I just returned from Greece. My friends and colleagues here in Canada seemed to be much more distressed about the Greek situation than those in Greece. Despite the long line ups at the ATMs, everyday life generally runs as smoothly as always. Greeks must have hidden a lot of money under their mattresses as bars are full, restaurants have people lined up for a table and entertainment is plenty. The sun, the night breezes, and the bluest of seas make staying indoors in Greece much more difficult than elsewhere and it also makes Greeks more optimistic and laid back than others.
As a friend said to me a few weeks ago, Greece has the world’s “best farmland but the worst farmers”. It was a figure of speech to indicate that Greece could have become the Monaco or Switzerland of the Balkans had it not been for the corrupt bureaucracy, political system, and politicians. I have given seminars around the world and was always taken aback by the intelligence, resourcefulness and respectfulness of Greek students, but most of them run away after graduation and find jobs abroad. The ones who stay are those who cannot leave for family or other reasons, but mostly because they are embedded in one of the most politically corrupt and least meritocratic systems in the world. The system in the end changes the students who stay in Greece and corrupts them too. Peer pressure works in marvelous ways to push them towards the lowest denominator.
Culturally and historically Greece stands with one foot in Asia and one foot in Europe. Europeans do not understand what Greeks do and why and vice versa. And so, Europeans terribly mishandled Greece. Greece should have never been let into the Euro zone in 2001. But it was the Germans’ fault – they pushed Greece in the Euro zone because they believed that Greece’s membership would enlarge their export market. And it did, as Euro zone membership of Greece (and of other Southern and Eastern European countries) kept the euro under pressure, giving more export opportunities to Germans. So it seems hypocritical for Germans to be so aghast with Greek behavior.
Germans also mistakenly believed that membership would force Greeks to fix their shaky economy and political and bureaucratic corruption. But as I have indicated in similar columns before, an old culture like Greece’s is very hard to turn around overnight. It needs time Europeans were not willing to give. Cultural problems cannot be fixed with strategic solutions. When culture and strategy clash, it is culture that prevails.
It was also Germans’ fault that they facilitated over borrowing by Greeks and made such over-borrowing easy. Greeks took advantage of the low yields that Euro zone membership afforded them and they borrowed, both at the personal and government levels.
I vividly remember boutiques selling fashionable clothes on a 12 month installment basis and banks giving long term loans for travel destinations. House and apartment prices went through the roof. Housing is a leverage-based purchase and cheap credit made people over borrow to buy bigger apartments than they actually needed. They even borrowed in Swiss Francs to make purchases, a strategy that has come back to bite them now.
At this point, Greece is between a rock and a hard place. If they stay in the Euro zone and adhere to the austerity measures, Greece will be under the European thumb for years to come and become like a colonial state of Europeans, losing ownership of assets (via privatizations) and the means of production. This is because the Greek debt of 334 billion euros is unsustainable under normal growth assumptions. Greeks’ children and grandchildren will keep paying for years and the debt burden will limit their opportunities for generations.
If they exit the Eurozone, it will be better for Greek pride and culture, but given the history of bad politicians and inept/incompetent managers of the Greek economy, excessive money printing may turn Greece into Zimbabwe and give an opportunity to neighboring unfriendly states to make advances on to Greek territory, particularly on the Greek islands.
In other words, within or without the Euro zone, Greeks may lose ownership of Greek assets and face loss of political and economic sovereignty. If they stay in the Euro zone, they will have long term pain for an uncertain very long term gain, if not continuous pain, while leaving the Euro zone will expose them to extreme short term pain for possible long term gain.
The best solution at this point for Greece will be for the creditors to write off significant chunk of Greek debt. The problem is that this may be difficult now given that Greek debt has been socialized and other European leaders fear a back lash from European taxpayers. Greece finds itself in a catch-22 dilemma and a position no country deserves to find itself in – a toxic deal or a disorderly exit.
Greeks have bounced back before from crises in their history, but this time it may be more difficult to do so. It is a pity for such a beautiful country and an exceptionally resourceful and intelligent people.