The Failure of Greek Socialism and Corruption

"Greece brought us Sophocles and his tragedies.  Now another huge "modern" travesty is unfolding right in front of eyes."

Is the country of Greece  -- the societies that brought the ancient world to its height in art, culture and warfare -- about to come crumbling down?  Will democracy collapse in the land that brought us the great philosopher Plato who first explained democracy as the system of "rule by the governed."

Will this country's crisis bring an end to the European Union?  With the pillars of the Greek economy: tourism and shipping hit hard by the financial crisis, the Greek economy is in turmoil.

After 15 years of sustained growth that climaxed with the 2004 Olympics, the Greek economy has been falling precipitously to an open abyss.  Exacerbated by endemic problems including an ailing pension system and rampant corruption, Greece is in a state of crisis.  Will Greece become insolvent?  And will the ancient Acropolis fall into the hands of private investors?

After two tough semesters at GWU, I needed to get away.

I flew to Souda Bay Greece on a Air Mobility Command (AMC) flight from Norfolk, Virginia.  The Navy called this weekly flight the Patriot Express because it carried troops, family members and retirees like me who wanted to take a free seat on my flight to Europe to explore and learn new cultures.

Although I've made a Mediterranean Cruise while serving as a surface line officer aboard USS O'Bannon (1994), I've never visited Greece.  However, I've always been captivated with Greek mythology, and I felt that we can learn a lot about what it means to be human by studying the myths of ancient Greeks.

After all, Greece is responsible for a large slew of inventions from the thermometer to the map. Paradoxically, Greece is also the cradle for Democracy -- but now has democracy failed the Greek economy?

So in Greece, I wanted to experience everything: the food, the culture, the history. And I wanted to talk to the local people to see how they are hurting in the recent financial crisis and how the rest of the world can better understand their situation.

The 2004 Olympics

In the early part of this decade, Greece was basking in Olympic glory.  Greece was joyfully preparing for the return of the Olympics since the very first International games were held in Athens in 1896, when 13 countries participated, and Greece was in the limelight.

The Olympics Broke the Bank

As Greece prepared with a festive atmosphere, the government did not exhibit much discipline in spending.  Since the 1997 when Greece won the bid to hosts the games, construction was slow and costs soared high into the ozone.  And the price tag for the games was a steep 9 billion euro, roughly 5% of the annual GDP.  But the Olympics did not usher an economic boom.  Today, not only is Greece still paying for the Olympics, but the Olympics has severely hampered Greece's bottom line.

Deficit

Greece's problem stemmed from runaway government spending.  Spending in the US was rampant, too.  Due largely to fighting two global conflicts, the US has racked up a debt of over $2 trillion.

As in the case of Greece, America urgently needs to improve its balance sheet.  I see future cuts in the military, government, etc in the road ahead for the US.  President Obama needs to effect these chances and also consider raising taxes, the first for nearly a decade.

The People Protest

I attended a peaceful protest at Sintagma Square where I spoke to a lot of young people who told me they were ashamed and fed up with New Liberalism, a system that has made the banks and the private sector of the world very powerful.

Jazz Festival

One night, deciding to get away from the hustle and bustle of the Acropolis, I decided to head outside the hub and attend the 10th Annual European Jazz Festival  in Athens in the hip hop, stylish town of Technopolis, just two metro stops away from the Acropolis.

This annual rendezvous with jazz is designed to bring Greeks of all background and ages to unite, to settle differences and to enjoy music in a peaceful and harmonious setting.

The setting was very spirited in the old gas factory of Athens.  The Jazz festival transformed the whole square into a mega music and art park.

All around in the outskirts, club-goers partied on enjoying pop, rock, metal -- music from many different genres.

The grilled chicken and beef sticks from the Greek stalls are cheap and wholesome.  The Mythos is flowing and goes down smooth with the tunes.

The very unique thing about this event was that there were very few foreigners -- it was virtually all attended by locals -- Greeks and Athenians who knew how to kick off their shoes, mingle, make new friends and put off their worries about this economy and the massive crisis that ensured.

At the festival, I met a group of students who were handing out fliers about an upcoming protest.

I approached a young man and woman who appeared pretty cordial.

"Do you speak English?" I asked.

"A little, where are you from?"

"America, what is your name?"

"George."

