Causes of the financial crisis in Greece

In 2004, Greece was amongst the top 29 most developed countries of the world. Today, it has a debt of over 300 billion Euros. What has happened to the economy to cause such a catastrophic turnaround? This short article will attempt to outline the main factors that led to this financial meltdown.

The economic crisis that Greece is currently suffering began around two years ago but its roots go much further back than 2009. Many agree that it derives partly from the mismanagement of the economy from the two main political parties of Greece,( the conservative Neo Demokratia and the centre-left party, PASOK). These two parties have alternately governed the country since the collapse of the junta in 1974. But also from the fact that a huge amount of Greece’s debt arises from the expenses incurred by the 2004 Olympic Games where Greece spent billions in the development of infrastructure to meet the requirements of this event (including stadiums, bridges, highways, subways, airport etc). Entering the Euro zone was a further problem when suddenly goods that where costing lets say 100 drachmas went up to 1 euro (300 drachmas), while there wasn’t a corresponding increase in salaries.

The global economic crisis that spread around the western capitalist countries in 2007/08 arrived in Greece in 2009. However, Greece (unlike many other countries) had not made investments in the Icelandic banks nor in any of the so-called toxic investments of sub-prime loans, structured investment vehicles (SIVs) and collateralized debt obligations (CDOs). So how did it find itself becoming so much in debt that it is on the verge of bankruptcy and has to be bailed out by the European Union and the IMF?

One factor that began the downward slide was due to the introduction in 1981 (by the PASOK government of Andreas Papandreou) of a policy of massive recruitment into the public sector, thereby considerably reducing unemployment at a stroke. Whilst on the face of it this may have seemed a good thing it had devastating repercussions. Thousands of executive and non-executive Party members, as well as other organizations without any obvious political connections began to recruit all the public services of the State. This policy was repeated by the incoming conservative Nea Demokratia Party when they won the elections some years later.. Today the public sector of Greece employs almost 10 % of the working population of the country, this number has to drastically be reduced in accordance with European directives.

Since the inception of the Greek state there has existed something called ” rousfeti” which, roughly translated means “spoils”. Basically, “rousfeti” is a form of firmly entrenched and accepted nepotism and corruption, whereby the relatives, friends, Party supporters, and so on, are appointed to positions in the public services. This can occur as a permanent or temporary position in any of the public services without any mediation from a higher government official or a lower party member. This has been the case throughout most of the history of Greece and is still very much alive in today’s modern Greece.
A second factor was the further political corruption and opaqueness of transactions. These transactions occur when large economic projects between business, governmental organizations and various individuals are given the green light by an official government mediator who is then rewarded with large sums of money “under the table” This feature is not unique to Greece but occurs in many countries.

Political corruption scandals in Greece have been in the headlines for at least the last three decades and have led sometimes to ministers being dismissed. In more recent years several corruption scandals have come to light. For example, in May 2008 there were allegations of bribery against the German company, Siemens, who had paid large sums of money to government officials and other companies to win contracts. These contracts included the security for 2004 Athens Olympics and the new Athens subway. It was alleged that almost 100 million euro of money was exchanged as bribes to win the contract. The money was paid into a foreign bank account so it could be used for PASOK’s election campaign. A few months later, in September 2008, another corruption story broke. This involved a Minister and deputy ministers who were accused of land swap deals which involved the fabulously wealthy Vatopedi monastery (read article in BBC). It was alleged that more than 100 million euro of taxpayers money was used to finance these land deals. Further investigations uncovered a land swap between a Minister and the Vatopedi monastery with the minister’s wife acting as an agent in the transaction. A final example to illustrate the extent of political corruption can be drawn from the controversy surrounding the ferry contracts in April 2009. The Party Deputy’s name was involved in a scandal involving bribes from a private ship owning company to grant them ferry routes around the Aegean islands. Another former minister of Pasok was involved in financial scandals regarding the brand new German submarines that Greece bought from the German company HDW (read the German article in Spiegel Magazine http://www.spiegel.de/spiegel/print/d-78954528.html ) and the 2 billion euro that was spent for the ASPIS II (self-protection systems for the F-16 military airplanes) . In all the cases quoted above, the “mud didn’t stick’ and the ministers involved escaped indictment. However, there is no doubt that for the Greeks, this way of behaving seems to be the norm and when the knowledge becomes public, the ranks close and the guilty invariably escape prosecution.

Serious as the above causes are, it can be argued that they are not the principal causes of the current financial crisis. This principal role goes to the existence of massive tax evasion. This evasion of fiscal levies has basically been occurring since the inception of the Greek state. Furthermore, the vast bulk of such evasion comes from the upper echelons of society, in particular the business class, entrepreneurs and professionals from all disciplines. Overnight, offshore companies have been created with billions of untaxed Euros being deposited in foreign banks. Moreover, various developers and construction companies have received millions of Euros from the EU for a variety of developmental projects. Many of these remain unfinished, the money having found its way into the pockets of the powerful individuals involved or, equally shocking, have been completed using the cheapest materials and shoddiest of workmanship and are today, only a few years later, in serious need of maintenance and repair.

It should be remembered also that Greece is still a predominantly rural country and the inclusion of Greece into the European Union has had a damaging effect of the Greek rural economy. Of course, there were (and are) EU subsidies to Greece but many of the conditions set by the European Community regarding exports of many products have had a negative impact on the Greek producer. Fishing, for example, is one of the main branches of the rural economy and has suffered unprecedented setbacks in recent years as a result of the various laws imposed to protect marine wealth

In addition, since the 1980s, a new generation of nouveau riche has been created in Greece, flaunting their luxury villas, expensive cars, yachts and other trappings of their consumerist lifestyle. Illegal holiday homes have uncontrollably sprung up in beautiful forest sites, beaches and other public lands. In fairness, the various authorities across Greece have sent in the bulldozers to demolish such unlawful properties but, to date, this has only been successful in a small percentage of cases. On the contrary, vast areas of public land of supreme natural beauty have been sold off to private individuals, without transparency and mediated in one case by monks. (see above Vatopedi monastery).

Another factor that can be said to have a function in the current crisis is the uncontrolled borrowing from banks. With the introduction of the credit card to the masses, Greeks have been wildly overspending, becoming one more nation of hapless victims of consumer frenzy. The unsurprising result is that many of these naive and unlucky citizens have had their homes, cars and other goods and chattels repossessed due to their inability to repay the loans.

As well as the internal mismanagement of the economy, Greece along with the rest of the advanced capitalist world has been negatively affected by the phenomena of globalisation of labour and markets. The consequence of this is that many domestic and foreign businesses have relocated their more labour intensive sectors to countries where the cost of labour is minimal and the existence of trade unions is either banned or negligible. Ironically however, the average wage in Greece remains one of the lowest in Western Europe. Nevertheless, the vastly populated, non-unionised countries of the Asian continent and the Balkans have spawned a multitude of workshops and factories with employees working under sweatshop conditions.
For example, many Greek businessmen created factories in the Balkan countries and thousands of local businesses in Greece closed. The Greek shipping lines and the merchant fleet, that was once the most important industry of Greece, today flies under the so-called “cheap flags’ with 90% of the crew consisting of foreigners mainly from Asian countries. Although still the largest shipping industry in the world, much of the financial benefits of such an industry do not end up in Greece.

A final factor to consider is the influx of illegal (and legal) economic immigrants over the last twenty years or so. Unlike the factors above which have been considered as influential to the current economic crisis, the existence of immigration into Greece, it can be argued has had a positive impact and not, as claimed by the media and sections of the right-wing, a negative one.
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