In light of the expected naming of Kevin Hassett to head the White House Council of Economic Advisers, it is important to remember the value of economists (and other eggheads more broadly) in policy discussions. During the 2016 campaign and his subsequent administration, Donald Trump has been consistently insulated from serious academic economists in a way that stands out from past candidates and presidents.
Two and a half millennia ago Greece was the Western world. Today it is the center of attention once again, but for reasons that will not be a source of pride for generations to come. While Europe broadly faced a financial storm in recent years, Greece has faced a hurricane. Turn on the news or open the newspaper and any report from Greece is likely to be bleak. Years of poor policy have come to a head. In this post I’ll give a rough overview of the situation and my observations from my brief time in Greece. You can skip over the wonky stuff as you like, it’s nothing new or groundbreaking. I just wanted an excuse to write about economics.
When Greece joined the then-European Community (now European Union) it was the poorest member state. Though it developed in the following decades, it remains poor compared to its EU brethren.
The creation of the euro was supposed to impart some fiscal discipline to member governments by forcing them to abide by certain limits on deficits and debt. Certain preconditions had to be met before joining the currency union. At the time of the euro’s creation Greece appeared to meet these requirements. Now it is clear that they were not prepared and that much of the economic data gathered by the Greek government was inaccurate.
Currency union brought a huge inflow of foreign capital to Greece. With foreign money coming into the country, the government could maintain high levels of spending. Foreign capital flows shut off once the global recession hit, meaning that the government could no longer finance such large deficits.
Greece's unemployment rate skyrocketed, productivity declined, and a vicious economic cycle began.
Assuming Greece would have been hit by a financial crisis no matter what, their monetary policy options differ depending on whether they have their own currency, the drachma, or the euro. With the euro their options are extremely limited. The European Central Bank (ECB) sets policy and does so based on the needs and desires of the whole eurozone. Germany, having the biggest economy in Europe as well as having had the central bank with best reputation for fighting off inflation, holds the most power within the ECB. With the German economy performing relatively well and Germany being the primary creditor to Greece, the ECB’s policy motivations are not necessarily in line with those of Greece. Thus, Greece has very little ability to address its problems through monetary policy as a eurozone member.
In an alternate universe where Greece faced this economic crisis under the drachma a set of tools would have been available to address this. The central bank could unilaterally devalue their currency. Making the drachma weaker against foreign currencies would have the benefit of making Greek goods cheaper for foreign buyers. Greek exports would rise and a current account surplus would help to finance the government debt.
Between 2010 and 2014 Greece received two bailout packages from the ECB, European Commission, and International Monetary Fund, together known as the Troika, totalling 240 billion euros. These bailout packages had several conditions attached to them aimed at addressing the structural problems in Greece’s economy. Austerity measures were predictably unpopular with the Greek populace.
After several political and economic developments It became clear earlier this year that Greece would still be unable to make their debt obligations and some sort solution had to be reached in order to avoid default. The Troika proposed a third bailout package and further austerity.
On July 5 a referendum was held in Greece on whether or not to accept the proposed bailout package. Greeks had to choose two scenarios, neither of which was pleasant. By voting “Yes” they would accept the proposal of the Troika, avoid default, stay in the eurozone, and accept more cuts to services. Voting “No” meant rejecting austerity, but accepting uncertainty of the next step. Supporters of the referendum posed it as a question of whether or not to remain in the EU and eurozone, both of which the majority of Greeks support. For many, a “No” vote was seen as an effort to retain national pride, or at least a way to say “Fuck you” to the creditors and austerity. The referendum was defeated handily 61 percent to 39 percent.
As convoluted as this summary may be, it’s still extremely simplified. Greece has been in a turbulent situation for years now. If I included every detail I’d never have time to write anything else.
Regardless of the specific path Greece follows from here, the economic situation is rough. Over one quarter of the labor force is unemployed. Production is still way down. National debt is still incredibly high. There is no clear path forward. The Greek political situation is messy as the far left Syriza party controls the government and they have demonstrated a failure to effectively grasp either economics or politics. A week after the referendum the Syriza government accepted a new bailout package with even steeper cuts to pensions and higher taxes than the one rejected by the referendum. It appears with this third bailout that threat of Grexit has been put off for now. Greece still needs a lot of help. Much of this is their own fault. However, creditors should recognize that a significant restructuring of Greek debt is likely in everyone’s interests. If properly handled, the consistent uncertainty and chaos that has become the norm with Greece and has infected Europe can be mitigated in large part.
I won’t pretend that I truly understand the sentiment of the people in Greece or even all of the economic and policy factors at play. I caught a glimpse of Greece as it faces several challenges. I can only describe what I saw and what interpreted. For all I know, I could way off target on some of my judgments.
