Debt, tourism saturation and immigration curb Greek hopes

Greece Letter: Little chance of solvency before 2060 at earliest – and probably never

Greece crisis

To understand the control exercised over the Greek economy by the EU, IMF and banks in Germany and France a look at political history is required reading. Photograph: Getty Images

 

If you want to start a war of independence, you must have guns, and for that you need either cash or a bank loan. In the 1820s, the Greeks, who were a stateless people under the Ottoman empire, won their war with guns bought with borrowed money – around £2 million at the time and worth maybe €60 million today.

It was the beginning of Greek indebtedness to foreign creditors which has continued to the present, when the national debt is €340 billion and, despite cutbacks and reforms, still rising. That’s over €30,000 for every man, woman and child.

Greece, like Ireland, missed out on the industrial revolution. Unlike Ireland, it does not have multinationals and a financial services centre to generate wealth. With tourism as its only major industry (20 per cent of its GDP and workforce) Greece cannot hope to become solvent before 2060 at the earliest, and probably never.

And tourism is not a growth area, except in the cruise ship business, which in effect contributes very little to local revenue. The infrastructure is finite. The mayor of Santorini, one of the world’s top island destinations, has called for a halt to growth because the island, in his words, “has reached saturation point”. And while the refugee crisis continues (as it will) in the Aegean islands such as Lesbos, tourism there has reduced to nearly zero.

If we are to understand the control being exercised over the Greek economy by the EU, the IMF and the banks in Germany and France (which lent money to an uncreditworthy Greece and thus precipitated the crisis) we have to look at political history.

Controlled

Greece has been in debt since the start. It has been controlled by the “Great Powers” which brought it into existence (Britain, France, Russia, Austro-Hungary) to destabilise Turkey and to create malleable client states in the eastern Mediterranean. The mounting Greek debt brought it to virtual bankruptcy in 1843 (less than 15 years after its foundation) and after a “real” bankruptcy in 1856 it was placed under international supervision. This was formalised in 1897 with an International Financial Commission that existed until the 1960s. If that sounds familiar, it’s because today’s situation is merely history repeating itself.

Greece had been hoping that in August it would have a “clean exit” from the current bailout. That hope evaporated when it became clear that the economy would continue to be severely monitored for the foreseeable future. This is the only way that a fourth bailout – which would effectively close down the Greek economy completely – can be avoided.

The reasons for this continued intervention are threefold. Firstly, although the Greek parliament has legislated for all the reforms demanded by the EU, these reforms are not actually being implemented at the coalface. Intransigence in the civil service and self-serving in the “protected” professions (from lawyers to hairdressers) means those sectors are proving resistant to change.

Santorini, one of the world’s top island destinations, has reached “saturation point”, its mayor says. Photograph: Getty Images/iStockphoto
Santorini, one of the world’s top island destinations, has reached “saturation point”, its mayor says. Photograph: Getty Images

Secondly, there is disagreement between the EU, the IMF and Olaf Scholz, the new German finance minister, about the timing and level of debt reduction. There is even strong opposition among some creditors to the idea of a “haircut” of any kind.

Thirdly, while the refugee crisis continues, and with relations between Greece and Turkey at an all-time low (since the war of independence, that is), and with the Balkans in characteristic turmoil, the entire region continues to be vexed by uncertainty and ambivalence.

And now there is a fourth factor: the political impasse in Italy is focusing Greek attention on a situation not unlike that in Greece when a left-right coalition took power in 2015. A “Grexit” (which the Greeks seem to have approved in the referendum of July 2015) would have been small potatoes in terms of the eurozone.

Watching scenario

An “Italexit” would mean the loss of Europe’s fourth largest economy and, coupled with Brexit, would almost certainly see the end of the euro and possibly even the EU itself. Greek politicians are watching this scenario just as eagerly as the mandarins in Brussels and Berlin.

At root, the unrest in Greece and Italy (with similar hiccups in Spain and Portugal) is the legacy of two factors which have never been intelligently addressed.

First is the intention of today’s “Great Powers”, which are predominantly in northern Europe, to control the destinies of the Mediterranean states in order to protect their own interests. Immigration, relations with Algeria, Libya, Egypt and Israel, and preservation of democracy in the Balkans, supersede the democratic and economic interests and human rights of those peoples and states.

Second is the barrier of incomprehension between the northern powers and the southern people they wish to control. If you live south of a line from Marseille to Varna you are less likely to be amenable to the fiscal or even civic logic of the northerners. The Merkels and Scholzes, Junckers and Draghis of this world haven’t learned that lesson yet.

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