whatever happened to greece?

Whatever Happened to Greece?

VASSILIS K. FOUSKAS

AS IT entered 2013, the Greek economywas already in its fifth year of recession.With GDP 20 per cent lower than in2008, the wages of most of those inwork down 40–50 per cent over thesame period, unemployment at 26 percent and one in three people living onor below the poverty line, 2013 lookslikely to bring further contraction. Thecountry’s official debt stands at €340 bil-lion, 180 per cent of GDP. The worst ofausterity is yet to come: to meet theterms of its two huge bailouts (totalling€314 billion) by the EU, ECB and IMF,the Greek Government is preparing toenforce a new €9.2-billion round ofspending cuts, and unemployment isexpected to rise further.

In these circumstances, it is hardly sur-prising there is speculation that the rulingcoalition led by Antonis Samaras, leaderof the New Democracy (ND) party, maynot last beyond the spring. Formed of anuneasy alliance between ND and its his-toric socialist rivals PASOK, along with aminor centre-left party, DIMAR (Demo-cratic Left), the Government was barelycobbled together in the aftermath of theelection of June 2012. For 38 yearsPASOK and ND had between themattracted well over 70 per cent of theGreek electorate, defining a polity inwhich the two large parties of the centre-left and centre-right alternated in power.But in the two elections of 2012, PASOK’sshare of the vote shrank to just 12% andthe ND only just took first place ahead ofthe radical left and anti-austerity partySyriza, whose support soared from 4.5per cent in 2009 to 27 per cent. If a newelection were forced this year, victory forSyriza could not be ruled out.

How did Greece come to be in thisextraordinary economic and political sit-uation? The conventional view is thatthe huge scale of Greek debt arose fromthe practice of ‘clientelism’ by the twomain parties—the winning of votesthrough the creation of public sectoremployment—accompanied by wide-spread tax evasion and low tax-collec-tion rates. But this is too shallow ananalysis. In this article I want to placeGreece’s debt crisis in a context that iswider than the merely fiscal, explainingits sources in the country’s domestic andgeo-political history.

I shall look at three factors: the politi-cal strategy of Greece’s ruling elite inthe context of the country’s very particu-lar form of economic development in thetwentieth century; the role of defencespending; and the transformation of theGreek economy in the past quarter of acentury.

The political economy of GreekdebtAny understanding of Greece’s singulareconomic structure must start with thecountry’s defeat by Kemal Ataturk’snationalist forces in Asia Minor in 1922,which signaled the end of a period ofrobust industrial expansion. This mili-tary defeat produced two concomitantdisasters, as more than 1.4 million refu-gees evacuated western and central Tur-key to re-settle in Greece—a fact that ledto the disintegration of not just thematerial basis of Greek nationalism butalso the entire merchant and financialstructures of wealthy Greek society, anetwork then extending across the

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region from Alexandria, Smyrna andConstantinople to the Levant.

With its bourgeois breakthrough, andso its industrial revolution, truncated bythe 1922 Asia Minor disaster, the coun-try could not develop a strong economicbase able to compete with the advancedcore of Europe. Greece became effec-tively a ‘subaltern’ or dependent statewithin the European and global econ-omy, unable to develop economies ofscale. Its current-account deficit andbalance-of-payments problems becomechronic, creating a debt problem whichhas accumulated over many decades.

The 1.5 million or so refugees thatpoured into Greek Macedonia, Athensand the Aegean islands after 1922 sawtheir living standards deteriorate in theimpoverished Greek kingdom. Theresulting upsurge in left-wing politicswas countered by Greece’s liberal andconservative establishment through a for-midable strategy of agrarian reformspearheaded by Greece’s master liberalpolitician, Eleftherios Venizelos. Venize-los gave every impoverished refugee asmall plot of land to till, hoping that thepeasant and his family would as a resultstay away from socialist and communistinfluence. Although politically effective,this policy was economically disastrous.It compartmentalised the only sector ofthe economy with the potential to com-pete internationally, depriving Greece ofany prospect of developing a robust,export-led agricultural sector througheconomies of scale and technologicaldevelopment. Once again the country’sinternational competitiveness was dam-aged, in turn worsening its national debt.

