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Who Killed Greece?

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The Greek tragedy began in 1981 when PASOK, the Pan-Hellenic Socialist Party, won the national elections. Andreas Papandreou, who had been a member of the Greek Communist Party and had received his Ph.D. in economics at Harvard in 1942, founded and led PASOK. He had published significant scholarly works with a Keynesian slant and served as chairman of the department of economics at Berkeley.

He had returned to Greece in 1974 and campaigned on redistributing wealth, raising wages for the working classes, and increasing productivity, while attacking America (he is alleged to have kept his American passport), NATO, and the European Economic Community, or EEC, predecessor of the European Union established in 1993, which was in its initial stages. He became prime minister in 1981.

Despite the demagogic rhetoric Greece not only remained in NATO but joined the European Community. It proved to be a disastrous marriage. Papandreou, whose statist policies were attractive to the European Community, immediately negotiated a $1.75 billion loan followed by various subsidies. He held power until 1989 and again for some months in 1993, when he resigned and died. Most of the socialistic measures he implemented remained in effect until recently.

Papandreou began with a huge government spending spree. His program was not carved out of the hides of wealthy Greeks, who were to benefit from an income-tax system that did not efficiently collect taxes, but was rather financed by loans and subsidies from the European Community, which, along with the money, sent coded messages that the Greeks were Europeans first and then Greeks. One of his chief aims was to immediately raise the working class to a middle-class status. He appointed workers as ministers, passed legislation in favor of unions, and enacted right-to-strike legislation. The results were ruinous. Workers’ pay increased dramatically but productivity eventually dropped to 25 percent below the EEC level. What had once been an effective workforce became one of the most expensive and inefficient in Europe. Even with the improved conditions, workers were more hostile to management than ever, complained about capitalistic exploitation, and were prone to call strikes at critical moments for frivolous reasons, especially against foreign companies that were alleged to be “sucking blood out of workers with a straw.” Not only did foreign investment dry up but many foreign companies pulled up stakes and left Greece. To lure investors back was challenging because Greece had the lowest rating in the EEC for doing business. Paradoxically, loans and subsidies to modernize industry kept rolling in as Greece almost ceased to produce anything. On the other hand the construction industry was booming, but Greeks, now unwilling to do hard manual labor, avoided those jobs and turned them over to immigrants.

Goodies for everyone

When Greece entered the European Community, later the European Union (hereafter EU), there was an expectation that Greek industry would decline, but no one expected it to hit bottom. To balance the Greek consumption of EU-manufactured products there was a blueprint to ship certain agriculture products to the northern industrial EU nations. The EU provided loans and subsidies to Greek farmers to modernize their operations, but there was no mechanism to evaluate how the money was used. Farmers, who were also receiving various aid packages from the Greek government, tended to purchase things such as home appliances and cars and allowed their farms to decline. The drop in agricultural output made the Greeks greatly dependent on foreign imports for foodstuffs.

The best jobs in Greece were in the public sector, which escalated under PASOK and continued to grow under subsequent conservative governments. Eventually, 700,000 people, if we include the civil servants’ families, depended on the public sector. By 2009 government spending absorbed 54 percent of GDP. Until recently some low-level state employees were making €70,000 annually. Men retired from the public sector with full pensions after 28 years of service, while married women qualified for pensions after 15 years. There was budding class envy between people who worked hard in the tourist industry and those who enjoyed sinecures from the state. To satisfy the demand for public-sector jobs Papandreou expropriated successful businesses and inundated both them and the older national enterprises dealing with utilities, communications, and transportation with his political supporters. Where it previously took one person to do a job, now there were two to three doing it. A study of the national railroads concluded that it would be cheaper for the government to simply pay taxis to take passengers to their destinations than to maintain the railroad system. Among the great boondoggles are the national-defense companies, which are all billions of euros in debt.

Papandreou also established a national health service. The system no doubt improved health care for the majority until corruption and inefficiency became prevalent at the end of the 1990s. The government overpaid for the health system. PASOK demagogically boasted that it would not expose the people to the dangers of generic drugs, many of which were alleged to have been manufactured in dusty factories in third-world countries, and so provided the more expensive brand-named drugs. Papandreou built hospitals in rural areas that were undeused. Although Greece spent more on medical supplies than any other EU country, there was a widespread shortage of medical material in hospitals because of theft. Comparable waste existed in education. PASOK built modern schools in remote areas that now are closing for lack of students. Greece earned the lowest education rating in Europe, although the country has a ratio of four teachers more per student than number-one Finland.

Papandreou maintained that the more pensions there were, the more money there would be circulating.Papandreou maintained that the more pensions there were, the more money there would be circulating and the more votes there would be for PASOK. Guerrillas forced into exile after the civil war of 1946–1949 were welcomed back to Greece and received full pensions. Nearly anyone who claimed that he was in the resistance during World War II received a pension. It was discovered that at least 50 people drawing such pensions were infants during the war. PASOK was also liberal with disability pay. On the island of Zacynthos it was recently discovered that, though the practice began with PASOK, 1.8 percent of the population were drawing a disability for blindness, among them a taxi driver.

