Greek Drama Has Lessons for the Western World

As Greek prime minister George Papendreou submitted his resignation to the president on Saturday, there were no cheers of exaltation rising from the streets of Greek cities.  Instead, there was only a palpable sense of dread, as the future looked  more grimly uncertain than ever. 

Papendreou, the scion of the country’s most prominent political family- whose father and grandfather had both served as prime ministers - became the latest victim of  the sentient notion that  Europe would be a harbinger of a new era for mankind – a place where conciliation would replace confrontation and where amity would replace division.

But the Greek political class on Saturday demonstrated that the new Europe would be a far more divided place than any European leader could have imagined sixteen years ago following the signing of the Maatricht Treaty.  One can only gasp in wonder as a country roiled by a one trillion euro debt and confronted with the snarling contempt of other major European countries, could not bring itself to recognize that without a unified voice which accepts the austerity plan imposed upon it by the European Union, the entire country could be engulfed in an economic cataclysm that would make German stagflation of the 1920s look like a Saturday afternoon game of Monopoly.

For what had collapsed by Saturday night in Athens was not only the prime minister’s center-right coalition but  the very idea of a unified Greek nation, one that believed that as a people and a country it possessed a common destiny and common purpose.  The failure of the two major parties to forge an alliance to stave off the worst financial crisis in the country’s history, is a telling sign of what will become of other European countries as they pass through exactly the same crisis in the coming twelve months. It is very difficult to fathom how a democratic country, faced with such unflinching and demanding partners - who control the very monetary lifelines necessary to keep their economy alive, could be so conflicted on what is the only possible course for it to take. 

But this is the face of the New Europe.  Given to years of lassitude, the Greeks, and most Europeans have no stomach for austerity.  Profligacy, social welfare, neoptism, corruption and a vibrant, fairly open black market, has produced a country where people don’t work much, retire young and take long vacations. 

The Greek model actually describes the bulk of Europe, where the work ethic has given way to the pleasure ethic and the lambent idea that government can always be counted on to bail out failed enterprises.  But what happens when the government has no money to bail out anybody and the source that it must rely on – namely foreign investment, remains skittish and uncertain about the country’s future?  What happens when no one – not the European Union, not the United States and not China - is prepared to say we believe in your future and we will continue to fund your debt?

What then happens is a complete collapse of confidence and a fatalism that grips everyone from the prime minister to the local fruit vendor.   That is what was on display in the streets of Athens on Saturday night.  No matter what happens with the dissolution of the government or new elections in the not-too-distant future, the crushing weight  of debt will be the overriding, ever present concern of whomever takes over the running of the Greek Republic.  

The Greeks have good reason to wonder who will ultimately control their fate.  Angeliki Martaki, a retiree quoted in the Los Angeles Times on Friday, summed up what many ordinary Europeans must be feeling about their future:  “All the Euro has bought us has been pain.  At least with the drachma, we were what we were: Greek.  Now, I don’t know what we are and who is in charge of our national destiny.”

I heard the same sentiments expressed to me in villages in England and coffee shops in Madrid.   A collapse of national purpose; the absence of great leaders who can rouse the population to work and save; the lack of a pervasive national sentiment boldly declaring” we are all in this together.”  Instead, as countries such as Italy, Spain and Portugal progressively unravel, the citizens of these once great, independent countries will find themselves having to fend for themselves, with no one but the Gods to hear their cries of pain.

That idea – that soon there actually may be no one willling or able to come to the rescue - is a lesson that every citizen in the West should take to heart.

Rising Resentment in Europe

German Chancellor Angela Merkel seems to have developed a fitful case of the John-Howards this week.   Much like the former Australian prime-minister, she found herself being forced to publicly confront the reality that a large swathe of the Muslim minority in her country has no interest in assimilating into German society.

Germany has been roiled over the past month after the publication of former  Central Banker Thilo Sarazzin’s book Deutschland schafft sich ab “Germany Does Away With Itself” in which Mr. Sarazzin alleges that Germany’s immigrant Muslim population is reluctant to integrate and tends to rely more on social services than to contribute productively to their society.   Furthermore, he calculates that their population growth may well overwhelm the German population within a couple of generations at the current rate. He proposes stringent reforms for the welfare system to rectify the problems. The first edition of his book sold out within a few days.

