Monday, 6 July 2015

Greece versus the prevailing economic hegemony

For ten minutes, over fresh drop scones and orange juice, I almost managed to train my two-year-old daughter to say ‘the Greek vote is counter to the prevailing economic hegemony’. What a great party trick that would be.

Trouble is, she struggled to pronounce ‘economic hegemony’ with any great fluency so it’s a game to be saved for another day.

In Greece, meanwhile, Alexis Tsipras’ left-wing administration has been dealt a remarkable democratic boost following yesterday’s referendum, but it remains to be seen whether this will ultimately help to deal with the ‘prevailing economic hegemony’ with which it is battling. And such is the parlous state of the country’s banks, it has very little time to find a deal.

Yes, there are democratic deficiencies in the whole referendum process; as Peter Kellner of YouGov observes. For such a vote to have true democratic accountability  it needs, he argues to follow these principles:

It is clear the Syriza government in Greece breached many of these; but such was the scale of the victory, Tsipras and his administration have received a huge mandate for their confrontational stance against the Eurozone. As of today (July 6) five parties have rallied behind the prime minister's position, including opposition parties, forming an impressive domestic coalition. Those querying the legality of the vote, such as European Commission vice-president Valdis Dombrovskis, will only play into Syriza's hands further, allowing them to portray Greece as the conspired against victim of the piece.

In truth, Greece finds itself in its current wretched state as a combination of its own long-term, systemic, failings and the complicity and ineptitude of the European Union. Why, for example, was Greece admitted to the Eurozone club back in 2001? Who would have guessed that drenching a country, famous for governmental corruption and woeful levels of tax receipt, with cheap credit would end so disastrously?

In the Financial Times, in December 2000, Tony Barber explained how Greece's admission was more to do with 'political symbolism than economic consequences' and that Greece would:

'serve as a beacon for central and eastern European countries, which hope they will not have to wait long after joining their European Union before they, too, can abandon their national currencies for the euro'.

Efforts to delay Greece's entry on the basis that the country 'did not meet the criteria for low inflation and budgetary discipline in a sustainable way' were swatted aside.

The Greek government's lack of 'budgetary discipline' is legendary. The Economist wrote in a 2012 article that tax evasion was routinely shrugged off by officials as 'a national sport' and it cited a recent study which found that up to €30million of tax revenue went missing annually. As recently as 2010, a study using satellite photographs to count the number of swimming pools in Athens - a measure tax inspectors use to indicate wealth - found that instead of there being 324 as officially declared, there were, in fact, 16,974. Covering pools up with nets still remains a favoured tactic to evade such monitoring. 

In 2012, a list was published of 4,151 Greek celebrities who, collectively, owed the Greek state £12.4billion in unpaid taxes.

And only in recent years has the absurdly generous pensions system been reformed, which once counted jobs such as hairdressing as a hazardous occupation and enabled a barber to retire at the age of just 50. These reforms still have far to go, however.

In the early years of Greece's membership of the Euro, its economy boomed but in every year since 2001, it registered budget deficits of over three per cent, reaching a peak of almost 16% in 2010. In the same period, debt as a percentage of GDP, has risen from 108% in 2001 to almost 180% now. When George Papaconstantinou became finance minister in 2009, he was forced to disclose the budget deficit was almost double the estimates given by the previous right-wing administration; Papandreou's socialist government was thus nobbled from the start.

As the crisis has reached a climax, I've heard comparisons between Greece and the experiences of coping with debt by Iceland and Ireland, but these latter two are blessed with comparatively functional political systems; any such comparisons are, therefore, rendered invalid.

Since their entrance to the euro club, therefore, the dysfunctional country has piled debt upon debt; its credit rating has been shot to pieces; it has received loans and bailouts from the IMF and the EU; and yet growth - the only means by which Greece might escape this mess - has stubbornly refused to accelerate. There have been flickers in the last few years, but nothing more vigorous.

Meanwhile, in June 2013, the IMF admitted they hadn't foreseen how much damage the austerity programme would wreak upon Greece and only last week a report - which the Eurozone tried to block from publication - acknowledged Greece's public finances had no chance of recovery without significant debt relief. 

Grim though it may be for the people of Germany to concede, until the eurozone recognises this reality, Greece will remain in turmoil and will not recover.

Fundamentally, what we are witnessing is a clash between democratic power and harsh economic realities. There is no doubt Tsipras has reinforced his position domestically - and could inspire other left wing movements such as Spain's Podemos - but with a lack of a deal this will fade. The Greek Prime Minster's pledge that a new agreement with the EU would be signed within 48 hours of the referendum seems absurdly optimistic. At the same time, the Eurozone may wish not to acknowledge the power of the people, but ultimately knows it must do to an extent to avoid the very real possibility of Greece plunging into disorder. 

And yet, the Eurozone holds the strongest cards. If the banks have no money, the people of Greece will be unable to buy food, medicine and other essential supplies. Even leaving the eurozone doesn't necessarily prevent this from happening as a new currency would take time to organise. The prevailing economic hegemony, no matter how ugly and discredited, ultimately has the power to drown this nation's democratic voice and set a very worrying precedent indeed.

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