Following a bloody civil war (1946–9)which saw the defeat of a communistguerilla movement by right-wing nation-alist forces aided by the new hegemonof the Eastern Mediterranean—the US—in the 1950s and 1960s, Greece experi-enced an ‘economic miracle’ of its own.The entrance of American capital andother foreign direct investment was sup-

ported by the Bank of Greece’s auda-cious policy of boosting exports bysubstantially devaluing the country’scurrency. By the years of the Colonels(1967–74), Greece was registering anaverage annual GDP growth rate of 8per cent, second only to Japan. It was atthis time that the Greek ruling elitesinvented a new strategy to stave offmass political protest: the large-scalerecruitment of civil servants. It was astrategy which continued unabated afterthe restoration of democracy in 1974: forboth of the new parties which alternatedin power after that date, the right-wingNew Democracy party and PASOK (thePan-Hellenic Socialist Movement), itproved a useful means of winning andretaining support among key constituen-cies of voters.

According to the census of publicemployees taken by the Greek censusagency, in 1951 civil servants, includingarmy officers, numbered 64,956, or 0.85per cent of the total population of 7.6million. In 1961, when the populationwas 8.4 million, the number of civil ser-vants had risen to 104,840, or 1.2 percent of the total population.1 Althoughthere are no available data concerningpublic employment in the 1970s, the1991 census recorded that by 1988 thenumber of civil servants had increasedto 589,386, or 5.7 per cent of the totalpopulation of 10.3 million. Today, aftera further 25 years of PASOK–ND ruleand with the total population of thecountry at 10.8 million, the number ofcivil servants has soared to 768,009, or7.1 per cent of the total population.

By the 1970s, the Greek economy’sdependence on wider European andAtlantic economic structures, its contin-uing inability to develop industrial econ-omies of scale and PASOK–ND’sbipartisan strategy of employing ever-increasing numbers in the civil servicetook their toll on growth. When theWest faltered in the stagflation of the1970s, the economic and modernising

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prospects for Greece also suffered. Theparadox in the Greek case was thatwhereas the Western elites’ response tothe 1970s slump was neoliberalism andpolicies of financialisation and globalisa-tion, the response of the Greek rulingclasses was rather a pro-interventionistKeynesianism. Under the leadership ofKostantinos Karamanlis, in the secondpart of the 1970s, New Democracyinitiated a massive programme ofnationalisation and intervention inaggregate-demand management, a pol-icy continued by Andreas G. Papand-reou’s PASOK in the 1980s. Both parties,however, financed this programme, aswell as pro-welfare reforms, wageexpansion and other clientelistic prac-tices, not through taxation—as was thecase in Western Europe and Scandinavia—but through domestic and externalborrowing. The result was the furtherexpansion of Greek national debt: from20 per cent of GDP in 1975 to 120 percent in 2008, the year before the financialcrash. Herein lies the second importanthistoric source of the Greek debt prob-lem today.

Challenged by an increasingly power-ful labour movement, the cycle of debtcreation via domestic and external bor-rowing was initiated and reproducedby the ruling elites of PASOK and NDfor political and electoral purposes. Inevery electoral cycle since 1974, theincumbent party had replenished thestate machine with unskilled labour inorder to contain its political decline.Throughout the 1980s, pension benefitsand tax breaks were periodically intro-duced and withdrawn, all with the aimof excluding communist forces frompower and dividing the trade-unionmovement while securing the politicalreproduction of the two-party system.In this sense, the clientelist and corruptpractices of the ruling classes duringand after the Cold War should be seenas political strategies employed by abipartisan elite seeking to maintain its

rule in the absence of economic mod-ernisation and growth. Contrary to theconventional orthodoxy which assignspro-labour features to PASOK’s policyand neoliberal ones to ND, it is moreaccurate to see both parties as seekingto modernise and reproduce their posi-tions of power over and against thesocial and political demands of thelabour movement.

In these circumstances, it is difficult tohold the Greek people responsible forthe country’s current debt. The Greekstate is characterised by a closed politi-cal system run by a narrow elite operat-ing with very little transparency. TheGreek electorate, in practice, had littleknowledge over this period of the wayin which decisions regarding the distri-bution of resources were taken, let alonetheir long-term implications.

