California has in common with Greece a dry-summer Mediterranean climate, a susceptibility to earthquakes, and a government that is facing a debt crisis – and not a whole lot else. We don’t share share any special cultural factors, and the specific causes of our poor debt ratings differ. Iceland, the first European casualty of the latest worldwide financial crisis, lacks both the Mediterranean climate and the susceptibility to earthquakes, and hit its financial crisis for reasons that differed from either California’s or Greece’s.
I mention this because, as I scan the European papers for reporting on Greece’s financial crisis, I see how recession and hard times bring out everyone’s prejudices. From the infamous article in Das Bild suggesting that Greece sell its islands and the Acropolis too, to the comments that readers post in the more responsible publications like the Guardian and the Frankfurter Algemeine Zeitung, here a reference to Greece as a “dishonorable Balkan country,” there a suggestion that Greeks are lazy, I can see people falling back on a certain North/South divide in Europe. Charlemagne, blogger at the Economist, describes the reaction well.
EMPATHY is always in short supply in recessions, even within the European Union where we are all supposed to understand each other instinctively. But really, the cross-border debate on Greece is depressingly simplistic. From German news magazines talking about “Swindlers in the Euro family” to senior Greek politicians talking about wartime reparations, it is easy to conclude that beneath a veneer of rationality, cartoonish stereotypes lurk just below the surface of all Euro-debates.
I know well enough, as a Greek-American and the daughter of a hardworking, non-swindling, successful Greek immigrant father, who worked his way up to become an IBM executive and a pioneer in transportation science, that Greeks are as capable of hard work as anyone. Many are the people in the Greek diaspora who, like my father, have worked hard and become successful.
I also know well enough, as a Californian, that one place can differ from another in its debt problems for reasons that have more to do with particulars of political history and systems than with generalities of who works harder than whom. There are cultural differences, sure, between California and the rest of the US, but not ones that have much to do with when people head to work in the morning or when they go home in the evening. And the problems our government has, and, frankly, has had for decades, in producing balanced state budgets, have more to do with particulars of our budgeting process than with work ethic. To take just one example, passing a budget, each year, requires a supermajority in our legislature, but passing restrictions on how our legislature can budget only takes a majority vote on an initiative that isn’t that hard to place on our ballot. So each year we get budgeting by ballot box, and find ourselves having to vote piecemeal on budget provisions, with one measure ensuring that taxes can’t easily be raised, and another ensuring that a particular program can’t easily be cut. Then a polarized legislature tries to agree on a budget that meets all these restrictions, by a two thirds majority.
Greece, likewise, has a particular history, that feeds its debt problems, one that, as Charlemagne points out, is more complicated than Greeks being “broke because they are giddy crickets who sing their summers away.”
Well here is the thing. Real, live Germans are not heartless ants, and the Greeks are not broke because they are giddy crickets who sing their summers away. Greece is a grown-up country with grown-up problems: rough, tough politics, and a lot of recent history, not all of it very nice. And it is precisely that recent history, and rough politics, that are at the core of Greece’s fiscal woes today. Take the painful question of the huge public sector, and all those civil servants with jobs for life, and unusually generous retirement packages. The existence of those jobs for life is not a cultural quirk, in which Greek officials simply like coffee and backgammon too much to do any work. It is the end result of a brutal, multi-decade power struggle between the left and the right: a struggle that got people killed within living memory.
He’s right. I’ve written before about Greece’s twentieth century history, but let me tell the story again, this time as the story of one family, mine. My Greek grandparents were born under Ottoman rule, one of them just before the turn of the twentieth century and one just after. My grandmother grew up in Thessaloniki, then a polyglot city, and she spoke fluently the several languages of the city: Greek, Turkish, and a kind of Judeo-Spanish that bears a similar relation to Spanish to the relationship Yiddish bears to German. When she was a girl, she witnessed the Balkan Wars, as her city became the prize of contention, first when Greece, Serbia, and Bulgaria took land from the Ottoman Empire, and then when they fought among themselves. She remembered, and told my father about, her father and uncles going out to fight the Bulgarians while singing “What have the Bulgarians to do in Macedonia.”
My grandfather became an officer in the Greek army. He fought first in the campaign where Greece occupied Turkey at the end of WWI, the last gasp of what was called the Megali Idea, the plan to unite all Greeks in one country. This dream had born fruit when Macedonia was won from the Ottoman Empire, but it collapsed when Greece sought to take parts of Asia Minor. It ended in what my aunt called “the Catastrophe,” a major population exchange in which Greeks fled Asia Minor (and Turks Greece), to become a huge refugee population.
