Reg Rumney
Reg Rumney

Greece: What you think you know may hurt you

“Nescience”. What a lovely word. It means not knowing. Looking at reactions to the Greek crisis, outside Greece, before and after a somewhat puzzling referendum makes me wish more people would accept the state of nescience on some issues.

For me, the Greek tragedy presents a fascinating study of how politics and economics are inseparable. I find it impossible to make statements of fact about the Greek crisis without making value judgments about the actors. Even the word “crisis” can be questioned. For whom is it a crisis? Ordinary Greeks are undoubtedly suffering, but crisis suggests some impersonal force rather than deliberate action.

For some, Greece’s debt disaster results from malice and a kind of anti-Greek racism by members of the European Union. Germany, the most prosperous country in Europe and an opponent of easy terms for Greece, is seen as unsympathetic because Germans regard the Greeks as shiftless and lazy.

Equally, asking for repayment of the debt without considering the effect on Greeks could be seen as the callousness bred from technical approaches to human problems. Others blame capitalism and the reliance in modern economies on debt, but without ready alternatives this comes over as simplistic. For one commentator, “The Greek debt crisis signals the beginning of the end of the current debt-fuelled global financial system.”

Others point out that Greeks cannot be blameless. Business Day editor Songezo Zibi tweeted: “The way the Greek government talks sometimes you’d swear Greece had absolutely nothing to do with creating the situation.”

Indeed, Big Short author Michael Lewis, in writing about the situation before the great global financial crisis, has detailed the kind of excess ordinary individuals indulged in, thanks to easy money.



Yet others point out that monetary union should entail transfers of money from richer to poorer countries, as they do in provinces of countries. The Eurozone structure of monetary union without political union cannot work.

Behind some of the criticism is the idea that lenders can be as irresponsible as borrowers, and that the Greek debt should not be rescheduled but substantially forgiven.

“The quality of mercy is not strained,” said Portia in making judgment on Shylock’s unreasonable and literally murderous demands for repayment of debt. However, note that the debtor, Antonio, gets off completely in the play for making promises he could not keep. In real life, presumably no one on the Rialto would ever lend him money ever again.

I, for one, would not blame the Greek government for simply saying, “Look, we can never get our economy going while we are forced to pay back all this debt. Sorry.”

The consequences of Greek default are difficult to foresee, except that borrowing money for some time to come will be a complicated exercise, with all sorts of political and economic implications. Either you pay huge interest or political strings are attached.

Default is unlikely to be painless. I guess the fear of complete economic collapse motivated Greek citizens who did vote “Yes” in the recent referendum to accept creditors’ repayment terms.

All sorts of commentators have ventured to see their own meaning in the Greek debt crisis, often using the filters of their own local circumstances. Take the idea that European states were forcing an unnecessary “austerity” on the people of Greece. The idea of “austerity” is enraging to some groups in Britain, because it is the word used to justify rolling back the prized welfare state, something they accuse the Tory government of doing.

What does austerity mean? Specifically, it can mean running a neutral budget, where spending equals income, or running budget surpluses, that is spending less than tax brings in, despite poor economic growth.

For a household or individual, not spending what you don’t have is regarded as beneficial. Beware the fallacy of aggregation. For a country, balanced budgets may not only be unhelpful, they can worsen already bad situations. This was the lesson of the Great Depression, and a key principle of Keynesianism: for a government it is better to spend your way out of recession by borrowing to balance the budget than by cutting spending.

Borrowing has to have its limits too. Borrowing too much for too long leads to debt trap, and then the country will be forced to borrow from the lender of last resort, the IMF. The IMF will, one way or another, insist on being repaid, and that will entail government spending being cut. Is this austerity or the inevitable consequence of bad decisions?

And did Greece not make a bad decision by joining the Eurozone in the first place? Did the Eurozone make a bad decision by allowing Greece to join? Does laying blame help in any way?

More importantly, do Greece’s troubles actually give us any idea of what we as a country should do or not do? Or are they too specific to Greece?

I have my own views about what happened, but I am unwilling to blunder in with judgments based entirely on my own prejudice. I might be more certain of any insights had I been able to study the Greek situation more fully. I do think that as the situation unfolds some of us will have our prejudices confirmed. At the same time, let us not ignore any possibly uncomfortable lessons, however, in a rush to squash Greece into our own frame of reference. Let’s be careful about what we think we understand.

I am reminded of the graffiti scrawled on a wall in Northern Ireland in the 1980s: “If anyone here isn’t confused, they don’t know what is going on.”

Image – People read newspapers in central Athens on July 7, 2015. (AFP)

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    • Sibusiso

      They know themselves – that they don’t pay tax and wont pay back the money.