Interestingly, the two strands of thecommunist left—the orthodox Com-munist Party (KKE) and the radical‘Euro-communist’ branch out of whichemerged some of the factions that todaymake up Syriza—opposed this sort ofKeynesianism Greek-style, as well asexorbitant defence spending (see below).The KKE in particular opposed thecountry’s entry into the European Eco-nomic Community in the 1970s and1980s, arguing that the country’s weakagricultural and industrial base wouldmake competition with the rest of theEEC unequal and lead to massiveunemployment. PASOK too originallyopposed EEC membership, but onassuming power in 1981 it adapted toEurope’s normative framework andrequirements, albeit grudgingly.

The role of defence spendingIf Greek debt arose originally from thecountry’s very particular form of politi-cal economy and geopolitics, it has beenexacerbated by two other factors. Thefirst is defence spending. By exaggerat-ing the threat coming from Turkey and

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the vulnerability of both Greece itselfand Cyprus, the Greek establishmenthas been able consistently to argue thatGreece needs a large and expensive mili-tary. In 2009, defence expenditure wasas high as 3.2 per cent of Greek GDP, ascompared with 2.4 per cent in France,2.7 per cent in Britain, 2 per cent in Por-tugal, 1.4 per cent in Germany and 1.3per cent in Spain. At the beginning ofthe full-fledged crisis of 2010, Greecebought six warships from France at acost of €2.5 billion and six submarinesfrom Germany at €5 billion. (This is oneof the reasons why France and Germanyare the main holders of Greek debt.)

Indeed, between 2005 and 2009,Greece was one of the largest Europeanimporters of weaponry. During that per-iod, the purchase of 26 F-16s from theUS and 25 Mirage-2000s from Francerepresented nearly 40 per cent of thecountry’s total import volume. Accord-ing to Stockholm International PeaceResearch Institute data for 2006–10,Greece was the fifth largest weaponsimporter in the world, with a globalquota of 4 per cent—about half that ofIndia (9 per cent) and two thirds that ofChina (6 per cent; Chinese GDP is abouttwenty times that of Greece).2

All this is endorsed by the US andNATO, whose ‘realist’ military doctrineholds that the way to achieve peaceand stability in the region is by main-taining a balance of military powerbetween Greece and Turkey. Fed byperiodic but controllable tensions inCyprus and the Aegean, this ensuresthat both polities continue to consumeweapon systems, military aircraft andother military supplies made in the USand other NATO countries. At the sametime, they aim to keep Greece’s geo-political and security orbit in the east-ern Mediterranean away from Russianand Chinese interests. Most of the pur-chases of military equipment have takenplace through the issuance of Greeksovereign debt.

The comprador economyThe second factor contributing to Greekindebtedness is tax evasion. But it is notthe tax evasion of the ordinary Greekwage earner or the petty-bourgeoisie,which—if it has occurred—has neverbeen a major cause. In terms of sheerscale, the tax evasion which matters isthat of what might be called Greece’s‘comprador’ oligarchy.

The classic definition of a ‘compradorbourgeoisie’ comes from Nicos Poulant-zas3 via Andre Gunder Frank. It is a fac-tion of the economic elite which acts asa go-between for foreign companies indomestic and foreign trade and, we cannow add, in financial markets. A com-prador can be the owner of an importcompany in a peripheral country such asGreece, or a financier or banker tradingfinancial commodities (derivatives, insur-ance, et cetera) generated in the advancedeconomies.

Over the past twenty years, the Greekeconomy has come to be dominated bycomprador activity of this kind. In thewake of the privatisation and liberalisa-tion programmes begun by PASOKPrime Minister Kostas Simitis in 1996,companies such as the Alpha Group,Mytilineos SA, Bobolas SA, IntracomHolding SA, Marfin Bank, MIG and theSfakianakis Group began to dominatethe new business environment. TheSfakianakis Group, for instance, whichstarted out in the early 1960s manufac-turing buses, saw its profits decline inthe 1980s and quickly diversified intocomprador activities, becoming Greece’sprime car importer from Germany,France, Italy and the US. Greece’s tele-communications operator, OTE, whileunder a programme of partial privatisa-tion, bought Romania’s Rom Telecom,defeating Telecom Italia, the only otherbidder. US companies provided technol-ogy and other capital for further mod-ernisation. The Mytilineos businessgroup bought Romanian SC Somerta



