Greece: How Did It Come To This?

Eirene, the Greek goddess of peace, and the infant Ploutos, Greek god of wealth. Greece needs them now more than ever.

The Ancient Greeks invented democracy, Mathematics, and Philosophy. As pioneers of the aforementioned, you’d probably expect that they would be the last country to have a corrupt government, ruined economy and rioting citizens. But this isn’t Ancient Greece – and in modern Greece this is exactly what is happening right now. Unlike financial problems in many other countries, the Greek financial crisis is a little different, and can’t wholly be blamed on the poor decisions of the banks. Essentially, the Greek government borrowed money, which was then squandered, stolen, or mismanaged. Over a decade, Greek corruption and irresponsibility has brought it to the catastrophic fiscal situation it is now in. Here are some poignant examples…

Tax evasion, huge spending and poor administration
The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. More than 600 Greek professions somehow managed to get themselves classified as “arduous”: from hairdressers to waiters, musicians to radio announcers – they all managed to swindle early retirement and generous state pensions that Greece couldn’t afford to hand out. There are 151 doctors on the Athens equivalent of Harley Street. Last year, 34 claimed they earned an annual income of less than €10,000, another 30 said their salary was below €20,000 and only 11 acknowledged that they were earning more than €100,000. In Greece, many people treat paying taxes as though it is just a polite, obligatory chore.

The Greek government is already so corrupt it’s simply assumed that anyone who is working for the public sector is supposed to be bribed. People who went to public health clinics assumed they would need to bribe doctors to actually take care of them. Government ministers who had spent their lives in public service emerged from office able to afford multi-million-dollar mansions and two or three country homes.

Inefficient accounting
The national railroad had annual revenues of  €100 million against an annual wage bill of €400 million, plus €300 million in other expenses. The average state railroad employee earned €65,000 a year. Twenty years ago, Stefanos Manos – Greece’s minister of finance – pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it. “And yet there isn’t a single private company in Greece with that kind of average pay.”

The problems started when Greece joined the euro, and Greece’s inclusion in the Eurozone is also the reason why this fiscal problem is even harder to fix.

January – Greece drops its currency, the drachma, to join the euro, becoming its 12th member.

November – Greece effectively admits it lied to get into the euro. The government admits its deficit has not been below 3pc since 1999, as EU rules require.

March – The cost of hosting the 2004 Olympics increases Greece’s deficit. Greece’s new government imposes an austerity budget.

Spring – GDP is up 4.1pc – the budget appears to have worked

5 November – The global financial crisis sees Greece’s national debt rises to €262 billion

January  Greece unveils a stability programme that will see the country aim to cut its deficit to 2.8pc of GDP by 2012
March – Greeks told to accept lower bonuses and higher taxes or risk the country falling into bankruptcy.
23 April – Greece officially requests a bailout.
2 May – After days of frantic talks, the IMF and EU agree to a €110bn rescue package over three years. The agreement is followed by a 48 hour strike, with three people killed after a bank is set on fire.
10 May – Global policymakers install an emergency financial safety net worth €750bn to bolster financial markets and shore up the euro against contagion from the Greek crisis.
18 May – Greece receives a €14.5bn loan from the EU and can now repay its immediate debt.
7 July – Parliament passes pension reform, a key requirement of the EU/IMF deal, cutting benefits, curbing widespread early retirement and raising the women’s retirement age from 60 to 65.

January  Fitch becomes the third rating agency to cut Greek debt to “junk” status after S&P and Moody’s.
23 May – Greece unveils a series of privatisations, part of a goal to raise €50bn by 2015 to pay down its debt mountain.
4 June – Greece hit by further protests in central Athens, as Mr Papandreou agrees to make “significant” cuts in public-sector employment.

Unfortunately, Greece cannot stimulate growth by devaluing its currency, and nor can it cut interest rates any further, because these are decided by the European Central Bank in Frankfurt (which controls the euro currency). Instead, the public sector cuts are almost certain to deepen the Greek recession, reducing tax revenues and making it even harder to service the debts in future.

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