Implosion in Greece could bring the euro down with it


OPINION:If the long history of Greek political and economic dysfunction is a guide to the future, the euro zone’s 16 other countries are at risk too

GREECE IS a borderline failed state. Its society lacks cohesiveness and is deeply divided. Its economy is in shock. If the country’s history is any guide to its future, there is serious trouble ahead.

More than a year ago, when the troika of institutions that now oversees Ireland’s bailout first landed in Athens, there was hope that developed Europe’s most poorly governed country could be put on the right track.

A new government was then in place and its most senior figures seemed serious about radical reform. Many Greeks, particularly the young and the educated who recognise how dysfunctional their country is, backed rupture. There was much talk of opportunity in crisis.

That talk is no longer to be heard. The crisis now presents nothing but threats and risks.

This, in many ways, is unsurprising. The chronic dysfunctionality of the Greek state is long established. Since independence almost two centuries ago, Greece has experienced civil war, uprisings, mass displacement of people, dictatorships and terrorism.

There is no better reflection of its state’s failings than the issue that has drawn the world’s attention to the country over the past 18 months: budgetary chaos. According to a study by economic historians Carmen Reinhart and Kenneth Rogoff, the Greek state has been in default for almost one out of every two years since it was founded in the 1820s. Struggling under the second highest public debt burden in the world, it looks to be heading that way again.

The inability of the Greek state to stay solvent is explained in part by history. Having spent centuries as a subjugated province of the Ottoman empire, Greece was cut off from the step changes in western European politics and society. One consequence is a very weak civil society and limited tradition of independent institutions. Those who wield political power in Greece do so with a degree of absolutism unusual for democratic Europe.

The Greek trigger point for Europe’s sovereign debt crisis provides the most pertinent example of this. In countries where limits on the exercise of power are respected, statisticians crunch numbers independently. In Greece over the past decade, the government forced the national statistics agency to publish hugely doctored figures and installed placemen to ensure that happened.

After a change of government, the full extent of the deceit was revealed in late 2009. Over the first months of 2010 it slowly dawned on the bond market that the Greek state was bust. The world has been living with the consequences of the euro zone’s sovereign debt crisis ever since.

The size of Greece’s black economy reflects not only the weakness of its state in even-handedly enforcing the law but also a lack of social solidarity. A study by Friedrich Schneider, a German economist, found Greece’s black economy in 2010 was one-quarter the size of the official economy. Of 21 developed countries in the survey, Greece topped the table.

Outright venality in public life is another reason the Greek state is failing. According to Trans- parency International, it was the most corrupt country in develop- ed Europe in 2009 and ranks 57th from top in the world in the organisation’s Corruption Per- ceptions Index (Ireland is 16th).

Corruption is a very difficult habit to kick once it becomes entrenched. Among other things, it polarises society. And it is not as though there is an absence of strains and scars in Greek society. As recently as 1974 the country was a military dictatorship and suffered all the injustices typically associated with such regimes, including arbitrary arrests, torture and summary executions.

All that came on top of a civil war in the second half of 1940s in which 50,000 people perished. Today Greece remains the most militarised society in Europe, with spending on defence consistently the Continent’s highest. Street violence is commonplace and a murky world of terrorist cells, though less active in recent years, has not gone away. If the economy deteriorates further, there is a risk that some of the radicalised and desperate will see answers in violent extremism.

The chances of things getting worse are high. Societal strains and rampant corruption do not in themselves cause economic weakness – just look at China and India – but they don’t help. Alas for Greece, even if both problems were to disappear tomorrow there is little reason to believe its economic rot would stop.

Greece exports so little that it is the most closed economy of any among the 27 countries that form the EU. A small economy of just over 10 million people can never get rich without exporting.

No economy can get rich without innovating. About the best indicator of a country’s capacity to innovate is the amount spent on research and development. In Greece, businesses and the state spend 0.5 per cent of GDP on research annually, less than one-third of the EU average. Of the 15 long-standing members of the EU, it has consistently had the lowest research spend.

There is very little reason to be optimistic about Greece. Its economy, politics and society don’t work. This is not only very bad for Greeks, it is also bad for the people of the 16 other countries in the euro zone. If it implodes, it may well bring the single currency down with it.

Dan O’Brien is economics editor

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