The Full Catastrophe Read online

  The Hellenic Republic, as Greece is officially called, had been included in Europe’s endeavor to form a closer union in no small part because of its symbolic importance to the continent. The beautiful Europa is a figure of Greek mythology, after all, and where would Europe be it if weren’t for the ancient Hellenes, the fountainhead of Europe’s common heritage, the originators of democracy and Western civilization? At the time Greece applied for European Community membership in the 1970s, French president Valéry Giscard d’Estaing, one of the architects of the European Union, believed Greece was “the mother of all democracies” and therefore could not be excluded. Yet, later on, Greece’s immense troubles seemed to expose the dreaminess of this thinking. Greece’s creditors, given a license to pull back the veneer of legitimate statehood and take a look at the Greek government’s internal organs, found big problems almost everywhere they looked. A deeply entrenched tradition of political patronage meant politicians handed out social benefits to select groups in exchange for votes, while often leaving the most vulnerable to fend for themselves. Tax evasion was pervasive, and Greek tax collectors frequently cooperated with tax evaders. Public workers were hired for life, often not because of their qualifications, but because an aunt or a cousin knew a mayor or a parliamentarian, leading to profoundly ineffective public administration. An incomprehensible, opaque bureaucracy and lax enforcement of the law allowed politicians to engage in brazen corruption with little fear of getting caught. Greece’s pension system was underfunded and byzantine. Its building codes were frequently ignored, resulting in a million illegally constructed buildings and houses. Its courts were often futilely slow. Its public schools were poor, necessitating parents who wanted their kids to go to college to pay for private tutoring.

  This wasn’t the twenty-first-century European state the EU’s founders had envisioned for their club. In a 2012 interview with the German magazine Der Spiegel, Giscard d’Estaing seemed to have had a change of heart. “To be perfectly frank, it was a mistake to accept Greece,” he said, speaking alongside his old partner, former German chancellor Helmut Schmidt. “Greece simply wasn’t ready. Greece is basically an Oriental country.” When Europeans use the term “Oriental,” in this context, it’s not meant as a compliment. The Greeks in other words, were other, Middle Eastern, backward when compared to loftier Europeans. Addressing Schmidt, Giscard d’Estaing added: “Helmut, I recall that you expressed skepticism before Greece was accepted into the European Community in 1981. You were wiser than me.”

  Such bipolar feelings about Greece’s “Europeanness” have been evident since the nation won its independence. During the revolution, well-educated Europeans, driven to revive the Ancient Greece they so revered, provided the Greek rebels with financial assistance, and pushed their governments to give the military support that made victory possible. (One should therefore not only ask where Europe would be without Greece, but where Greece would be without Europe.) Britain, France, and Russia eventually backed the independence cause, and provided a guaranteeed loan to the fledgling Greek state (which it later defaulted on). English romantic poets lent ideological reinforcement. In 1821, the year the Greek revolution began, Shelley wrote in Hellas:

  Another Athens shall arise,

  And to remoter time

  Bequeath, like sunset to the skies,

  The splendour of its prime;

  And leave, if nought so bright may live,

  All earth can take or Heaven can give.

  Yet at the same time Europeans often expressed disappointment that the modern Hellenes didn’t match the splendor of their classical predecessors. Even Shelley was apparently not free from doubt about the prospects for the rising of another Athens of the sort he had in mind. While visiting an Italian port during the time of the Greek revolution, Shelley and a friend, Edward John Trelawny, boarded a Greek trading ship in order to meet the crew. The pair was not impressed, according to Trelawny’s later written account of the encounter. “They squatted about the decks in small knots, shrieking, gesticulating, smoking, eating, and gambling like savages,” Trelawny wrote. He also noted that the ship’s captain did not support the revolution on account of what it might do to his business.

  “Does this realize your idea of Hellenism, Shelley?” Trelawny said.

  “No! But it does of Hell,” said Shelley, according to Trelawny. “Come away! There is not a drop of the old Hellenic blood here. These are not the men to rekindle the ancient Greek fire.” Shelley added: “I had rather not have any more of my hopes and illusions mocked by sad realities.”

  Greeks, too, have long suffered similar vacillations of self-image. At the time the country achieved independence, agrarian Greeks did not have the same level of consciousness or reverence for the storied Hellenic past as did, say, the English romantic poets. They had never read Plato or Euripides, and were far more faithful to Christian Orthodox conservativism than to the Enlightenment ideals they were said to have inspired. The new Hellenic state would succeed in inculcating its masses with immense pride in their ancient past, but this came with its own unique burden. Doomed to perpetually contrast themselves with the unmatchable splendor of their predecessors, Greeks often confront a nagging sense of inadequacy and strain under the weight of their own historical narrative like few other people on the planet. This sentiment is expressed by a common Greek quip: “We gave light to the world and held on to the darkness.” And yet Greeks also often see themselves, on account of their ancient legacy, as a kind of chosen people, superior to others. “We had culture when they were still living in caves!” I have repeatedly heard Greeks say of their northern European counterparts. Greeks consequently often feel that Europeans should be grateful for being shown the way out of the cave and into the light. This sometimes grand self-image has also had the effect of making the country’s perceived subjugation at the hands of its creditors all the more bitter. After all, the Europeans owed them.

