Lessons from Greek economic crisis

Greek civilisation started from the archaic period of the 8th to 6th centuries BC and to the end of antiquity up to 600 A.D. Alexander the Great of Macedonia had earned reputation for his series of conquests that spread to even Indian sub-continent. We know that ancient Greece consisted of several hundred relatively independent city states. Because of necessity, the city states (poleis) grouped themselves into leagues. By 683 BC, an annually-elected leadership called 'archonship' was established in many cities including Athens. Sometimes the 'archons' were tyrants. This gave birth to social tension and class conflict. To solve it, citizens' assemblies were established in the 6th century BC.
Sparta was notable exception to the rest of Greece where hereditary monarchy was established. But there was diarchy system. There were a council of elders and a group of magistrates appointed to watch over the Ephors (kings). Greece had the most advanced economy in the world in the 5th and 4th centuries BC. It was ancient Greek philosophy that focused on reason and rationality. It had an important influence on modern philosophy and modern science. It transcended to medieval Muslim philosophers and scientists, to the European renaissance and enlightenment. Mathematics, geometry, calculus and medicines were highly developed in ancient Greece which were later further developed by Muslim scientists. A rich literature was there tremendously influencing even the western literature. The IIiad and the Odyssey are glaring examples. Socrates, Plato and Aristotle all hailed from Greece.
This land of civilisation was under Byzantine Empire for many years. As a part of Muslim invasion of Europe, North Africa and Western Asia, some parts of Greece came under Muslim rule while most parts became part of the Ottoman Empire in the late 14th and early 15th centuries. The history of modern Greece may be identified with the recognition of its autonomy from the Ottoman Empire by the great powers (Great Britain, France and Russia) in 1828. Then there were many turmoil and political changes -- monarchy, republic despotism and military rule. The Balkan wars (1912-13), the World War-I (1914-18) and Greece-Turkish War (1919-22) shaped and reshaped Greece in different geographical areas. In the 1920s, Greece was virtually exhausted financially. Then the periods of republic and monarchy began. During World War II, the Italian troops attacked Greece in October, 1940 but it was repulsed.
On April 06, 1941,  Adolf Hitler asked his troops to occupy Greece. By the end of May, they occupied the country and a puppet government was established. When German forces withdrew on October 12, 1944, the government-in-exile returned to Athens. But then started a civil war triggered by clashes between the National Liberation Front (EAM) and British and monarchist forces. There was unrest until 1949. The civil war caused 100,000 deaths, 700,000 displaced and a huge number of people migrating to Australia and other countries. It caused catastrophic economic disruption.
After the end of civil war, Greece returned to western type of democracy and became a member of the North Atlantic Treaty Organisation (NATO) in 1952. Again political instability marked the period. In the 1960s, the Greek economy developed rapidly. In 1962, it joined the European Economic Community (EEC). During 1967-1974, military junta led by Colonel George Papadopoulos ruled the country. After 1970, the economy slowed down. Papadopoulos was overthrown by Brigadier Dimitrios on November 25, 1973. He was a tough dictator. But in the following year, his government collapsed and a national unity government under the leadership of exiled leader Constantine Karamanlis was formed. Election was held in November, 1974 and his New Democracy Party won the election. The monarchy was abolished. Greece started the journey of democracy and became the 10th member of the European community on January 1, 1981. Again there was instability in its political journey threatening the economy.
The government of Greece has been found to be increasingly dependent on debts. The investors became concerned with its ability to meet its debt obligations. Confidence crisis started particularly with the government's debt caused by junk bonds and widening of bond yield spreads since late 2009. Widespread fears ran through the countries of the European Union about the stability of Euro, the European currency, that might plunge the world into another recession. On harsh conditions of austerity, the International Monetary Fund (IMF) and Eurozone countries agreed on a 110-billion Euro loan for Greece on May 02, 2010. The austerity measures were unpopular with the Greeks and there was political unrest. The year 2012 alone saw two parliamentary elections, one in May and the other in June.
The situation, however, did not improve. Most of the bailout money was spent to rescue Greece from sovereign default and cover its financial needs. The government had the largest sovereign debt default in its history. The conditions attached to bailout package, like austerity measures, structural reforms and privatisation of government assets, could not progress much. Crisis continued. Political instability surfaced. Against this backdrop, the second bailout programme of 130 billion Euro was approved by the EU on February 21, 2012.
The bailout programme again could not solve the crisis. Because of pressurised reduction of budget deficits and inability to devalue currency, Greece suffered significant GDP (gross domestic product) reduction. Tax evasion and corruption were rampant. In 2013, the government could collect less than half of the revenues that were due in 2012. It was estimated that money from tax evasion by Greeks and stored in Swiss banks was around 80 billion Euro. According to the Transparency International's corruption perception index, Greece, with a score of 36/100, ranked as the most corrupt country in the EU in 2012. In spite of economic crisis, Greece is the second biggest defence spender in NATO in terms of percentage of GDP. There are accusations of misreporting of official economic statistics by successive governments for many years.
Eurostat, the European statistics agency, also made accusations of false data and political interference. Political appointments and interference in the financial sector continued. Non-performing loans piled up. Banks did not have liquidity. Even the system of drawing 60 euro a day by an account holder had to be stopped. Banks were closed. The government of Prime Minister Alexis Tsipras fell into severe trouble. Perception was prevailing for a possible Greek exit from Euro. Tsipras came to power just five months ago. Greece is the first developed country which failed to make an IMF loan repayment on June 30, 2015. The country demanded more bailout loans from the Eurozone which triggered mixed reactions among the zone leaders. The latter wanted stringent reform measures. A plebiscite was held on July 05 in Greece where voters cast 'no' votes for reforms.
Prime Minister Alexis Tsipras faced parliament on July 16, 2015. Parliament approved a bailout programme in a vote that left the government without a majority and looking to new elections within months. Meanwhile, the Eurozone finance ministers signalled to provide 7.0 billion Euros in bridge loans to help Greece meet its immediate debt service needs and avoid defaulting on a repayment to the European Central Bank (ECB). With this, Greek banks were reopened after one-month shutdown.
Again, the conditions were laid down for economic reforms, which cover taxation, reducing deficit budget, pensions, labour market, reforming financial sector and privatization. Eurozone leaders want valuable Greek assets to be monetised through privatisation and other means to raise a fund of 50 billion Euro, financial administration to be depoliticised, retirement age to be enhanced to 67 years and aid to the poorest pensioners to be phased out over the next four to six years, tax base to be increased, and budget deficits to be reduced. Curbing corruption is also an issue in the reform agenda.
There are lessons to be learnt from recent Greek economic crisis for many countries -- developed or developin. Excessive deficit financing and debts, politicisation of administration, tax evasion and corruption, excessive public expenditure including defence expenditure, political interference in banking sector, huge non-performing loans as well as political instability may throw any country into serious crisis as has been evident from the Greek crisis. It is hoped that Greece, the seat of civilisation, will come out of the catastrophic economic crisis which it is facing today.
The writer is an
economist and columnist.  
chowdhuryjafar@gmail.com