8 Jun 2015

Greece is not Ireland – and it’s not just about the economics

I spent four frantic days in Greece last week. The population watched anxiously as a compromise their far-left leaders were fairly certain they had achieved with Europe, fell apart.

On Friday night, after a lively parliamentary clash, I sat outside a calm, prosperous-looking restaurant in the bohemian Exarcheia district of Athens.

Our night ended suddenly as we watched a group of around 30 men clad in balaclavas turn over bins, set fire to them and systematically distrupt the area.

No police came. No firefighters attended. The petrol smoke drove about 1,000 diners and drinkers and promenaders off two or three intersections’ worth of nightlife. Everybody cursed the anarchists – who are routinely accused also of being as police provocateurs – but shrugged their shoulders.

It was a taste of the new normal in Greece. None of the photographers or cameramen with me even bothered to try to film it, as we all knew our equipment would be immediately destroyed, and that the people complaining about the smoke fumes would probably not lift a finger to help us.

New normal

The event won’t make the Greek papers, nor turn up as a briefing for Angela Merkel or Christine Lagarde. But it should. Because it is a perfect example of something the leaders don’t seem even now to understand: Greece is not like Ireland, the poster child for austerity.

Though the Greek unions and youth activists have been largely mesmerised into passivity for the five months of seeing a radical left government in power, that night was a taste of the levels of chaos Greeks now have to tolerate.

As PM Alexis Tsipras prepares to seek a political solution this week with Angela Merkel and the other EU leaders, the situation is at least clear. The Greek “offer” – a massive climbdown on Syriza’s election programme but not austere enough for Europe – is as far as Syriza can go without losing its ability to get its way in parliament.

So unless Merkel and Tsipras broker a delay, or compromise, all objective analyses have to see default as a likelihood at the end of June.

Doomed to fail

Over the weekend there’s been searing criticism of the IMF over its role in this, and for good reason. The IMF’s own economists recognised, two years ago, their method for understanding the impact of austerity on growth had been wrong.

And when it came to Greece, for all the reasons people in northern Europe don’t like Greece – its corruption, its oligarchy, its unreformed retail economy, its pension system – the IMF-mandated austerity programme was doomed to fail.

Take a look at this graph to see how badly.


Portugal and Ireland – the two light blue lines – were also given tough austerity programmes. But their economies suffered mild depression, while the Greek economy, the dark line, collapsed.

But Greeks themselves don’t measure it in GDP figures – they measure it in extra suicides, a falling birthrate, the migration of 100,000 young people abroad, whole streets full of closed shops.

Perplexing questions

So why did Greece collapse and Ireland survive?

It’s a question that perplexes international policymakers, and the answers are not to be found solely in economics.

First, because the Irish crisis was a banking crisis: its banks were bust, the state bailed them out and took on debts it could not sustain. Austerity was harsh – but the economy was globalised. Even as Irish banks went bust, the Irish banking sector – an unofficial conduit of money from London to the tax havens, and full of US investment banks – was still recruiting.

Then there’s agribusiness. Irish agriculture, from a country of 3 million people, produces enough to feed 50m worldwide and growing. If you look at the the profile of imports and exports from Ireland to Britain, it’s much the same via mix and per-capita GDP as the trade between the north and south of Britain. In other words – hugely controversial to say politically – Britain and Ireland are close to being a single economy with two currencies.

Ireland, in short, had the English language, an established role to play with the City of London and Frankfurt, and a modern, high-scale agriculture business.

Unmodernised capitalism

That is not to say austerity was popular: even now the water protests are boosting the same kind of radical left party we see ruling Greece, and boosting Sinn Fein, which has aligned itself internationally with Syriza.

But in Ireland the kind of austerity enacted did not tank production by 25 per cent and family incomes by 40 per cent. It did not cause ordinary middle class people to vote for a party whose flags are red and methodology Marxist. And there was no mass fascist movement in Ireland.

The difference is: Greece is an unmodernised capitalism where you can’t impose austerity at this level and hope to modernise at the same time.

I’ve become an unwilling expert, for example, on its pharmacy regulations. Sure, the law saying pharmacies can’t open within a certain short distance of each other has been repealed, but there is still a rule that says one pharmacy per 1,000 people, one owner for each pharmacy, one pharmacy for each pharmacist.

Walgreens, Superdrug and Boots, in other words, are locked out of this sector, whose opening hours are not generous. There is even a massive fight over whether newsagents are allowed to sell aspirin in Greece.

To somebody who needs aspirin during pharmacy closing hours this can appear a no brainer: liberalise everything. It is exactly what the IMF has been arguing for in the Brussels Group talks, even this month: liberalise the pharmacies and bakeries or we withhold 7bn of aid and your country goes bankrupt.

Deep structures

The problem is, the deep structures of Greek capitalism mean you can only modernise by unpicking things carefully and with consent. A population used to being seen personally by a pharmacist, to getting their drugs on informal credit when they can’t pay, just will not transform itself overnight into a midwest American consumer group.

It’s the same with taxes. Hiking VAT sounds like a no-brainer in a country that needs to raise taxes. When finance minister Yanis Varoufakis proposed instead to set a low – 16 per cent – top rate of VAT, on the grounds that it would undermine the culture of evasion, the IMF’s economists reportedly said yes. Somewhere along the line it got hiked to 23 per cent.

If the IMF’s negotiators wanted to give the impression their aim is to destroy most of the small businesses that keep Greek capitalism alive, and with it, consent for democracy, they are doing a brilliant job.

And that’s what has begun to undermine the faith of those identified as moderate and western-educated in the Syriza leadership.

The IMF now seems to be not only acting as if ignorant of its own economics department, but as if Greek society did not exist.

The IMF, in a leaked document from its own negotiators in Greece, admitted last month that there is “an inverse relationship” between the reforms being imposed on greece and the “sustainability” of its debt.

Having pressured the Europeans for less austerity and more debt write offs, the IMF seems now prepared to walk away from the problem. Its rationale is most probably the pressure it is under from its non-European members.

And such pressure may increase if, later this month, the Greek parliament’s own inquiry alleges the IMF lent tens of billions to Greece unlawfully.

Having a stake

And here’s why the unpoliced riot I sat through is important. What stops ordinary people from joining in, and in fact makes them remonstrate vociferously with the teenagers in balaclavas, is having a stake: a small restaruant, a coffee shop, a small theatre, a street market, a degree and the prospect of a job that pays better than waiting table.

It was the lenders who, late last year, decided to load one more dollop of austerity onto a conservative-socialist coalition that could not deliver it. Result: Marxist government.

What if they now load one more dollop of austerity onto a Marxist government that cannot deliver it? I think the result will be more riots and more despair among the middle classes.

If you wanted to create such mayhem in an economically destroyed country, you would probably not want that country, simultaneously, to enjoy the most pro-Russian political culture in Europe, and be one border away from the Islamic State, with 42,000 Syrian migrants a month landing on its island outposts for good measure.

And you would, if you were sensible, stop comparing it to the Republic of Ireland.

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