  The cave dwellers of old, for their part, openly deliberated whether it would be wiser to sever Greece from the eurozone like a gangrenous limb. Germany, which, as Europe’s biggest economy, was Greece’s biggest state lender, was particularly hesitant to help the Greeks, which only worsened the market’s fear of impending doom for both Greece and the euro. Other eurozone nations—Ireland, Spain, Portugal, Cyprus—also needed bailouts, but German disdain was mostly reserved for Greece. That was not only because Greece needed more money than all those other countries combined, but because most of the other governments got into financial problems after having to bail out their irresponsible banks. In Greece, the banks were doing fine until the government got into financial trouble on account of its own considerable failings. Germans judged the excesses of politicians and citizens more harshly than those of banks and consumers, and saw the Greek government’s negligence as a betrayal of the European project itself. In February 2012, Timothy Geithner, then U.S. Treasury secretary, had dinner with some of his European counterparts and, according to an interview transcript obtained by the Financial Times, later summed up the feelings they expressed to him about Greece like this: “We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.” The attitude, Geithner added, was: “Definitely get out the bats.”

  The punitive nature of the initial bailout agreement—the bringing out of the bats, in other words—somewhat quieted the German electorate’s misgivings about helping the Greeks. German chancellor Angela Merkel made sure to emphasize the toughness of the agreement to her voters, assuring them the Greeks were being adequately chastened, that moral hazard was being avoided. Other eurozone countries would “do all they can to avoid this themselves,” Merkel told the German newspaper Bild am Sonntag after Greece’s first bailout. For their part, many Greeks did everything they could to avoid it too. One might imagine the somber mood around a company office after the management announces employee wage cuts and
a downsizing plan. In Greece, that was the mood on a national scale. Just before the Greek parliament was to vote on a big austerity bill it had promised in exchange for the first bailout, Greek unions called a general strike and protestors assembled in front of the parliament building. Many of the parliamentarians inside had spent their careers bestowing benefits, and now they were taking them away. This did not sit well with the people outside. At one point, the protestors tried to storm the building. The chaos and plumes of tear gas released by riot police forced the ceremonial guards, wearing revolutionary brigand garb in front of the Tomb of the Unknown Soldier, to abandon their posts. Nearby, a bank was set on fire, killing three employees, including a pregnant woman. This was just the beginning of the strikes and demonstrations. Over the next four years, more than 20,000 protests and rallies took place across the country.

  Many protesting Greeks were well aware that foreign control over their country’s affairs represented a historical norm. In 1893, for instance, following a collapse in the global price of currants, the main Greek export, and beset by problems the country still has today—insufficient tax collection, high military expenditure, a wasteful public administration—Greece defaulted. Upset European holders of Greek bonds—particularly in Germany—pushed for international control of Greek finances to ensure repayment of the outstanding debts. For this purpose, an entity called the International Financial Commission was established in Greece a few years later, during a moment of national weakness following the country’s defeat in a short war with the Ottoman Empire. The commission presided over Greek finances until the Second World War, taxing Greek stamps and tobacco, establishing customs duties, and absorbing revenues from state-owned manufacturers of match sticks, cigarette paper, and salt. While the commission had some positive effects—under its control, Greece was able to establish creditworthiness that allowed it to take additional public loans—Greeks deeply resented the foreign domination.

  Now, Greeks felt, the country’s fate was in the hands of creditor overseers once more. In contrast to the Greeks, these new overseers made some rather bright predictions. The structural reforms and wage cuts demanded under the first bailout would correct the excesses of the boom years and rapidly improve economic competitiveness. According to the Troika’s initial forecast, the measures would start to bear fruit by 2012, when Greece would begin growing again and be able to resume market borrowing. Unemployment would peak at around 15 percent, and though the national debt would reach hazardous levels, Greece would be able to pay it all back. The country would have to “swim against the tide” in order to meet these objectives, a European Commission report at the time acknowledged, in no small part because the spending cuts would have to take place while the economy was shrinking. This was, it turned out, quite an understatement, and the Troika’s forecast proved delusionally optimistic. Cutting government spending and people’s incomes in the middle of a recession while also raising taxes, a lot of economists will tell you, is likely to worsen a recession, and the Troika very much underestimated the degree to which this would occur. IMF officials later admitted some errors.

  For many Greeks, the worse-than-expected economic free fall and skyrocketing unemployment were evidence that the first mnimonio wasn’t working. By the time, therefore, that European and IMF leaders struck a second rescue agreement during a late night of negotiations in Brussels in the fall of 2011, Greeks were loath to abide by another mnimonio. The PASOK prime minister at the time, George Papandreou, the son of the Andreas who had founded the party, had the idea of trying to legitimize the agreement by giving Greeks a chance to vote on it with a yes-or-no referendum. When he announced the idea, however, European leaders were outraged that the deal they had painstakingly negotiated could be subject to the whims of the Greek electorate. Papandreou, who was born in Minnesota, had gone to Amherst College, and retained a trace of an American accent (Greeks derisively called him the “little American”), was already deeply unpopular at home for the first bailout, and amid the chorus of criticism at home and abroad, he abandoned the idea and was compelled to step aside. Lucas Papademos, a former European Central Bank vice president, was ushered into power in order to lead a short-term provisional government tasked solely with pushing through the second bailout agreement. On the winter night the Greek parliament passed a major package of cuts in exchange for the second rescue, the violent protests made Athens look like a war zone, as hooded youths set fire to buildings throughout downtown. So functioned democracy in the mother of all democracies.

