The End of the Bailout Greece Is Back on the Grid, But Recovery Remains Elusive

On August 20, the third aid package for Greece will end, marking the end -- for now -- of the country's debt crisis. But the country's slow economic growth and grim demographic outlook mean that even without the onerous rules attached to its repayments, it faces an uphill battle.

The school on the small Greek village of Kerasochori looks like the set of a disaster movie. Everything is still there: the black board, the math books, tables and chairs, the sports equipment, the map of Greece on the wall. Even the class registers are still in the corner. A layer of dust covers everything. About 20 boys and girls once went to school here, but 12 years ago it was closed down. That's where it began. There were no longer enough families in Kerasochori to keep it running.

Konstantina Kalli, 34, has unlocked the door and stands helplessly in the ruins of the past. "Anyone who leaves doesn't come back," she says. "The village is shrinking."

Kalli is Kerasochori's hope. She has a three-year-old daughter and is six months pregnant, with a girl. The birth will likely be difficult. There is no medical clinic nearby, and she has had to drive to Athens for every checkup, a journey of five hours by car along many winding mountain roads. Kerasochori doesn't have any child care. The nearest school is in the neighboring village, as long as there are enough children for it to remain in operation.

Kalli works for the local government, the biggest employer in Kerasochori. Together with two colleagues, a mayor, a priest and a police officer, she runs the district. About 100 people still live here in the village, most of them retirees. The average income is about 300 euros per month. There is almost no work -- the main sources of income are beekeeping and a bit of forestry. There's no tourism, even though, according to UNESCO, the air here is cleaner than almost anywhere else in Europe.

An Uncertain Future

But who's going to invest money in a village whose future is as uncertain as Kerasochori's?

On August 20, the third aid package of the so-called troika will end. The European Central Bank, the European Commission and the International Monetary Fund have transferred a total of 273.3 billion euros. From that point onward, the country will once again be able to borrow money on its own from international capital markets. And thus, one of the most dramatic moments in EU history, the Greek debt crisis, will come to a tentative end. It brought the euro to the brink of collapse, split the European Union and turned Greece into a different country.

No country has likely ever been as thoroughly scrutinized as Greece. Salaries and pensions were cut and taxes were raised as part of a brutal program of reforms. Greece will be paying back debts until at least the year 2060. The most important aspect of this has been overlooked: Only a country with a growing economy will be able to pay back those debts. But Greece is shrinking: 550,000 people have emigrated since the beginning of the crisis, leaving about 10.7 million people in the country. As is the case in Kerasochori, the government functions, the economy is weak, the future is uncertain, the people are leaving.

People are pinning part of their hopes for a brighter future on Olga Gerovasili, 57, a woman with one of the nicest and most honest titles a Greek minister can have: administrative reform minister. She is overseeing an administrative overhaul that could transform the country like nothing else has since Greece joined the EU. She wants to abolish Greek clientelism.

Greek Administrative Reforms Minister Olga Gerovasili: "We are on a good path."

Greek Administrative Reforms Minister Olga Gerovasili: "We are on a good path."


Although every politician has promised this since taking office, none has succeeded. For centuries, the Greek administration was little more than an excuse for legal nepotism. Clientelism was the functional principle of society. Its roots reach into the Ottoman era, when clan leaders represented the Greeks to the Ottoman authorities, and they have continued to this day. Jobs in the administration served as a reward. Relationships were more important than skills for filling official positions.


The article you are reading originally appeared in German in issue 33/2018 (August 11th, 2018) of DER SPIEGEL.

Now that is all to end. With the help of French officials, Gerovasili wants to lay a new foundation for the Greek administration. For the first time in its history, the Greek government has taken an inventory and determined who works where and who is responsible for what. Job appointments are no longer to be in the hands of powerful local politicians, and will instead be steered by a digital and independently controlled system. The aim of the system is also to use it to remove incompetent officials.

'The Old System Was Broken'

None of this has previously existed. So-called double-laws will also become a thing of the past, says Gerovasili. Previously, different rules were applied to single cases, and the decision about which one to apply was in the hands of the responsible official.

"When we came to power, we were bankrupt," the minister says at her desk, from which she can see the Acropolis and the Greek parliament. "The old system was broken, and we didn't have a new one. Now we are on a good path."

It is an experiment on an unprecedented scale. A government that barely functioned for centuries is trying to make new structures for itself in the midst of the deepest economic crisis in its recent history. An administration that previously primarily served to serve itself is suddenly meant to function in our digital age and internalize concepts like "lean management" and "accountability."

Nikos Pappas, 42, is the country's digitalization and media minister. An old friend of the prime minister from his college days, he is considered Alexis Tsipras' right-hand man. He is also known as the Syriza government's point man for the future. Pappas is currently working on a different Greek revolution: The digitalization of the Greek government.

"When I assumed this role, it worked like this," he says, " a clerk came to me, arms filled with files. He would lay them out and I would need to sign them. Then he would take all of the files away again -- and nobody knew where they went, if what had been decided would even be implemented. Now that's all over. Now I can load every file on my computer, provide every signature here. And the best part: I can trace the path of the files through the administration on the screen."

