The Greek government's debt became unmanageable after autumn 2008, but the EU didn’t respond until over a year and a half later. (source)
In the post-national Greece that developed after 1974, the clear winners were the middle class. Thanks to the strong purchasing power of other European currencies, and later the Euro, they could travel abroad and buy imported goods at little expense. Domestic goods and services likewise remained cheap thanks to outsourcing of jobs to lower-wage countries and insourcing of lower-priced labor for agriculture, shipping, domestic help, and construction.
The clear losers were the working class. Not only did they have to scramble for fewer and fewer jobs—those that could not be relocated to lower-wage countries— but they also faced growing competition from legal and illegal immigrants who would work for half the going market rate. This two-way movement of jobs and workers curbed the rise in wages of low-income earners and increased the rate of permanent “structural” unemployment.
And it has been the least skilled who bear the brunt of the effects of competition from clandestine immigrants on the job market. […]. In the functioning of the Greek economy, peripheral or marginal workers (women, unskilled young people, Roma, seasonal workers, etc.), who play a key role in the functioning of the parallel economy, have seen their status undermined by the mass entry of clandestine immigrants who offer their labor for even less. But this is also true for other categories of wage-earners such as construction workers, who are nonetheless among the most unionized and best protected of all workers. In this sector, clandestine foreign workers make up over 50% of the total workforce, and their wages reportedly do not even reach half the legal minimum.
The rise of unemployment in recent years more greatly affects unskilled workers whose traditional sectors of employment have today become the main ones where clandestine workers are most heavily concentrated.(Pteroudis, 1996, p. 178)
Native Greek workers thus became steadily impoverished, at first in comparison to other Greeks and, later, in absolute terms.
Responses of the Greek government
The Greek government was aware of the plight of the working poor and responded by greatly increasing social assistance, pensions, and public-sector employment. While this response provided displaced workers with more secure incomes, it also increased their dependence on the State. A kind of clientelism developed where recipients of government benefits supported the party in power as long as it maintained or increased their benefits. One example was the lowering of the retirement age to 55 for men and 50 for women in the case of arduous occupations. The definiton of "arduous" was then gradually broadened to cover even waiters and hairdressers. Early retirement became a way to create loyal voting blocs and also to thin the ranks of older unemployed people, thus making the unemployment rate seem lower than it really was.
The government did try to attack the root problem, i.e., the outsourcing of jobs to lower-wage countries and the insourcing of lower-priced labor. This two-way movement, however, benefited the middle class by providing cheaper goods and services, and it was this class that influenced public policy the most, either directly as politicians or civil servants or indirectly through the media and popular culture. For the middle class, it was too easy to portray the pauperized working class as losers in the new global economy.
As a result, protectionist measures were half-hearted. There was certainly an awareness that Greece was drifting into an uncompetitive dead zone: unable to compete against lower-wage countries for manufacturing jobs and also unable to compete against higher-wage countries for high-tech jobs:
The Greek sectoral structure consists mainly in low knowledge sectors. Many such sectors have lost their comparative advantage due both to the low labour costs of some less developed countries and to the high value added business strategies aiming at niche markets in more developed countries (Ministry of Development, 1997, p. 7)
For the Greek government, the solution was to specialize in “high technology and knowledge intensive sectors.” Such an industrial policy would evidently favor workers with high intellectual capacity, i.e., the upper third of the IQ distribution. But what about the other two-thirds? To bring as many people as possible into the knowledge economy, there would be an expansion of technical education and “a policy to increase the mobility and to improve the quality of the labour supply” (Ministry of Development, 1997, p. 14).
This industrial policy was never really carried out. Part of the problem was lack of money. The main problem, however, was wishful thinking. Few of the structural unemployed were suitable for retraining as knowledge workers. It was even more naïve to see immigration as a way to meet this need. Finally, more should have been done to identify specific market niches where Greece could compete globally. It simply wasn’t enough to point to the knowledge economy as the wave of the future.
The government might have kept things from getting worse by halting the inflow of lower-wage migrants. It did make some attempts, which generally took three forms: 1) legalizing the existing illegal immigrants; 2) taking measures to prevent further illegal immigration; and 3) penalizing employers who hire illegal immigrants (Pteroudis, 1996, p. 179). Of the three, the first one was the easiest to put into practice. But it also made the other two even harder to implement. By raising hopes that future rounds of legalization would be in store, it encouraged even more immigrants to come. Employers responded similarly, seeing illegal status as only a temporary obstacle. Measures against employers were also difficult because lower-level inspectors could be bribed and higher-level functionaries pressured to water down enforcement.