"Nice to meet you George. What is this all about?"

"We're protesting the new austerity measures. The Greek parliament is contemplating reducing the number of municipalities from 3,700 to 325."

"Wow. That's terrible," as I glanced over the flier.

"So the smallest municipalities would be forced to join big cities, and many of us, including my parents will be without jobs"

"So what do you think about this whole mess?"

"It's terrible. I'm very ashamed.  We have no future here.  Greece will be destroyed."

The young man didn't seem happy any more.

"So why hasn't the government able to raise taxes?" I asked incredulously.

"It's the politicians, their rich friends and all their cronies.  I know people who have a nice size house in the suburbs with two cars and a boat to take them out to the islands only claiming they earn $20,000 euros a year."

"And the government lets them get away with it?"

"Well, you see the mess we're in now."

Failure to Tax the Rich

Many young people I spoke with told me that the crisis in Greece was caused by greed, overspending and severe fiscal irresponsibility.

The government failed miserably, failing to tax its people appropriately.  Greece, like many other nations in the EU have lots of millionaires.  However, the government failed to monitor its people and to hold tax evaders accountable.

Bailout

Now with the bailout from the EU and the IMF, the government has adopted austere measures:  freezing wages, pensions and increasing taxes.

The problem with these measures is that it affects the lower class more so than the rich -- exactly why the people have taken to the streets and called for higher taxes on those who had failed to pay them previously.

          Even with these severe austerity measures, there was little guarantee that they would work.  It was highly doubtful because they directly cut into people's incomes.  Many Greeks are recommending that their country abandon the European Union and the IMF and revert to their own currency so that they could create their own financial laws.  Countries like the US would never allow itself to default because they can simply raise the national debt ceiling.

Greek Socialism

In 2002, Greece's government changed to a socialist platform, which led to a steep decline in their economy.  Greece has a socialized healthcare system and one-third of its people work for the government.

For the last eight years, the Greek society relied on other people's money to provide for their well being.  Without a strong private sector, there wasn't  much incentive to create wealth; many citizens became unproductive, uncreative and unmotivated.

When the government started running out of money, the EU and the IMF agreed to help only if Greece adopts the austerity measures.  The goal was to drop the national budget deficit from 12% of the GDP to 8%.  Thus all hell broke lose.

"Look at us.  We are all educated 20-somethings.  I'm a computer scientist by training, yet I have no job.  I live with my parents and if I do get a job, can only hope to make about 700 euros a month.  We can't live like that."

"Yeah, many of us have girlfriends. We want to marry them, but we have no money even to get married, get our own place."

Sadly, this new generation of Greeks face starkly fewer jobs with lower pay, leading to a declining standard of living and limited upward mobility.

Neo Liberalism

Many of these young people were getting sick of socialism.  Socialism only helped the rich, while the poor had to fend for themselves.

"What do you suggest your country do, George?"

"I say we adopt the policies of neo liberalism.  This system 

 empowers private corporation and banks who lend money and become richer and more powerful. "

Neo liberalism empowers private corporation and banks who lend money and become richer and more powerful. 

It is a label for the economic liberalism which has become increasingly popular worldwide in the last 40 years.

This type of economy de-emphasizes government intervention and instead focuses on the free-market

In the US, President Reagan and the Republican Party were the leading proponents of new liberalism.  One of the main pillars of Reaganomics was to reduce government regulation of the economy.

A similar situation of a smaller scale occurred a few years ago in the US with the emergence of the sub-prime mortgage business and the government's inability to regulate business.  Read the post on Runin Economist

TARP in America

In 2008, with the American economy on the brink of collapse, President Bush had one last chance to keep our country from slipping into a depression.  From 9/11 to Katrina, Bush’s eight-years in office was full of turmoil and catastrophe – would there be one more that would eclipse the Great Depression of the 1930’s?  Thankfully, President Bush rose to the challenge, quickly gaining bipartisan support and decisively bailing out the Automotive Industry, the Banking Industry, the Housing Industry and many others.

Congress authorized $700 billion for the Troubled Asset Relief Program (TARP) which by itself added 3.4 percent to the GDP and added almost 2.7 million jobs.  With this money, Congress purchased distressed assets, especially mortgage-backed securities, and made capital injections to banks.