Copsa Mica, a lead and zinc smeltercompany, with a view to expanding intometal processing and boosting itssupplies to Kosovo and Macedonia.Cement manufacturer Titan, in a jointventure with Holderbank of Switzerland,acquired Macedonia’s plant Cementami-ca USJE. Latsis, a London-based shippingcompany, participated in investment ven-tures in Bulgaria and Romania throughthe euro-merchant Balkan Fund, oper-ated by Global Finance, a Greek ven-ture capital fund manager. Around thesame time, Spiro Latsis set up Euro-bank EFG in Greece—the third largestprivate bank in Greece, recycling capitalstemming from the oil trade and equityinvestment in, among others, Poland,Ukraine, Turkey, Serbia, Romania andBulgaria. In this new and vibrant busi-ness environment, even divided Cyprus,an EU member state since 2004, becamean offshore paradise and tax haven,accommodating rentier and financialactivities of Greek, British, Russian, Ser-bian or Persian-Gulf origin. Its banks,meanwhile, continued to buy and tradeGreek debt. All these new businesseswere given huge fiscal privileges andtax breaks by the Greek Government,while some of them, through registra-tion in Dubai and other tax havens,avoided Greek tax or regulation alto-gether.

Greek shipping capital, a prime inter-national force in world seaborne tradewith no substantial base in Greece, playsa critical part in this story. A large partof the Greek merchant fleet is listed inthe shipping register under flags of con-venience, so no substantial tax incomecan be raised by the Greek state. Thisloss of income became particularly sig-nificant in the 1990s and 2000s: the glo-bal share of the Greek merchant fleet—which was just 1 per cent in 1947 and 12per cent in 1970—soared to 17.4 per centin 2000.

The consequences of this shift intocomprador-financial activity for the

Greek economy can also be seen in thebalance-of-payments figures. In 1994,Greece’s exports-over-imports ratio was44 per cent; by 2010 this had fallen to 29per cent.4 The deterioration also reflectsthe negative impact of the country’sentry into the Eurozone in 2001, afterwhich Greece was almost entirely out-competed by the European core.

It is impossible to estimate the scale ofthe tax evasion practised by the super-rich comprador-cum-financial class whichengaged in this new economic activity,but it is clear that it has been enormous.As the recent scandal of the so-called‘Lagarde list’ of tax evaders demon-strates, Greece’s PASOK–ND rulingelites cooperated to protect wealthy indi-viduals from having to pay their dues tothe state. In 2010, Christine Lagarde,then French Finance Minister, gave herGreek counterpart a list of 2059 namesof wealthy Greek individuals to investi-gate for possible tax evasion. The listincluded shipowners, industrialists,bankers, artists, politicians and their rel-atives: an estimated €13 billion hadmoved through the accounts on the listbetween 1998 and 2007, mostly to Swissbanks. Both PASOK and ND govern-ments systematically tried to cover thisup before journalist Costas Vaxevanisvery recently published the list. (Typi-cally, Vaxevanis was sued for allegedlyviolating the country’s data protectionlaws.)

But loss of tax receipts to the Greekstate was only part of the problem. Bythe late 1990s, Greece’s public accountswere in violation of the requirements ofEurozone entry: therefore, in 1999, Sim-itis’ PASOK Government paid a €3 bil-lion fee to Goldman Sachs to manipulatethe country’s accounts in order toachieve compliance. Greece was pre-sented with a fictitious rate of growth,which at times (such as in 2004, the yearof the Athens Olympics) grew to as highas 5 per cent. In reality, the growth reg-istered from the mid-1990s until the



break-out of the debt crisis in 2009–10was entirely debt-driven: this is whatthe Greeks now call ‘odious debt’, which—it is widely felt—should not be paid.This manipulation of the accounts iswidely criticised today, but was carriedout with the connivance of the Europeanauthorities, including Germany. TheGovernor of the Bank of Greece at thetime was Lucas Papademos, who laterbecame Prime Minister at the head of a‘technocratic cabinet’ from November2011 to May 2012.

In lieu of a conclusion: Somenormative reflectionsSo what can Greece do now? The bud-get which the current three-party gov-ernment presented to Parliament forapproval in October 2012 exceeds eventhe most pessimistic expectations:instead of debt peaking at 168 per ecntof GDP in 2013, as had been projectedin the March 2012 bailout agreement, itis now forecast to reach as high as 190per cent. At the same time, the economyis projected to contract by 4.5 per centand the fiscal deficit to remain at 5.2 percent of GDP. It is clear that any pro-growth, long-term strategic restructuringof the Greek economy is impossible ifthe debt problem is not substantiallyand comprehensively solved. But howcan this occur? There would appear tobe only three options.