The debt crisis
As Greece entered the new millennium, the pauperization of native Greek workers remained a worsening problem. More and more money had to be found to keep them at a First World level. For a time, this seemed possible, especially during the boom years of 2000 to 2007 when the economy was growing at an annual rate of 4.2% —one of the highest rates in the Euro zone.
Yet even during those boom years, with money pouring into the public coffers, the government not only continued to run deficits but also ran them at levels higher than what the EU officially allowed.
At the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001, for arranging transactions that hid the actual level of borrowing. The purpose of these deals made by several successive Greek governments, was to enable them to continue spending, while hiding the actual deficit from the EU.
[…] the revised statistics revealed that Greece at all years from 2000-2010 had exceeded the Euros stability criteria, with the yearly deficits exceeding the recommended maximum limit at 3.0% of GDP, and also the debt level clearly exceeding the recommended limit at 60% of GDP. (Wikipedia, 2012)
The boom ended in autumn 2008 as the subprime mortgage crisis spread to Europe. Greece’s main industries of shipping and tourism were badly hit, and by early 2010 the government was openly admitting that its debt level was no longer sustainable. In April, rating agencies downgraded this debt to “junk bond” status. In May, the EU finally responded by organizing a bailout loan with the IMF in exchange for austerity measures.
Why did the EU take so long—over a year and a half—to respond? One reason was that it had been repeatedly misinformed on the extent of the debt crisis. Another reason was the ongoing effort to admit Turkey as a full EU member. Greece’s support was crucial, particularly given the continuing Turkish occupation of northern Cyprus, and there was some reluctance among EU leaders to come down too hard on the debt issue.
Greece at the crossroads
Today, Greece has two options. One is to remain in the EU, pay off its huge debt, and accept a package of austerity measures. The other is to leave the EU, cancel at least part of its debt, and let the value of its national currency depreciate to bring imports and exports into balance.
For now, Greece will remain in the EU. There is a strong element of national pride at stake here, and also a fear of the costs of moving back to a national economy with its own currency. But the status quo will also be costly, as seen in the measures of the latest austerity package (February 2012):
- 22% cut to the minimum wage from the current €750 per month
- Holiday wage bonuses to be permanently cancelled
- 150,000 jobs to be cut from the state sector by 2015
- Pensions to be cut by €300 million in 2012
- Laws to be changed to make lay-offs easier
- Spending cuts to health and defense
- Industry sectors to be given the right to negotiate lower wages
- Closed professions to be opened up to allow for more competition, particularly in the health, tourism, and real estate sectors
- Privatizations worth €15 billion by 2015, including Greek gas companies. Over the medium term, the goal will be €50 billion (Wikipedia, 2012)
Staying in the EU is an option that lacks even the virtue of stability. It will probably worsen the existing class conflict in Greek society. To maintain their position of relative affluence, the post-national middle class may openly abandon the native working class and stigmatize them as bums who deserve to be replaced by hardworking immigrants.
In contrast, leaving the EU would shift the costs from the working class to the middle class. By going back to the drachma, and letting it devaluate, the country could stem the outflow of foreign exchange by making imports more costly and exports cheaper. Less money would be wasted on frivolous spending, especially trips abroad and imported luxury items, and more spent on Greek-made goods, thus creating local employment.
Rebuilding a national economy would not be easy, but the main stumbling block is not the transitional costs, however painful these costs may be. It’s the current post-national elite. Leaving the EU would severely undermine their legitimacy … and their lifestyle.
References
Ministry of Development. (1997). International competitiveness and a consensus-based industrial strategy for Greece: The main points of consensus, Project “The Future of Greek Industry”
http://www.cibam.jbs.cam.ac.uk/research/projects/futuregreekindustry/downloads/fgi003.pdfPteroudis, E. (1996). Emigrations et immigrations en Grèce, évolutions récentes et questions politiques, Revue européenne de migrations internationals, 12, 159-189 (Espagne, Portugal, Grèce, pays d'immigration).
http://www.persee.fr/web/revues/home/prescript/article/remi_0765-0752_1996_num_12_1_1503Wikipedia (2012). Greek government-debt crisis
http://en.wikipedia.org/wiki/Greek_government-debt_crisis