The Making of the Greek Crisis

The Making of the Greek Crisis

By James Pettifer

Penguin Shorts, 2012

Originally reviewed by Chris Deliso on December 30, 2012 here.

Appearing in a unique new series format from Penguin, this e-book by British scholar James Pettifer discusses the causes of Greece’ current financial crisis, placing it within the broader context of past Greek history. The author informs the work with observations made from his four decades of research and travels in Greece, as well as from secondary sources in the contemporary press, and older scholarly works.

It is important to note that this Penguin Short is not meant to be a searching academic study. Rather, it is a useful, and at times entertaining read that summarizes in informal and quick-flowing prose the major issues and particularly the context in which the Greek financial crisis should be understood- perfect reading for, say, an Athens-bound EU financial enforcer to read while on the plane.

Throughout the book Pettifer resolutely throws in his lot with the common man and woman of Greece, sympathizing with their current plight and reminding that throughout history foreigners with little local knowledge have often played disproportionate roles in running the country. Foreign interference has been a chronic factor in the history of Greece since its independence from the Ottomans, as Pettifer notes. “The European Union and International Monetary Fund negotiators who sit in authority in Athens in 2012 have many antecedents,” he writes. “Men and women completely ignorant of the Greek language have played their parts in the making of modern Greece, with varying degrees of success.”

The author begins by pointing out the interesting contradiction between the current gloom and the optimism of just a decade ago, when things seemed to be going so right for the Greek economy. Yet while the Greeks should have been aware of what was to come for them, they were hardly the only ones who failed to imagine or anticipate their and other financial crises that have occurred over the past five years around the world. As the author humorously notes, “modern social-democratic European politics has little room for the imaginary, in any shape or form; it is a terrain of flipcharts, number crunching, endless economic forecasting, and mass production of technocrats.”

Thus, the Greek crisis “was made within capitalism as the illusions of political elites in both Brussels and Athens fed on each other. A hopeless over optimism about what the European Union was or could ever be dominated their judgements and a sweeping belief in their own propaganda overtook them.” This amusing aside manifests the typically British take on the EU and its often excessive ambitions. In an interesting detail, the author points out that a continent-wide monetary union has been dreamt up and even attempted several times going back to Napoleon, and never worked. At the same time, “recurring debt crises had punctuated political life in nineteenth and early twentieth century Greece.” The past does seem to be repeating itself in many ways today.

Indeed, as Pettifer describes it, the much-publicized concealment of Greek debt for which the country has been so criticized is endemic, not something that recent governments invented. “In the post-Civil War period, debt was contained within the New Deal and Marshall Plan framework, but was an ever-present problem in the background,” recounts Pettifer. “Many infrastructure bills, for instance those that involved strategic roads of military interest in northern Greece, or port and airport modernisation, were effectively paid for by the United States or NATO. With the end of the Cold War and the Warsaw Pact, this funding role was taken over by the European Economic Community and then the European Union. Ever since the Greek state was established in the nineteenth century, infusions of foreign capital have been required at regular intervals to support state economic viability.”

In the modern case, the author traces the year 1996, and the ascendancy of German-experienced technocrat Costas Simitis as the turning point. It was at this time that “the genuine, if sometimes eccentric internationalism of [the late Andreas] Papandreou was replaced by the ever increasing commitment of the government to a federal European future. Greek nationalism was to be subsumed within the new Euro nationalism of the European Union. At the heart of this major policy change was the forging of a new Greek-German relationship.”

At the time of Euro-entry, in 2001, “the fact that Greek budget data was significantly ‘massaged’ to meet the Maastricht criteria [for joining the Euro] did not seem to be a major issue for those involved,” Pettifer recounts. “The German Foreign Minister Hans Dietrich Genscher had recently acquired a holiday home in Greece and relations seemed to be excellent.” Interestingly, he also posits that there were those around Simitis who saw the subsumption of Greek debt within the Euro as Germany’s tacit means of giving Greece WWII war reparations that had never been paid.