When WWII began, my grandfather went out to fight again, and died, reconstructing a bridge so that Greece could chase the Italians out. It was an impressive victory for a small country fighting the Axis, but of course it was followed by Germany occupying Greece. My grandmother had to raise five children under German occupation. Toward the end of the war, the oldest son, my uncle George, left home at the age of sixteen to fight for a band of guerillas that became one side of the Greek Civil War. At one point, my grandmother had to talk the family out of trouble with a band of guerillas on the other side of the Greek Civil War. My uncle lost a hand in that war, which was, like all civil wars, one that saw brutality on both sides.
In this my family was an ordinary Greek family. Charlemagne is right; the struggle between left and right in Greece has been bitter, and has gotten people killed within living memory. As it happens, my family was on the anti-Communist side back in the 40s, but I know how people on the Communist side suffered as well, and I understand (and, if you look at Charlemagne’s article and follow a certain link of his, you’ll see that center-right Kathimerini also understands) why Papandreou’s father used public sector jobs to try to heal this bitter divide. It’s an origin to the current crisis darker and more tragic than people’s sunny stereotypes of happy, lazy, backgammon playing Greeks may account for.
Lawyers, Guns, and Money points to another cause of the debt crisis in Greek military spending. This, too, has a rational basis, in Greece’s thorny history with Turkey, and, while I hope that thawing relations between Greece and Turkey, and a new awareness of Greece’s financial predicament, may lead Greece to dial down on that military budget, I can’t say that Greece is uniquely irresponsible here.
Moving away from discussion of Greek culture and history, I want to briefly talk about one other area that has been discussed recently as a contributing factor in the Greek debt crisis, speculation on credit default swaps. Papandreou, in his tour of world capitals, has been urging that limits be place on speculation on the Greek financial crisis. If you can read German, here’s an article in Der Spiegel that describes these transactions, and the debate over how far they’ve contributed to the Greek debt crisis. If you can’t read German, there may be a version of the article in the English version of Der Spiegel, and in any case I have other links. Papandreou lays out his position in the New York Times.
… Greece must, and will, transform itself into a competitive and credible partner in the international community. I will not shrink from this challenge — and I do not believe the Greek people will either, because they understand that these reforms also bring vast opportunities.
Yet our crisis has exposed deep flaws in the international economic system, flaws that savage cuts to salaries will not cure. Despite the radical reforms my government has launched, opportunistic traders have forced interest rates on Greek bonds to record highs. Some of these speculators are making a fortune by betting on our nation’s misfortune. Many countries face similar deficits and similar perils.
The Greek case is not an outlier….
Contrast Megan McArdle, at the Atlantic, on Don’t Blame Credit Default Swaps for this Greek Tragedy.
… But there are almost never people with enough capital to mount a “bear raid” on a company, much less a country. If the majority of the market thinks the company or country is basically sound, a naked short seller may very temporarily depress the price–but it will quickly be bid back up again by bulls leaping on the aberration. If it keeps falling, that’s because there aren’t a lot of optimistic buyers in the market.
In other words, short selling, or credit default swaps, may hasten price discovery–we may find out that people are bearish on the stocks or bonds a little faster than we otherwise would. But the price would still fall, in the end, because stock buyers will offer lower prices, and bond buyers will demand a higher yield….
If you’re cynical, you could take Papandreou’s argument as reflecting his self-interest; after all, he’s in the difficult position of trying to convince his constituents that Greece is in precarious enough circumstances for a relatively poor country (in European terms) to accept arduous austerity measures, while simultaneously convincing the rest of Europe, and the market, that Greece remains sound enough to get good interest rates. However, Papandreou, as a socialist, already has a philosophical difference with McArdle on just this question: How well do markets deliver, left to themselves? How far can you trust them, and how far may their swings be the product of something other than good information? Credit default swaps may only speed price discovery for Greece’s interest rates, or they may also do something else, amplify market swings and put Greece in a worse position than it would already be in. And, too, even speeding price discovery is a problem for Greece, if you think that its history gives people sound reason for evaluating its debt poorly, but that current austerity measures, given time, may improve that standing (which appears to be Papandreou’s argument).
In fact, McArdle, later, while taking issue with Papandreou’s analysis, still gives him some credit.
… Unfortunately, I expect that Greek debt will be carrying a substantial risk premium for quite some time, reflecting the fact that the debt is, well, riskier than the debt of bigger and richer nations. The Greek economy remains quite dependent on tourism and agriculture, both of which are subject to rather sudden shocks. Its institutions are often quite weak, and corruption and tax evasion remain serious problems. Mr. Papandreou says that higher interest rates for some members of the euro-zone means that the countries paying the higher rates will be strongly disadvantaged. But given the economic and political realities, paying interest rates on par with Germany, or even Ireland, is not likely in the cards.
Thankfully, Mr. Papandreou stopped short of actually claiming that speculators were the main reason for his country’s debt problems; he emphasized that he just wants to make sure that speculation doesn’t undermine all his good work in getting the budget under control. But if he actually gets the budget under control, and keeps it there, he won’t have to worry about speculation, because people will start betting on Greece’s success.