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Opinion: Who Broke Greece?

 

In trying to ease the pain of mandated tax hikes and spending cuts, the Greek electorate just made things more complicated and much worse for themselves. With the election of Alexis Tsipras of Syriza — a radical, left-wing, anti-Germany party — as the Prime Minister of Greece, the country has leapt back into the political and economic mess it only barely escaped a few years ago.

One finds it hard to blame the electorate, however. The Greeks have suffered through harsh bailout requirements (created by Germany) and years of miserable economic strife. Unfortunately for thcepeople of Greeze, Tsipras represents a party that is reactionary and dangerous at best, and young PM’s stick-it-to-Germany policy could hurl all of Europe back into economic crisis.

 

Some Background

The problems in Greece go far back—nearly 15 years. Two developments in the early 2000s paved the road to mass spending, mass debt, and mass unemployment. First, in 2001, Greece adopted the Euro. Greece’s sudden adaptation of a strong and stable currency, made the country look instantly more appealing to outside investors, regardless of how strong and stable it actually was. At the same time, the rest of Europe suddenly had to care about Greece: if Greece were to fail, all of Europe’s economy was at risk of doing the same.

The adaptation of the euro led to a second development that lasted throughout the 2000s: irresponsible Greek governance. Pre-2009 Greece seemed to make one bad decision after another, ranging from honest ignorance to sinister corruption. Tax evasion, inordinately high deficits and wasteful spending became the norm. Worst of all, because of the strength of the euro, Greece was able to get away with these sorts of policies for far longer than it should have. As long as others would lend, Greece could borrow freely.

Greek waste ran wild. When Kostas Karamanlis became prime minister in 2004, he was elected on a platform of fiscal responsibility. His promise was short lived. Between 2004 and 2009, Karamanlis added 150,000 civil servant jobs, raising government expenditures to 50% of GDP. Other public expenses lost any hint of solvency, like the Greek rail system which, in its worst years, took in 174 million euros while losing 937 million. To finance its now rampant spending, Greece began a program of deficit spending—racking up a deficit that averaged 5% of the country’s total Gross Domestic Product (GDP) per year.

To make matters worse, the wealthiest Greeks distorted public policy for their own advantage. Those with “elite” jobs—doctors, lawyers, judges—often wrote the regulations for their own industries. This meant relaxed malpractice laws, price setting and, most importantly, tax evasion. To illustrate the depth of the problem, one study found that lawyers spent an average of 100% of their income on their mortgages alone, suggesting that they held a hefty sum of untaxed wealth to cover their other expenditures. Meanwhile, national debt continued to skyrocket.

Irresponsibility can only hide for so long. In 2009, Greece’s disastrous decade finally took its toll. The warning signs started with the Greek government, which revised its deficit estimate for the year from 6.7% of GDP to 12.7%. Things only got worse when Eurostat, an independent organization, further revised the estimate to 13.6%. In turn, investors lost confidence, so Greece lost investors.

By 2011, Greek debt was sitting at a staggering 355 billion euros, or 171% of the country’s yearly GDP. Greek unemployment was higher than 18% and, at this point, the European economy was being pulled down by a single country’s inability to reign in spending.

 

Bailout

The world didn’t end for Greece. Begrudgingly, Europe came to the country’s aid. Together, the International Monetary Fund and the Eurozone paid for a 110 billion euro bailout ($145B).

Out of any individual country, Germany contributed the most to the ailing country. But Angela Merkel, the Chancellor of Germany, would only contribute under one condition: austerity. If Greece wanted money, it had to show that it could curtail its runaway spending.

Begrudgingly, Greece accepted, but only because it had no other choice. The move was highly unpopular, and Greek protesters rallied before an agreement was even reached. Imagine Occupy Wall Street, but with more people, more anger, and eventually, more violence.

The chaos, however, died down.The Greek economy was still staggering: cuts to civil services and tax increases aren’t the best way to stimulate an economy. But signs of improvement began to emerge from the rubble. Greece made it back into the international debt market, began trading on a surplus, and even saw its credit rating upgraded by Moody’s Investors Service. For a while, even though prosperity was a long way away, it looked like the worst might be over.

 

A Real Threat

The worst may be over, but the drama plays on. On January 25 of this year, the Syriza party was voted into power. Responding to general disdain for austerity, Syriza won the election by running on a platform of anti-German rhetoric. Germany, in its view, was the enemy, and austerity was her tool to repress the Greek people.

Alexis Tsipras hasn’t hesitated to antagonize. As soon as he become prime minister, Tsipras placed a wreath on the tombs of 200 Greek communists who died in World War II—an act which seems to be aimed directly at Germany. In a move that is likely to have broad ramifications, Syriza has officially moved closer to Russia—announcing that it won’t support sanctions, even as Russian-backed thugs wage war in Ukraine. Since Germany has worked hard to fend off Russia’s creeping power, Greece’s growing coziness with the Russia cannot be taken well.

Syriza is poison for the Greek system. The party has chosen to ignore the root problem in Greece, irresponsible governance, and instead seeks to blame the country’s every woe on Germany and austerity. The tactic makes sense. Austerity hurts everyone in a country, not just the people responsible for corruption. For comparison, Greece’s current unemployment rate is similar to that of the United States during the Great Depression.

The fundamental problem with the Greek economy stems from the Greek system of governance, not from Germany or austerity measures. Tax evaders, elites, and an unreliable ruling class still refuse to take responsibility for their reckless policy influence. And no one holds them accountable. So, while 20% of Greek children live in poverty, the wealthy still receive taxpayer-funded healthcare and retirement pensions. Over 90% of unemployed Greeks don’t receive any government help, while the wealthy are shielded from hardship. Inequality runs rampant. So, when Syriza blames Germany, the real culprits win.

Furthermore, Greece’s antagonism will create even more instability than it already has. It’s doubtful that Europe will take kindly to blatant disregard for the rule they set up, especially as Tsipras shows no interest in compromise. A “Grexit,” or a Greek exit from the Eurozone, now looks quite possible.

This could have massive political ramifications. If people lose confidence in the euro, more countries might consider defaulting on their debt and leaving the currency. Even if the currency remains intact, a Grexit could easily make waves across the world economy, as markets tend to react strongly to sporadic policies.
As Germany braces itself and Russia waits curiously, the world watches to see what happens. Now, the decisions of one man, Alexis Tsipras, will have consequences for all.

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