Chairman Ben Bernake warned Bush sternly that if he didn’t act fast, our country would slip into another Great Depression.  Secretary Paulson said that “We may not have an economy on Monday.”   After the Wall Street Investment giant, Lehman Brothers collapsed, Secretary of the Treasury, Harry Paulson, begged Congress to agree to providing taxpayer money to bail out the financial market.  The Federal Reserve also told Congress if they didn't act soon, the economy would slip into another Great Depression.

Despite all the past missteps, the government’s action during this very critical and dire time in history was far reaching and just the right intervention that rescued our economy from falling off a cliff.

Today, not only have the majority of the loans been paid off, the government is actually starting to make money.  The government proved its mettle during the most difficult time in Bush’s administration.  It proved that government intervention (as opposed to Laissez Faire) does work.  Ironically, the government performed well as a bank and got paid back a lot sooner and more completely than expected with more government money.

 With the world financial crisis (US, Greece, Dubai, Ireland, etc.), these scenarios prove that John Maynard Keynes may have been right all along – that government intervention during times of economic turmoil” is exactly what’s needed.

Lessons from the US:

Remember when President Bush Wanted to transfer oversight of Fannie and Freddie to HUD.  Barney Frank's Objection was Devastating

After the accounting scandals, this was a good idea. President Bush did not feel that Congress could do its job.  But Rep Barney Franks, the ranking Democrat in the Financial Services Committee, strongly opposed it. This turned out to be a big mistake, because reining in Fannie and Freddie could have significantly alleviated the housing crisis.

The lessons learned from Fannie and Freddie was that close government oversight  to manage and regulate these companies. was needed.  The regulation never happened and Fannie and Freddie spurred the world global economic crisis.

Keynesian Economics

Economic liberalism prevailed in the US from the 1800s through the early 1900s, until a great economist named John Maynard Keynes argued for the intervention of the government and the central bank to increase employment.  Keynes argued that the private sector can be inefficient and thus the public sector needs to be more responsive.  In this case, Greece failed to insert leadership, govern their country and implement monetary policy that could have likely prevented the fiasco.

Both President Obama (stimulus for Wall Street and Cash for Clunkers) and Alan Greenspan are fervent Keynes followers.  They are in fact learning from Greece's missteps.

Greece and the IMF

Breaking News: The IMF has just authorized Greece a Euro 30 Billion three-year loan as part of a joint EU-IMF Euro 110 billion financing package.  As a result, Greece will have to agree to implement some harsh steps.  First, the government will cut the public sector workers' pay by 20%, raise the retirement age, increase sales tax to 23%, increase the price of tobacco products, alcohol and gas by 10%, increase taxes on property and businesses, etc.  Even if all these measures are implemented, Greece's debt could actually continue to skyrocket while their economy shrinks drastically.

Now I see why the people of Greece are really upset.

It seems in Greece, the crisis was caused by corruption and cronyism.  In addition, the country was not diligent in collecting taxes from all its citizens. Now the common people will have to pay for the mistakes and crimes of those in the government and corporate world.

Greece brought us Sophocles and his tragedies.  Now another huge "modern" travesty is unfolding right in front of eyes.

The Young Voices (Deeply Ashamed)

I had met so many young people all around Athens who told me that they were ashamed.  Despite their advanced degrees, they couldn't secure a job.  There was little hope; their country is facing a Spartan future of historic proportion.   They wanted the economy to shift for the public sector (who is slashing salaries, jobs and raising retirement age) to the private sector that makes changes based on the economy.  This is why they are speaking out -- I would not want to be a young man or woman in Greece today.  I think the people of Egypt have greater hope for change.

Impact on Tourism

With the economy in sad state, I am happy to be in Greece to do my part to patronize its tourism business. So far this summer, the tourism industry has taken a huge blow.  During the protests, many of the ancient sites were closed, and many tourists were afraid of the violence reported in the news.  Meanwhile neighboring Turkey has gotten a boost in tourism.

Hopefully, London can make their 2012 Games profitable and within budget.

Hopefully Greece will not become insolvent like Iceland and Dubai (although glimmers of confidence is now returning to the city island of skyscrapers).

Hopefully, the world can learn from Greece's mistakes.

Hopefully, the young people I met in Athens were wrong -- They don't need to be ashamed and they do have a brighter future to look forward to.