During the period 1981–1989 PASOK members became rich. There were many perks for its supporters: scholarships to study abroad for students who failed to qualify for Greek universities; weekend vacations to the Greek islands; and for citizens living abroad, free tickets to return to Greece to vote. Those programs were partially financed by embezzlement of state funds. In the late 1980s it was discovered that $200 million, a relatively modest sum compared with later misappropriations, was missing from government funds deposited in the Bank of Crete. The money went into party coffers and personal bank accounts. No politician was found guilty, and during the past 40 years riddled with corruption, only one politician has gone to jail. All members of parliament were comfortable with huge salaries and many perks. The conservatives were waiting for the chance to take over the government and get on the gravy train.

As a result of corruption, inflation, and the drop in productivity, New Democracy, the conservative party, won the elections in 1991. The conservatives were split on policy. The idealists argued that they should stop the sleazy practices of PASOK and reduce the bloated public sector. But the pragmatists won out. They argued that it would be impossible to change the entitlement mentality of the Greek people and that they would lose the next election if they attempted to dismantle the Papandreou state. Thus the conservative party, which would be in and out of government during the next 15 years, participated in increasing the public sector and in pilfering public funds.

Bailing out the drachma

By 2001 Greece faced a crisis. Its currency, the drachma, was highly inflated, and it became challenging not only to borrow money but also to purchase foreign goods. Papandreou had died in 1993, but PASOK was back in power under Kostas Simitis, who immediately applied for entry to the eurozone. The application, which succeeded, concealed the level of Greek debt. With entry to the eurozone Greece was able to secure loans to keep the country afloat, further line the pockets of politicians, and complete preparations, which were embarrassingly behind schedule, for the 2004 Olympics. The government was obliged to rely on a new infusion of immigrant workers, many of whom entered the country illegally, and to pay them skilled workers’ exorbitant overtime wages. The EU did not have a mechanism to monitor how the Greeks spent the loans and subsidies.

New Democracy under Konstatinos Karamanlis headed a government between 2004 and 2009. Karamanlis continued the practice established by PASOK of keeping double books to cover the disastrous economic situation compounded by the expenses related to the 2004 Olympics and the beginning of the world recession in 2007. The Karamanlis government was mainly noted for its inability to cope with the economy and corruption. George Papandreou, the son of Andreas, won the election of 2009 and claimed he was shocked to discover that the previous government was cooking the books. He announced that the country could not pay its debts and needed an EU handout to survive. The socialist state began to collapse. On one occasion the people cornered a leading PASOK politician and demanded to know where all the money had gone. He replied, “We took part of it and you took part of it.” George, paying for the sins of his father, was forced to resign in November 2011. Andreas Papandreou has fallen in the esteem of the Greek people from being considered the best prime minister in the history of modern Greece to the worst. In the June 2012 election, PASOK received barely 12 percent of the vote. It is on its way to extinction. There is now a coalition government running Greece under the supervision of the EU. In the next election it is highly probable that the two main parties will be SYRIZA, led by a former communist, and Golden Dawn, a fascist party.

In the final analysis the bulk of the money that flowed into Greece during this period went to the public sector for salaries and pensions, and to politicians. There are rumors of huge accounts in Swiss banks in the names of former government officials. The effects of the mismanagement and corruption can be seen today on the streets of Athens: Many businesses are boarded up, buildings are unoccupied, and people are complaining about their inability to pay for rent, food, and medicine. The crisis has driven about 2,000 people to suicide. A demoralized police force cannot deal with crime and riots. Unemployment is 20 percent — 50 percent among young people. Getting a university degree leads nowhere.

Although the focus of this discussion has been on PASOK and the failure of its socialistic policies, important partners in the catastrophe are, as indicated above, the EU and the euro. Milton Friedman predicted that the euro would fail because a common currency requires a single government and a common culture, and that is proving to be the case. The European parliament is not, however, disposed to throw in the towel. Since there is no federal government to underwrite the bailout, there is talk, especially in Greece, that members of the eurozone should learn the meaning of “European,” a coded message to the thrifty Germans that they should give more money to the Greeks and allow the euro to be devalued.

Why should the Germans sacrifice a good portion of their savings to help rescue the prodigal Greeks? The Greeks would not do that for any European partner. Indeed, the majority of the Germans would like Greece out of the eurozone, while many Greeks blame the Germans for their plight. The members of the EU parliament, disconnected from their constituents and supporting socialism, attempted to social-engineer prosperity and a sense of unity within Europe. Instead they contributed to economic disaster, the emergence of a hard-edged nationalism, and the dramatic growth of a dangerous right-wing party. It is ironic that at the moment of its greatest failure, the EU received the Nobel Peace Prize. The inevitable solution is to let Greece return to the drachma and to allow the free market to restore prosperity and stability.

This article was originally published in the May 2013 issue of Future of Freedom.

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    Anthony J. Papalas is an emeritus professor at East Carolina University. Send him email: Papalasa@ecu.edu.