Greek tragedy no longer a myth

A. Rahman
Published : 6 July 2015, 01:50 PM
Updated : 6 July 2015, 01:50 PM

Greek tragedy may have evolved, as Aristotle put it, from the "song for the sacrifice of the goat", depicting the ancient rites and myths of the 5th century BC. But now that mythical tragedy is taking on a whole new meaning.

Greece might have invented democracy, produced the subtleties of logical deduction, and mastered the intricacies of reasoning some two thousand or so years ago, but she never had a national economy commensurate with her contributions to modern civilisation. Greece was at the vanguard of European and world civilisation for centuries.

The Islamic civilisation reached its zenith during the period of 9th to 13th century, called the 'Golden Age', when it embraced Greek philosophy and culture, and then the 'Golden Age' decayed away as Islam abandoned Greek culture and rationality. Now Greece itself, it seems, has fallen foul of rationality and the basic sense of logic.

What started some six months ago as an innocuous run-of-the-mill negotiation between the two sides of the Eurozone – the lenders represented by the Troika, and the borrower, Greece – spiralled into a tragic situation of epic proportions. This was a result of dogma and a deficiency of skill on Greece's part. However, this situation did not develop overnight, as most mythical situations do, but came into being slowly and steadily over the past six months at the hands of the radical left Syriza party led by Alexis Tsipras.

Greece was never a country with a strong economy. Before she was allowed to join the Euro in 2001, and ditching the drachma, she had already been suffering from hyper-inflation due to government incompetence, structural deficit, and in-built corruption.

Greece always lived far beyond its means and that lifestyle had been sustained by excessive government borrowing in the form of government bonds and international money market loans. To defray the real value of borrowed money and to boost its exports, the Greek government had the habit of devaluing the currency as and when required. The consequence of this monetary trickery was an increase in prices of goods and services in numerical terms at home, and so inflation and hyper-inflation ensued.

In addition, corruption was rife across the whole structure of the economy – people avoided paying income tax and VAT fraud was at a scale similar to any third world corrupt economy. Consequently, government revenue dropped year by year, while government spending remained unchanged, and even increased to fulfil election promises. These economic conditions could only lead to disaster.

When the European single currency, Euro, was launched in 1998, Greece saw the golden opportunity to get out of its terrible economic mess and hyper-inflation. But there are strict conditions that a country must fulfil before joining the single currency. The 1992 Maastricht Treaty criteria required, for disciplined government borrowing by a Eurozone member, a maximum of 3% of its Gross Domestic Product (GDP) a year and 60% debt to GDP ceiling. Although there were obviously striking differences between strong economies like Germany, Netherlands,  Belgium and so forth and the weaker economies like Greece, Portugal, Ireland etc., the above conditions were put in place as the fail-safe boundary lines before a EU Member State is allowed to join the Eurozone.

The Greek government, it is alleged, cooked the books and showed that it met both criteria. As a result, Greece was allowed to join the Euro in 2001. Once the country was in the Eurozone, it found economic life much easier. Whereas in the time of the drachma, the yield that the government had to pay for bonds were in the double digit figures, the new Euro bond yield was in the low single figures. The reason was that the international money market viewed the risk of any default in Euro, with Germany and other strong economies within it, was very low and that investment was safe. The Greek government started to borrow money as if they would not have to pay it back. Life in Greece was milk and honey at all times.

Then came the global financial crisis in 2008. There was no available money to borrow, but debt repayment had to be maintained. All major economies suffered and austerity measures were put in place. Stronger economies managed to pull through, but weaker economies faltered.

In 2010, Greece and then Spain, Portugal and even Italy had to be rescued with emergency loans and bail-out plans by the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF).

When the Troika comprising the ECB, the EC and the IMF looked into Greece's economic health, they found that the debt to GDP ratio was not 60%, but a yawning 145% and rapidly deteriorating.

In May 2010, the Troika offered €110 billion to Greece to stave off sovereign debt default until June 2013, conditional upon implementing austerity measures, structural reforms, and privatisation of government assets. Due to the Greek government's incompetence or wilful negligence in implementing the agreed bailout programme, economic conditions worsened.

The debt to GDP ratio increased to over 175% by 2013. A second bailout of €130 billion was agreed to be transferred until December 2014 in certain tranches subject to further clearly specified conditions.

Due to tough economic conditions following strict austerity measures, unrest sprang throughout the country. Youth unemployment soared to over 25%, pension ages had been raised from 55 years to 65, and many other benefits (which any other western European country could only dream of) had been removed. The government which implemented these measures was so unpopular, that it suffered a no-confidence vote and fell.

The ultra-left Syriza party led by Alexis Tsipras came into power with the election promise of ending austerity measures – doing so while pretending to ignore the how those austerity measures were the pre-conditions for bailout money. In any case, it was noted by the Troika that even the previous centre-right party did not implement the measures agreed before in full.

For example, it was agreed at the time of first bailout in 2010 that €50 billion was to be paid back to the creditors through privatisation, but only €2.5 billion of sale had been completed until 2014. Defence spending remained at €4.6 billion which is 2.1% of GDP against the EU NATO average of 1.6%.

In other words, life in Greece remained nearly as normal, although much noise had been made of austerity.

To get €7.2 billion second tranche of bailout fund, Tsipras's government was asked to cut defence spending by a meagre €400 million (less than 10% of defence budget), but it was refused and the government said that a maximum of €200 million could be cut. Many of the previously agreed austerity measures were rejected by this government.

Consequently the Troika refused to release the fund unless there was firm undertaking for austerity measures. In the meantime, the Greek government failed to pay back €1.6 billion repayment to the IMF by the end of June 2015, which in theory means that the country had defaulted.

But while negotiations were ongoing in Brussels, Tsipras flew back to Athens and called for a snap referendum on 'Yes' or 'No' to accepting the austerity measures. That referendum took place on July 5. The latest result is that 'No' camp got nearly 60% of vote.

However, what does this rejection of austerity measures by the Greek electorate mean in terms of bailout funds?

The Troika said quite clearly that the bailout package that was presented on June 29 was either 'take-it' or 'leave-it'. When the negotiations were terminated by the 'Referendum' call, the package that was on the table was withdrawn. This logistic impasse may mean that the 'Referendum' was conducted on a phantom 'Yes' or 'No' basis.

Now that the 'No' camp has won, which means that the austerity measures are unacceptable to the Greek electorate and in the absence of any new bailout deal, the Greek government will receive no more money.

Greek banks were closed for almost the entirety of last week as they were running out of money. But the ECB kept the lifeline open until the 'Referendum' day by injecting emergency bank loans so that the public could draw money from ATMs. Now that the loan has also been stopped, it is speculated that by today, the banks will run dry and the whole country will come to a grinding halt.

It is more sinister than that. If banks cannot pay, all imports – from food to medicine to fuels and everything else – will stop coming into the country. Within a short time, the country will face food shortage, fuel shortage etc.

The 'No' camp is now celebrating their victory on the assumption that they have given a bloody nose to the Troika and Eurozone, but when reality dawns on them in a few days' time, they will realise that the mythical 'Greek tragedy' which was up until now, just a myth, will come back to haunt them. Exit from the Euro has never been more real and the 'good old days of drachma' seem to be back for Greece!

Dr. A Rahman is an author and a columnist.