A new Greece must emerge from the current existential crisis

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Greece has been at the focal point of international media, because of the ongoing economic crisis that has severely hit the country the last few years. Though the analyses of several experts and “experts” are centered around the economic aspect of the matter, I uphold that at the root of the crisis, as far its internal dimension is concerned, Greece faces an existential crisis – a crisis of identity. The Greek people were caught completely unprepared when the crisis hit them. They saw their world changing dramatically overnight, as the practices, mentalities and attitudes of the past had no application to the present. The Greek populace has still not recovered from this shock and has not yet realized that it needs to change as the world around it changes as well, something which is depicted in the inane general strikes and the “scorched earth” practices of some gangsters who think they will do harm to “the system” by burning the property of their neighbors; by ultimately harming those who suffer the most from the current crisis.</p>

To understand why the Greeks face an existential crisis, one needs to grasp the macroeconomic dynamics that were initiated in the mid 1990’s, before the introduction of the euro. The following can be helpful in providing the context (click to enlarge image):

In the years prior to the establishment of the currency union, the Greek sovereign could get loans from international markets at exorbitant interest rates, significantly higher rates than the perceived barrier of 6% or 7%. In comparison Germany enjoyed much lower rates that have remained stable over the long-run. This interest rate spread, this difference between the borrowing cost of Germany and Greece reflected two things (1) the difference in the competitiveness and productive capacities of these two countries, (2) the lack of real convergence between two countries that would soon form a single currency block. When the euro was introduced, the interest rates of Greece fell considerably, eventually converging with the German ones that had remained unaltered. In short the euro ensured cheap funding for the Greek government. And here is where it all starts.

The Greek state transformed from a semi-peripheral European economy into a core economy, by means of becoming a member-state of the eurozone. The convergence in interest rates was purely artificial since it was not the end result of reforms in the real economy, it was not the product of intensive efforts to modernize, minimize, rationalize the Greek state; it was not an accurate representation of any change in the productive capacities of the economy or its competitiveness. It only was a perceived convergence, resulting from the ill-thought policies of the European policymakers and the fraudulent accounting of Greek authorities.

To cut the long story short and without willing to explain the forces that led to this convergence, I say that this brought Greece into a new era; an era of cheap credit. All of a sudden oceans of liquidity were reaching the Greek shores on a daily basis, eventually propping up the consumption bubble that burst some years ago and led to the economic crisis we all know of. The cheap loans facilitated malinvestment, encouraged frivolous entertainment and provided perverse incentives to conniving plutocrats and unscrupulous politicians who realized that they could profit immensely from this perceived cornucopia, this infinite source of wealth, called the “eurozone”. As such an ill-thought welfare state was built on sand which gave excessive benefits to several groups of people, while at the same time the public sector expanded both in terms of costs and powers; all this was happening in parallel to inflation in the real economy and problematic real growth that was eating in the muscle of the productive core of the country.

Protests in Athens. Image Credit (Yiorgos Karahalis, Reuters)

This was unsustainable and was naturally brought to an abrupt end, when the crisis hit Greece. It is here where the Greek people first experienced the shock, it is then when the identity crisis was realized. Instead of accepting that their life over the last years was nothing more than a fleeting dream, the Greek people reacted disproportionately asking basically for more of the same malpractices that led the country on the verge of bankruptcy. Time and again the once-privileged pressure groups went on the streets to demonstrate their opposition to the “machinations of the troika”; while Athens has often resembled a battlefield rather than a modern European capital, thanks to the Molotov cocktails and tear gas, of which Greece seems to have plenty of.

Greece must change bottoms-up. But this cannot be done in the offices of Greek bureaucrats or in the bowels of European institutions. For the country to enter the modern epoch on a very solid basis, the Greek people themselves need to realize that their world has ended. The catharsis must commerce from the lowest possible level all the way upwards, since it is the responsibility of every single citizen to make the country better-off. Instead of putting the blame on the troika or the Germans or the bankers or some other external forces that “conspire against the nation”, the Greeks should look into the mirror and have the courage to criticize their own attitudes, practices and choices that brought them into this position.

A new Greece needs to emerge out of this crisis and this will be done when a populace, permeated by new ideas will demand change in the roots not the leaves; in the institutions not the figures; in the ideas not the words. The crisis will be killed off when Greeks decide or accept who they are and what they want, first and foremost from their selves.