Legendarily Labyrinthian

Another revolution. The Greek administration was legendarily labyrinthian. Files could travel for years through dozens of official offices. When bureaucrats aren't hired for their skills, they need to justify their existence by signing as many things as possible. This also allowed favors to be carried out. In some cases, files were simply lost.

Much like the nepotism, this is also to become a thing of the past. One day, the older generation might entertain their grandchildren with tales of bureaucratic mayhem. Or will they? The tricky thing about this crisis is that although every reform is important, new measures cannot be disentangled from the country's demographic and economic problems.

A survey shows that 11.1 million people lived in Greece in 2011. In 2015, it was 10.8 million. According to forecasts, the population will only be between 8.3 and 10 million people by 2050. Today, 21 percent of Greeks are older than 65. In 2050, it will be about one-third of the population. There's only one way to stop this crisis: the emigration of young Greeks needs to be halted, emigrants need to be lured back and living conditions need to be stabilized so that families want to have children again. The birth rate is currently 1.4 children per woman, one of the lowest in the EU. Without massive economic growth, none of this will happen, but at the moment it doesn't look likely.

'Greece Needs To Finally Open Its Markets'

Which is unique. Greece lost about one-quarter of its gross domestic product between 2008 and 2018, one of the deepest recessions in modern history. Even given that its early-2000s boom was partly pie in the sky and financed on credit, the economy should be starting to recover on its own by now. At some point, business owners need to modernize their equipment and families will need to replace their refrigerators. Tourism is stronger than ever, and the Greek economy could have a growth rate of 4 or 5 percent, according to a study conducted by the German Economic Institute. But that's not what's happening. In 2017, the growth rate was 1.4 percent. The government is expecting 2 percent for 2018. That's not much.

"Greece finally needs to open its markets -- that's the most important thing," says Aristides Hatzis, 51, a law professor at the University of Athens. Hatzis has written one of Greece's most surprising bestsellers of the past few years: an introduction to laissez-faire thinking. It's surprising because economic liberalism doesn't have any deep roots in Greece. There is no liberal party. The Greeks traditionally think in terms of left and right.

"In the past decades, the governments have so overwhelmingly failed that Greeks blame everything that goes wrong on the state," says Hatzis. "While for many people 'liberal' only means that they want to pay less taxes."

The Greek crisis was a crisis of state institutions, says Hatzis. He claims the government didn't collect in enough money, and that it spent too much, and that the troika reforms commissioned by the EU were a reaction to exactly this, and that the expenditures were cut and the tax income raised in response. But he also claims that neither side spent enough time thinking about the economy, and that according to all indices measuring economic freedom, Greece is far behind, as far as it was at the start of the crisis.

"To raise taxes is easy, that affects everyone," says Hatzis. "It's difficult to take away the privileges of influential lobby groups." As long as that doesn't happen, he says, the country won't recover.

In fact, the Greek labor market was more strongly regulated before the crisis than in most other countries in the EU. After brutal reforms, it is now one of the least regulated. Contrary to all predictions, this has barely led to a decrease in the unemployment rate. This is largely because too few new businesses have been founded that hire workers -- the rules for founding a company remain as complicated as ever and the markets are protected from foreign investors. Only a few owners of large businesses are profiting from that, while competition is being scared away.

Success Stories

But there are some success stories. The troika's aid package required the government to undergo thorough privatization. It was controversial. One powerful union leader said the German businesses were "conquerors, not investors," when it was decided that the Frankfurt airport operating company Fraport would take over the management of over 14 Greek airports.

The original plan to drum up as much money as possible in order to guarantee the repayment of the debts didn't ultimately pan out. The sales were to bring in about 50 billion euros. So far, though, that figure has only been about 8 billion. But the businesses work. There's the Italian national railway company, which acquired the Greek national railway's passenger and cargo operations. It plans to launch high-speed rail service on the upgraded line between Athens and Thessaloniki in the coming year, reducing travel time to three-and-a-half hours. Part of the port of Piraeus, which was acquired by a Chinese consortium, has more than quadrupled the number of goods passing through it. And tourism has boomed since Fraport expanded airport capacities.

It looked at one point like the Greek debt crisis might pull the European Union into the abyss. At the moment, it looks more like a very expensive collateral damage to the progression of European unity. The Greek state needs to achieve a budget surplus every year until 2060, and transfer a large part of it to the creditors, according to the rules. That would be a difficult task for an economically successful country. For the Greeks, it seems impossible.

Because demographic and economic development are tightly intertwined. Every village that no longer has a pediatrician or which closes its school, is a village that is losing young families. Greece has about 230 inhabited islands, and when their villages age and the government thins out their infrastructure, they will, despite their beautiful beaches, no longer attract tourists either.

If all goes well, Kerasochori will be home to a baby again as of late November. Sometimes, Konstantina Kalli, the mother, will be happy that the old men who now sit in the village café can take care of her daughter. Sometimes, she will ask herself what she is actually doing here, in this lonely village where she is the only young mother.

The child will get older, go to school, become a teenager, maybe study and have children of her own. And when she's 42, if the EU and the euro still exist, and if Greece has obeyed the rules, the debts from the crisis will finally be paid off.

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