pay around 45,000 Euros to the government for a license. The result is that very few people own trucks and they can raise artificially the prices, without fearing any competition. It s more expensive to transport goods from Athens to Thessaloniki than to transport goods from Boston to NY.

(Read more at: Budget cuts in Greece will be hard to implement- The roots of socialism in Greece)

Young Greek are fleeing

Younger Greeks are very frustrated and as a lot of them move out of the country. Many of them study in England since they are not required a visa, thanks to the European Union rules, and they stay there for work. There are also a lot of Greeks in China, Singapore and many more are flowing to the US. It is usually the older Greeks that are employed by the government and enjoy lavish benefits, burdening the country s budget and stifling the job creation since higher taxes are necessary to sustain those benefits. Foreign investors are turned away, so younger Greeks suffer unemployment at the rate of 30% (the official numbers are around 15% but they don’t include people who work part time and don’t collect unemployment benefits). Over 100,000 Greeks study abroad and a large portion of them don’t come back.

The socialist tradition has created a political backlash

The Greek communist party is currently protesting foreign investment flowing into the country and go as far as to block ports, highways and airports in order to stop any productive activity and turn away foreign investors.

A new pension bill is being met with increased political backlash. Members of the Coalition of the Radical Left (SYRIZA) hang a banner off the side of Lycabettus Hill protesting a pension reform bill due to be voted on in Parliament today. The banner reads ‘It will not pass’ in Greek and Spanish.

Kathimerini, a major Greek news source reports:

Tensions mounted within the ranks of PASOK last night as a high-ranking cadre became the first among the ruling Socialists to publicly state outright that he would oppose certain provisions of a controversial pension reform bill due to be voted on in Parliament today.

The statement by Apostolos Kaklamanis, a former parliamentary speaker, came ahead of a vote, due late last night, on the pension and labor reform bill in its entirety. The bill is to be voted on article by article this afternoon.

Kaklamanis said that he was particularly opposed to one article regarding arbitration disputes between employers and staff. The objections of the high-profile PASOK cadre, who also opposes plans to scrap two additional holiday payouts to pensioners, prompted the mediation of Prime Minister George Papandreou himself, Skai Television reported.

Meanwhile speculation peaked about at least another six PASOK deputies who, it is feared, will also vote against provisions of the draft bill today, a development that may put the government’s unity and its rescue package from international creditors in jeopardy.

In a bid to appease concerns among ruling party deputies, Labor Minister Andreas Loverdos introduced a second raft of last-minute changes to the text of the draft bill yesterday. According to sources, these changes include financial incentives for workers from certain social groups, such as single mothers, to opt for early retirement. Loverdos also added a provision offering early retirement for civil servants insured with their pension fund between 1983 and 1992. These concessions came on top of commitments written into the text of the draft bill on Tuesday guaranteeing “decent pensions” to citizens and the protection of auxiliary pension funds.

Opposition parties yesterday fiercely criticized the controversial cutbacks which the debt-ridden government has pledged to push through, along with other austerity measures, in exchange for 110 billion Euros in loans from the International Monetary Fund and European Union member states. The leader of the main opposition New Democracy, Antonis Samaras, insisted that “there is another way” and that the government’s measures are harsher than necessary.

To read more about the Greek union problem go to The Euro Crisis and the Greek bailout- all you wanted to know about the Greek public sector and unions.