    • Chris Lombard

      1. Mr Micawber’s famous, and oft-quoted, recipe for happiness:

      “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

      Charles Dickens, David Copperfield

    • warsurvivor

      When individuals or companies go bankrupt in the capitalist system, the banks that recklessly lent to them take a “financial haircut.” Now that Greece is bankrupt, the German and French banks that recklessly lent to them are “too big to fail, and too rich to jail.” Maybe there is some corruption in Germany that Merkel needs to sort out?

    • Michael

      A financial system based on creating debt to pay off debt is the the devil’s brew – Greece is just the first crumbling ruins of the IMF farce as many other Western economies wait in line.
      The China / Russian axis seems to be the new power force who may step up but as bad as the Western financial system is, we have not seen savagery yet until these new masters take to the stage.
      One only has to observe their brutal domestic behaviour to get a glimmer of the type of treatment the China / Russian axis will meet out to the defeated and prostate Western nations.

    • Rory Short

      A healthy economy is comprised of completed voluntary exchanges of goods and/or services and this applies all the way from the individual up to the Nation State. Borrowing to cover current expenditures just does not make any sense at any level. The borrower and the lender in this situation are equally at fault.

    • Song Pin

      yup , agree

    • Song Pin

      now Chinia ecnomic also got big problem ,now the shares all drop down, all chinese people waiting for gov to help the share market~

    • Ingrid Le Roux

      Greece is a country, although hugely mismanaged, I hold dear. Over 20 years contact with friends kept me informed to some extent on what her people were thinking and going through.

      During WW2 Nazi Germany forced an interest free loan from Greece to fund Hitler’s war, while the Greek people went hungry. Elderly Greeks who lived through the war remember seeing their own starving on the streets.

      “Greece was looted and devastated by the Germans as no other country under their occupation. The German minister of Economics, Walter Funk, said Greece suffered the tribulations of war like no other country in Europe.

      “The massive looting of the country, the hyperinflation generated by the uncontrolled printing of German Occupation Marks by German local commanders, and the consequent economic collapse of the country, precipitated a devastating famine.

      “Germany and Italy imposed on Greece exorbitant sums as occupation expenses to cover not only their occupation costs but also to support the German war efforts in North Africa.

      “Indicative of the current value of the German obligations to Greece are the following: using as interest rate the average interest rate of U.S. Treasury Bonds since 1944, which is about 6%, it is estimated that the current value of the occupation loan is $163.8 billion and that of the war reparations is $332 billion. The French economist and consultant to the French government Jacques Delpla stated on July 2, 2011, that Germany owes to Greece 575 billion euros from Second World War obligations (Les Echos, Saturday, July 2, 2011).”

      Earlier this year the Greek government raised the subject of reparations again to Germany, but was brushed off repeatedly by them.

      Varoufakis (the Greek finance minister who resigned) proposed a system of Euro IOUs to be used in Greece until the economy stabilises – until it is safe for banks to start circulating the Euros they are safekeeping now. The same measure was suggested by others in the EU, however the Greek prime minister Tsipras did not support Varoufakis in this and other suggestions. Now the whole of Greece is sitting with its finger in its ear.

      Greek citizens voted against more austerity because eg. their pension pay-outs shrunk from 1300 Euros some years ago to about half that. When one bears in mind that a pensioner’s medicine costs ± 300 Euro/month it seems that money is taken from those who can least afford it. Is it fair?

      Close to 90 % of income tax goes uncollected. Germany’s figure is just over 2 %, the lowest in the EU, and this they believe grants them the authority to tell the Greeks how to run (ruin??) their country. The money holds the power. Wofgang Schauble has a hand in the trust which is to oversee the privatisation of Greek state owned assets – and again we see the monied controlling what is to happen, instead of putting people first. Varoufakis’ inputs were ignored during talks, he remarked he might as well have been singing the Swedish national anthem. Now remember, he is an Oxford educated professor in economics, and certainly he was the best person for the job – ‘I shall wear the creditors’ loathing with pride’. I admire him.

      Evading tax is at the top of everyone’s list because they don’t see the point of paying it to, what they believe is, a corrupt government. Tax inspectors are (from what I have been told by my Greek friend) not educated in bookkeeping, and might walk into a business and announce ‘we believe you owe 5000 Euros in tax’. We, the educated who do things by the book, prove that we paid what is due only to get fined double the initial amount. So it makes sense to evade tax and wait to get fined, does it not?

      The Greeks are very passionate about a number of things, and I think the lack of reparation funds after WW2 count among these. I strongly believe it would have made a difference to its people. Furthermore, I believe Germany acts like the school-yard bully.

      Turkey has enough funds to help Greece out and before the referendum considered doing so. What they decided since I do not know.

      Greece has many inefficient measures, but to list them disregarding context and history fails to inform us properly. What we read in the media on this crisis merely scratches at the surface – it is not as ‘stupidly’ straightforward as reported. I hope readers will educate themselves on this a bit more; my sympathy lies with the Greek people.