  By the time Greeks were given a chance to vote in May 2012—the first parliamentary election since the bailout agreements were struck—it was evident that the previous political order was disintegrating, and anti-bailout parties were on the rise. An amalgamation of far-left groups, the Coalition of the Radical Left, or Syriza, won a great deal of support by vowing to cancel the mnimonio and restore social spending. Greece had become a colony of a neoliberal regime in Germany, its leaders declared, and they vowed to raise money by making Germany pay reparations for damages inflicted on Greece during the World War II occupation. Greek right-wing voters took a far more extreme turn toward Golden Dawn—a neo-Nazi party that denied being neo-Nazi—which was expanding its popularity beyond the ragged central Athens neighborhood where it had unleashed assault squads to hunt dark-skinned immigrants on the streets. Many Greeks reacted positively to Golden Dawn’s assertions of Hellenic superiority, and its pledge to put the nation above all else.

  In the May election, Syriza came in second just behind the center-right New Democracy party, and Golden Dawn won its way into parliament. No party, however, had enough votes to form a government, and so a new election was called for the following month. In the interim, the country seemed to be succumbing to ungovernable chaos. Global financial markets convulsed in fear of an impending win for Syriza, whose young, necktie-averse leader, a former communist youth activist, threatened to renege on Greece’s debt obligations. German politicians renewed public deliberations over whether it would be best to eject Greece from the eurozone. “Grexit” became a frequently used word. Greeks started removing cash from their bank accounts over fears that ATM machines would soon start spitting out worthless drachmas. The severe bank run that resulted and the deepening cycle of doubt did not create an environment conducive to economic recovery, which of course made Greece’s problems even worse.

  In the next election, New Democracy, which depicted itself as the safe choice for voters wishing to remain in the euro, eked out a narrow victory, and on account of a parliamentary seat bonus afforded to the party with the plurality of votes, was able to form a coalition government that included its former rival, PASOK. Antonis Samaras, the new prime minister—who, incidentally, had also gone to Amherst College, where he had been roommates with Papandreou—vowed to European leaders that he would honor the second bailout agreement, though he had railed against the first one when still part of the opposition. German chancellor Merkel, wary of who would take power should Samaras falter, silenced Greece’s critics in her government and started praising Greece’s reform effort.

  Greece had been rescued, but by this point, it was perishing by a thousand cuts. A Greek hotel owner once summarized the country’s predicament to me like this: “First, Greece has the problem of itself. Second, Greece has the problem of the Troika.” This seemed to me like a pretty good way to think about the Greek crisis. Greece had driven itself to fiscal and economic collapse. In response, however, its European and IMF creditors—who, in fairness, faced uniquely vexing challenges in trying to come up with a solution—made big mistakes. Initial European ambivalence over how to deal with the crisis and an overdose of self-defeating fiscal austerity deeply worsened Greece’s situation. Despite the spending cuts and tax increases meant to fix Greek finances, the country’s debt load in relation to the size of its economy continued to rise. At the same time, Greece’s options for restoring growth were severely constrained by the eurozone membership it had earlier so
benefited from. Unable to control its monetary policy or boost its export competitiveness through currency devaluation, Greece’s only hope was to lift exports through wage cuts intended to make Greek products cheaper. The same cuts, however, had the effect of obliterating consumption at home, and the small rise in exports came nowhere near to offsetting this. At the same time, Greece lagged on healthy reforms contained in the mnimonio—those that would have made its economy more open and competitive by doing away with burdensome rules that benefited only powerful interest groups.

  By the time of Greece’s independence celebration, the economy had contracted by 25 percent over the previous six years. Slight growth, driven by tourism, would soon reappear, but the kind of sustained and robust expansion needed to undo the depression’s damage seemed a distant possibility. Unemployment remained not far off its peak of around 28 percent. Greece had become a country where many people found it hard to fathom a future, sparking an exodus of job seekers abroad. Greek newspapers ran stories about children fainting in schools from hunger. Parts of Athens and its suburbs were lined with shuttered stores. Lines at church and municipal food kitchens went around the block. During the winter, a harmful plume of smoke hovered above Athens, as people chose to burn wood rather than pay the high price of heating oil. At the same time, Greek government debt—the source of the country’s problems to begin with—was near its crest of around 176 percent of GDP. All along, only a small fraction of the bailout loans Greece received directly financed state operations; the biggest chunk of the money went to service older debts and recapitalize banks. The Greek bailouts had preserved the euro, but Greece, by any measure, was buckling.