The political uproar occurred when German president Christian Wullff responded to Sarazzin with a plea for greater tolerance of Muslim sensitivities. That pushed members of Merkel’s governing conservative coalition, the Christian Democratic Union, to call on the president to show her conservative muscle and counter Wulff’s apparent words of appeasement.

Increasingly, European leaders are being forced to state openly what isolated members of their conservative constituencies have been saying for nearly a  decade – that  Europe has a Muslim problem that is not going away any time soon.  Men and women who have  been brave enough to defy politically correct prohibitions have suffered for their convictions. Pik Fortuyn and Theo Van Gogh were murdered;  Ayaan Hirsi Ali, a Dutch legislator, was forced to flee and Geert Wilders, the leader of the second largest party in the Dutch parliament, is currently standing trial for incitement.

But the fact there is a movement afoot to confront the realities of a restive, unassimiable minority of Muslims in the midst of Europe, cannot now be denied.  Last December the Swiss voted to ban the construction of further minarets in their country; the French have been debated the banning of the burqa for nearly two years and the Italians, whose problems are not quite as severe, nevertheless have developed stringent judicial responses to honor killings and wife beating incidents in Muslim homes.

Now its Germany’s turn.  The German journalist Henryk Broder, who appeared at the first Collapse of Europe conference in June 2007, once explained to me that German passivity was a result of its disinclination to be regarded in any way as racist.  Its own history with racism has inoculated it, he said , against any notion that other groups should be coerced into accepting Western values.

Its not quite good enough any more.   Over the next five years European political leaders will come under increasing pressure from their constituencies to make bold statements, much as Ms. Merkel did this week.   They may not be quite as brave as John Howard, who, in 2005, faced down multicultural pressure to state assertively that Muslims who do not subscribe to Australian values or choose to place their religious convictions above the Australian constitution, will be stripped of their citizenship.

But that day might be coming to Europe sooner than anyone expects.

A Greek Tragedy

Germany’s decision yesterday to impose tough measures in order to bring the Greek economy into line, was one more statement about the difficulties Europe is finding in cementing its Union.

Since the Greek economy began to tank in October, the other members of the European Union have expressed extreme nervousness about what this might mean for the future of the Euro.  For if the Greeks default on their debt, the Euro’s value will plummet, taking with it the economies of many weaker member states and having a decisive impact on the economies of the stronger nations. For default could have a debilitating effect, sparking sharp swings in the euro and investor panic in other hard-hit nations.

Greece is one sick baby.  The Greek national debt, put at €300 billion ($413.6 billion), is larger than the country’s economy, with some estimates predicting it will reach 120% of gross domestic product by the end of 2010. The country’s deficit — how much more it spends than it takes in — is 12.7 percent which is almost four times what is allowed by the strict Euro-zone rules.

Desperate to stave off economic collapse, the Greeks have looked to their European partners for a plan to emerge from potential   bankruptcy.

Although Greece saw a long economic boom during the 2000s, analysts say successive governments failed to tackle an inefficient public sector in which wages and benefits ballooned. When the Socialist government came to power in October, its leaders discovered that their predecessors had doctored Greek financial data and that the deficit actually was 12.7 percent of the gross domestic product, double earlier figures. The realization sparked downgrades by rating agencies that triggered the sell-off in Greek bonds, as well as a sharp drop in the euro.

Add to this severe institutional problems – such as the fact that a third of the country doesn’t pay tax and a quarter of the economy operates under the table and you have a recipe for economic catastrophe.  Corruption, venality of office, an over loaded and under-worked bureaucracy and the fact that there is no history of accommodation between the political class and labor unions at all, have all added to the sense of hopelessness.

Greece is already in major breach of euro-zone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations of lesser economic worth.  These smaller economies  – Portugal,  Italy, Ireland , Greece and Spain (dubbed  somewhat colorfully as the PIIGS)  are coming under increasing scrutiny.  If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, it would further damage the euro’s reputation and could lead to its  substantial fall against other key currencies.

