Time to Admit Defeat Greece Can No Longer Delay Euro Zone Exit


Part 3: The Only Way Is Down

Greece is now in the fifth year of recession. Economic output has shrunk by a fifth, unemployment is at almost 22 percent and youth unemployment is at more than 53 percent. The ranks of the unemployed grew by 95 percent between March 2008 and March 2011.

For the first time in postwar history, there are more people out of work than employed in Greece. The minimum monthly wage was reduced to €585, and was even brought down to €490 for younger workers. The monthly unemployment benefit was reduced from €461 to €385, and benefits are discontinued after a year. At the same time, more and more new taxes are being levied. One, for example, is the charatzi, a special tax on real estate collected through electricity bills.

All the same, according to reports by the IMF, wages in Greece are still significantly higher than in Portugal or in neighboring Balkan countries like Bulgaria and Romania.

A Vote Against the Political Class

There is little movement -- and when there is, it is downward. This explains why the election success of the smaller, more radical parties is not just a vote against the hated austerity policy and the so-called memorandums, as the loan agreements with Greece's creditors are dubbed. Most of all, it is a vote against the ruling class, which shamelessly took advantage of its power for so long.

Radical parties garnered more than 42 percent of votes. This shows how much trust the established parties have lost with the Greek public. For years, Greeks voted for either PASOK or New Democracy, but now they no longer believe their promises. Alexis Tsipras did particularly well in major cities.

The Greeks are fed up with their political establishment, which appears to firmly believe that the state's raison d'être is to allow them to line their pockets and enlarge their own sphere of influence.

The two candidates of the major parties, Conservative Antonis Samaras, 60, and Socialist Evangelos Venizelos, 55, are part of this establishment.

Ludicrous Farce

The two men have been professional politicians -- a term that is now perceived as an insult in Greece -- for decades. Samaras has been a cabinet minister three times and a member of the Greek parliament since 1977. Venizelos has held eight cabinet posts since 1990.

Samaras' campaign was a ludicrous farce, difficult to surpass in its political miscalculation and overconfidence. In defiance of all polls, he campaigned on the expectation that New Democracy would govern alone, and he made election promises that could easily compete with those made by Tsipras. "His rhetoric is straight out of a 1985 campaign manual," the newspaper Kathimerini scoffed.

Just how cluelessly Samaras has acted in the public sphere as head of New Democracy in the last two years is also reflected in the fact that he was the one who pushed for the new elections that have now dealt him this humiliating defeat -- and will likely put an early end to his political career.

Venizelos, on the other hand, a former finance minister and a sort of emblem of the crisis, who was responsible for finally curbing the tax flight of the rich and the super-rich, is also responsible for a highly controversial law that codifies the immunity of ordinary members of parliament. In supporting the legislation, he essentially endorsed corruption at the highest political levels.

A Nightmare for Business

Greece is caught in a uniquely Greek vicious circle. Hardly anyone wants to invest in a country that is not only bankrupt, but is also seen as highly corrupt.

Aris Syngros, who has been trying to market his country for the last year, is also aware of this problem. The gray-haired Syngros, 52, who is wearing a gray suit with a purple pocket square with yellow polka dots, runs an economic development agency connected to the Economy Ministry. The agency is called "Invest in Greece," and its logo looks like a stylized tree with a large amount of fruit.

Seen in this light, Syngros is at the forefront of the campaign to overcome Greece's poor image as a place for investment. The country is viewed as a nightmare for entrepreneurs, a place where it can take years to obtain something as simple as a license.

If Syngros has his way, all of that will now change. There has even been an expedited approval process for large projects for the last year. Nevertheless, Greek government agencies, with their Kafkaesque structures, sometimes even drive Syngros to desperation. It recently took two months until all required signatures had been appended to the minutes of a meeting of the relevant committee of ministers.

But the main problem is that investors are hard to come by. "They shy away from the sovereign risk," says Syngros. As an example, there has been only one taker so far for an extremely attractive loan set up for that purpose by Germany's KfW development bank.

New Beginning

For Syngros, a withdrawal from the euro would be a nightmare. But things cannot continue in the current vein. Experts are increasingly realizing that it will be difficult to attract foreign capital to the country under the current conditions. But an economic new beginning, including a renaissance of the drachma, could change that.

If the currency is devalued, it will become cheaper to buy Greek companies and operate them profitably. This could stimulate investment, say proponents of a Greek withdrawal from the euro in Brussels and Berlin.

Europe's governments have expanded their bailout funds to protect other southern European countries like Spain, Portugal and Italy, and private creditors have largely withdrawn from Greece. Under pressure from Berlin, Paris and Brussels, and after months of negotiations, banks, insurance companies and other investors waived almost 75 percent of their total claims of €206 billion against the Greek government in early March.

Billions of losses in Greece have spoiled the bottom lines of many financial companies. But because the debt haircut was so long in the making, the banks were able to digest their bad Greek bonds in small bites without getting into trouble themselves.

The banks complained that they were forced to agree to the supposedly "voluntary" haircut. But if Greece now withdraws from the euro and Athens can no longer service its debt, private-sector creditors will benefit from the fact that they have already survived the worst.

"The direct costs of a Greek government bankruptcy are manageable for private creditors," says Jürgen Michels, chief economist for Europe at Citigroup. Furthermore, only a portion of the remaining debt lies with banks and insurance companies in the euro zone, while the rest has been taken on by speculators outside Europe. This is why a bankruptcy would probably not severely affect the European banking system.

Discuss this issue with other readers!
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LondonCity 05/14/2012
1. The only way forward
Sadly Greece it will be painful but it is time http://worldeconomicreconstructionfoundation.blogspot.co.uk/2012/05/economic-solution-for-world-economy.html
Inglenda2 05/14/2012
2. Greece could pay with goods
We are told that should Greece leave the Euro Zone, the German tax-payer will be burdened by 80 Milliards of losses. The question is, why? Following the two world wars, for which Germany was given the blame, no financial mercy was shown to that country. It was expected to pay every penny back, plus interest, for the costs which other countries had incurred. The financial crisis in Greece is completely home made and therefore should be dealt with by the Greeks themselves. This does not mean of course, they should not receive help from other European states, but there is always the possibility for them to pay back their debts in the form of commodities, when currency is not available. Greek olives and wines, for example, are well known for quality. The writing off of foreign debts and the attempts to buy the friendship of other states, through huge amounts of financial assistance, are the main reasons for Germany's own current fiscal problems. Add to this the costs of German troops being stationed and used, in areas in which they have no justified reason to be, and it is easy to calculate how long it will be until Germany itself will need help.
PHOEVOS 05/15/2012
3. A slight correction on the title
You are right: It's time for Merkel to admit defeat. Germany can no longer delay abandoning her arbitrary terms. Dean Plassaras.
tnt_ynot 05/15/2012
4. Not defeat
Default day is near and it is overdue. But Angie shouldn't have to admit deafeat. She should embrace a late arriving sense of reality. More importantly she should use this revelation as a guide to other countries who should exit from the euro and if they don't Germany should drop out soon. Anthony http://euro-meltdown.blogspot.com
keksguru 05/15/2012
5. time for revolution in Greece
as I read that the "closed" professions are still closed, 2 years after the law of their liberation was introduced I feel that Greece needs a radical change. If politicians can't do that, military has to. It cannot be that taxi and truck drivers can force the gouverment... the only power of legislation is on the top and not on the bottom. If new laws come into force people have to follow, even if some of them do not agree. But same as in other countries, 1% is ruling everyting and the country doesn't develop. If these ever-gouverning structures are not overthrown nothing will change.
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