The first—which has been chosen byboth PASOK and ND since the first bail-out in June 2011—is further pursuanceof austerity on the basis of the IMF–EU–ECB troika programme. The aim is tocreate a primary budgetary surplus andprevent the country’s official defaultwithin the Eurozone. This is technicallyfeasible, but socially it looks impossible:the fabric of Greek society simply cannotbear the strain. And politically, it is dan-gerous. The disintegration of the middleclasses is effectively creating a polarisedsociopolitical terrain, with the extreme-

right Golden Dawn party increasing itspopular support (recent opinion pollsgive Golden Dawn as much as 16 percent of the national vote).

The second solution, which wouldpreserve Greece’s membership of the Eu-rozone but offer some relief from auster-ity, would be the cancellation of asubstantial part of the debt, especiallythe so-called ‘odious debt’. This could beaccompanied by use of the largeamounts of money sitting as a firewallin Europe’s rescue fund (the EuropeanFinancial Stability Facility) for produc-tive investment in the Greek economy.There are plenty of investment opportu-nities in manufacturing, new technolo-gies, green projects, organic farming andsmall and medium-sized enterprises des-perate for finance. As things stand, thesefunds serve merely to bail out banks inthe periphery, thus recycling the prob-lem of debt creation. But this solutioncannot be politically achieved byPASOK or ND, the two parties whichhave led the country to the presentsocial catastrophe. Syriza, under certainconditions, and assuming it becomes acoherent political bloc with a realisticprogramme, is the only force that couldnegotiate such a policy solution withinthe EU.

The third option for Greece would bea debtor-led default and exit from theEurozone. This might not be the optimalsolution for either Greece or the rest ofEurope, but it seems to many in thecountry that the current troika pro-gramme will lead mathematically to this.Indeed, Syriza has argued that althoughits preferred option is to stay in the Eu-rozone, this cannot be done at the costof the country’s social and humanitarianconditions. In other words, Syriza seesthe ‘default and exit’ option as plan B.‘Default and exit’ would entail devalua-tion of the currency and introduction ofa new drachma, although for a period oftime two currencies, the Euro and thenew drachma, could be in circulation. It



entails denomination of all contracts,debts, loans, pensions and bank depositsin the new currency. Nationalisation ofthe banks and a new industrial policywould almost certainly have to follow inorder to stimulate a new path of eco-nomic growth.

This is no doubt the most radical and,for some, undesirable solution of all. Itcould not only bring about the end ofthe Eurozone but also damage the entiregeo-political balance of power in NATO,if a new Greece under Syriza soughtalternative security and economic arr-angements with Russia and/or China.Awareness of this among the Americanpolicy-making elite helps explain theUS’s insistence that European and Ger-man policy must not push Greece out ofthe Eurozone. However, it is the troika’slogic that would lead to that outcome,not Syriza’s. If it happens, the neoliberaleconomists and bankers will provethemselves more radical than the radicalLeft itself.

AcknowledgementsI am deeply grateful to the editorial teamof The Political Quarterly for their percep-tive comments on earlier drafts of thispaper. Some points made here appearedpreviously in www.openDemocracy.net(5 December 2011) and Insight Turkey,14, 2, Spring 2012.

Notes1 I draw here from V. K. Fouskas, ‘The Left andthe crisis of the Third Hellenic Republic, 1989-1997’ in Looking Left, ed. D. Sassoon, London,I.B. Tauris, 1997, pp. 67–84, and V. K. Fouskasand Constantine Dimoulas, ‘The Greek Work-shop of Debt and the Failure of the EuropeanProject’, Journal of Balkan and Near Eastern Stud-ies, 14, 1, March 2012, pp. 1–31.

2 See www.milexdata.sipri.org and SIPRI Year-book 2011, Armaments, Disarmaments and Inter-national Security, Stockholm, 2011.

3 N. Poulantzas, Classes in Contemporary Capital-ism, London, Verso, 1995, p. 71.

4 Source: Hellenic Statistical Agency (ELSTAT),Athens, 2011.



whatever happened to greece?

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