On Kalymnos the effects economic crisis aren’t immediately obvious. I have no reference point to work from, but my immediate sense was that tourism was slow compared to years ago when the economy was functioning. This was confirmed when I talked locals at stores and restaurants.
“You should have seen it seven or eight years ago. There was nowhere to sit around here. So many people visiting. It’s bad now. Really bad compared to before.”
That’s what one restaurant employee told me as I ate breakfast near the ferry port. Restaurants line the waterfront in the area, but none of them was near being packed. This was true just about anywhere. Sure, some restaurants got fairly busy in the evenings, but there were more near empty ones than I could count. The pain of the economic crisis was not immediately obvious on Kalymnos. No doubt that business owners feel it, but it’s much harder for the tourist to see the problems.
The economic issues are visible in Athens. The guidebook calls the city “edgy”. I suppose that’s fair, but maybe a tad polite. There is graffiti everywhere. The locals say this is nothing new, the amount has just increased. The streets are dirty. Protests are a regular occurrence, though I wasn’t witness to any. The police presence is quite high. Like many things, I don’t know if this is normal or they’re expecting more activity with the recent bailout talks.
A common spray paint tag across the city is “ΟΧΙ”. “No”. No to the referendum. No to austerity. No to creditors. Three letters to be found just about anywhere.
The anarchist circle-A is another symbol peppered everywhere. Not surprising in a city covered in spray paint.
Posters from the KKE, the Communist Party, has posters across the city. Once outlawed under the military junta, the KKE has become the fifth most popular party in Greece. Posters for an event in May celebrating 70 years since the defeat of Nazi Germany still remain posted. It’s easy to see them drawing new meaning following the defeat of the referendum. Another defeat of the Germans by Reds. I don’t know if the KKE sees it this way, but if were them I’d be running with this concept. The left has been quick to bring up creditor Germany’s Nazi history.
In a case of another political philosophy being pulled from the rotting garbage dump of history, Golden Dawn, modern fascists and antagonists to the KKE are the third most popular political party in Greece. Their presence is less prominent in the streets of Athens. However, reactions to them are everywhere. Anti-fascist and anti-Nazi symbolism is easy to find. Once again communists and fascists are having at it.
There are lots of people to be seen during the day in Athens not engaged in any productive capacity. It’s hard for me to say what portion of these people are unemployed and what portion are simply taking a break. I’m curious, but enough to go around asking random people on the street their employment status so I can post about it on my blog.
There are obvious homeless on the streets. It’s not a shock. Any large city in America has this problem. Like a lot things, locals just say it existed before and has just gotten worse with the crisis. Homelessness has exploded in Athens lately and created more issues for the system to handle.
Coming to and from Kalymnos I had a few hours in Kos as I waited to change ferries. Kos is quite a bit larger than Kalymnos and more heavily trafficked. There are a few signs of the economic situation, but another crisis is what grabs attention on Kos.
While Greece has been weathering their economic crisis an overflow of migrants has simultaneously appeared. They come from Syria, Iraq, Libya, and beyond. Greece has become the top destination in Europe for refugees.
Groups of these immigrants gather near the ferry port in Kos. Having escaped physical dangers in their homelands they still face incredible insecurity in their new locales. Greece does not know how to handle the influx of people. Even if it did, there remains the issue of them having the means to handle it. Their presence is very visible. Walking to Nerantzia Castle, built by the Knights Hospitaller to protect Kos from outsiders, the refugees line the street and park. There is the unmistakable smell of human shit in the shadow of the tree beneath which Hippocrates once taught medicine. There is no ignoring it. These people do not choose to come to Greece like I do, at leisure and with little concern. They come from some of the most horrific conditions currently found on earth.
The problem is long term one too. So much of Aleppo, where the Silk Road ended, has been turned to dust. Why return home when there is nothing to return to?
Greece is not alone in facing this. For most, Greece is only a transit. A pit stop before Germany or elsewhere. Italy too has been overwhelmed with people coming from the sea.
I do not have solutions to this refugee problems. Not now. Not yet. Maybe not ever. At least I can say I observed it and in some small measure documented it.
On the Way Forward
Greeks seem to have mixed feelings about the future. The near- and medium- terms are going to be painful. How painful is anyone’s guess. Still, the long-term leaves room for optimism. A shop owner on Kalymnos insisted to me that what Greece was facing wasn’t even really a crisis. Greece had faced those before. Greece was dealing with “problems”. Nevertheless, he was insistent that the Greek spirit would overcome the problems and the economy would be prosperous once again. It’s tough to have the kind of optimism he had, but it might have worked to convince that Greece will survive and thrive again. It’s going to be a while, but for their sake, I hope the Greek spirit does triumph.