The Greeks, laboring under high 6% interest rates for international loans need to meet governmental obligations, have pleaded with their other member states to provide them with cheaper money so that the road ahead is not so difficult.  But Germany, with Europe’s strongest economy, is having none of it.

With so much at stake, why are the Germans being so hard nosed?

Its quite simple really.  It refuses to pay for other members’ irresponsibility.    According to a joint statement on the EU Web site, in the event of a Greek default and failing to access funds in the foreign bond market , a “majority” of the euro zone States would have to contribute an amount based on their Gross Domestic Product (GDP) and population.

This means Germany will be the main contributor, followed by France. Although the announcement did not mention any specific figure, a senior European official quoted by Reuters said that the potential package may be worth around 20 billion euro (US$26.8 billion).

Perhaps that is why Germany’s Chancellor, Angela Merkel, this week made it clear that in the event of a Greek  default, the International Monetary Fund would be required to participate in a Greek bailout.  With an economy almost twice the size of its nearest competitor, Germany has the muscle to force its European partners to squeal “yavol.”

The decision to involve the IMF in Europe’s first real test of its faith in its currency’s sustainability, has got many E.U. enthusiasts gulping with uncertainty.   Germany’s apparent reluctance to play ball, they feel, is an expression of a lack of confidence of the regional economic hegemon in the Euro’s future.  And if it has so little confidence in the Euro, how does it feel then about the European Union itself?

There has always been a problem of maintaining a common currency among a diverse group of countries.  When the Euro was introduced in 1999, many skeptics asked how it would be possible to uphold the currency’s value  and stability without a firm united fiscal policy or overall budgetary framework.    With each of the participating countries  permitted to determine their own economic future, what was to happen when one of the countries defaulted on its debts?

Well that scenario was deferred for nearly a decade as the euro displayed extraordinary strength, buoyed by a robust continent-wide housing boom and  investor  confidence.   When Greece, for example, dumped its own currency, it gained unprecedented footing in financial markets. With Greek debt backed by the powerful euro, Athens raised billions from foreign pension funds and global banks at interest rates nearly as low as those offered to Germany. Flush with easy money, government spending soared and the economy boomed.

But the global recession has pummeled the continent with a force of a tidal wave, revealing, in its wake,  some of the true institutional susceptibilities of the entire European enterprise.

Part of those problems relate to fertility rates and rapidly aging populations.   The inability of many European countries to produce a work force to meet the needs of growing economies is exacerbated by the weight of pensions that the state is required to dole out to its retirees.

No wonder public sector unions  strikes are occurring all over the country.

The government also has drawn criticism from university students who now doubt that there will be enough jobs for them. Angry posters fill the walls of the entry hall at Athens University’s economics department.   Students there are skeptical that the government will be able to jump-start Greece’s economy.

Valia Floridis, 21, for instance, is looking for work abroad. She says many young Greeks feel they have no future here.

“It depends on their dreams. If they just want to have a job and salary to eat and sleep and live without prospects, it’s OK. But if you want more, if you want something great, if you have big dreams.”

To date, the Greek prime minister, Georgios Papandreou, has stated that Greece does not need any immediate financial aid.   But he admits that it does need the confidence of its partners, for without such a display of continental solidarity, it will lose access to the cheaper money it needs to finance its short and long term obligations.

The situation of this Mediterranean country has many declaring it an isolated case of a country gone wrong.   Yet no one should mistake the tragedy playing out in Athens as a peculiarly Greek one. This playbook gives us an alarming view of the true state of Europe’s finances, with smaller countries and their huge debts threatening to drag the large,  richer ones into a whirlpool of financial collapse.

Blame it on the over ambitiousness of the Euro enthusiasts,  but back in 1999 the likely truth is that the continent, without some kind of political union which provided an overall budgetary framework, was not yet ready for a united currency.   As the succeeding Portuguese, Irish Italian and Spanish crises may  begin to make clear,  countries with much to protect may begin to resist the demand to bolster weaker economies in their continental partnership.

In such a case,  sovereignty will almost certainly trump both ideology and sentiment as northern European countries, fearing a spiraling vortex of economic collapses,  slowly begin to reduce their commitment to the union they worked so hard to establish.