Along with general trends such as greed, consumerism and the effect of new Common Agricultural Policy marketing rules on small farmers, Pettifer notes the often unacknowledged effect of single events in exacerbating the crisis. The biggest of these was the 2004 Athens Olympics. Economists disagree on the impact Olympics spending would have on the later debt crisis, he notes, while adding that “normal government financial controls began to collapse in the 2003-2004 period as international pressure on Greece rose for Olympic work to be completed on time.” All in all, the price tag of the Games was billions of Euros beyond estimate, and debt repayment was not properly managed (Pettifer contrasts this with the case of Montreal, which is apparently still making incremental payments on debts incurred for the Olympic Games it held back in 1976).

While the author acknowledges the well-publicized role of tax evasion in Greece, he does not see it as a primary cause of the crisis, and suggests that the EU did not either: “not much tax was paid between 2001 and 2004,” he notes, “but no one in Brussels was concerned about it then when growth numbers looked good.” Rather, he sees this sort of discourse as a means for making the country “a scapegoat for the failures that were always inherent in the Euro project from its foundation. The Euro project was doomed because it is impossible to chain together 27 different economies to one currency and one central financial institution without any tax or revenue raising capacity. The fact that it is doomed to fail was not the fault of the Greeks. Their fault was to believe in it more than most European nations did.”

After laying the groundwork for his recounting of the crisis, the author outlines a concentrated presentation of events in the second half of the book. This narration of events starts with the media fixation over big financial crashes in 2009 (like Lehman Brothers and Northern Rock), which however distracted attention for a time from smaller countries like Greece. However, by year’s end the Greek budget deficit stood at 15.4% of GDP, with debt at 127% of GDP, along with “rapidly rising borrowing costs.”

By that time, the Papandreou government’s promised ‘opening of the books’ revealed for the first time the scale of statistical manipulation that had hidden Greek debt over the previous decade; “vast sums of international funds had been ploughed into Euro-denominated Greek government bonds in previous years, ever since Greek entry to the Euro zone in 2001. Yet it seemed to have vanished.” Internationally-enforced ‘austerity measures’ began, and the crisis worsened. Pettifer continues with a blow-by-blow account of credit agency downgradings starting in 2009, mass protests the following year, briefly touching on the evolution of bailout plans, ideas and negotiations in Brussels.

Following a short mention of the governmental crisis of 2011, he concludes with some general thoughts and speculations for the elections (which have since happened). However, regarding the latter he does not mention the growing power of the neo-fascist Hrysi Avgi, or what this might indicate for society though he does note that earlier periods of financial hardship resulted in periods of authoritarian military rule (this is precluded, he says, since the EU does not allow for such kinds of regimes). Still, considering that the author takes time to discuss the effects of the crisis on the Communist Party, the family, women, emigrants, the church and so on, the omission of an examination of the Hrysi Avgi is regrettable, considering its unprecedented success at the ballot box. Politically speaking, Pettier simply wrote that he foresees “a period of marked political instability and jockeying for position as old leaders retire and others try to take their place,” which would seem fairly obvious.

According to the author, there was in fact one solution that would have caused less suffering for the nation, but would never have been accepted by the international financiers and their political backers. “A Greek Euro exit in 2009 followed by a generous European aid and reconstruction programme could have done much for the real economy and confined the crisis,” he opines, “but it would have meant major losses for the banks and bankers.”

It is clear that the author is an unabashed fan of traditional Greece, and in the end, he seems to envision a brighter future as being possible due to the “extraordinary resilience” of the Greek people. The crisis, he points out, is already increasing self-sufficiency and sparking a return to traditional agricultural practices. He sees an enhanced role for the Orthodox Church as shepherd of the people, and even for a possible return to family values. Whether or not the Greeks will in fact come out of the crisis stronger remains to be seen, but it is for certain that there will be plenty more drama and uncertainty in the months ahead. This short survey provides a handy introduction for anyone seeking a basic understanding of the context and conditions that will inform coming events.