Look towards the Acropolis on a clear day in Athens and you’ll catch a glimpse of the Parthenon, the majestic temple that symbolizes the city’s glory days, when Pericles was consolidating an empire and Socrates was roaming the streets.
Level your gaze and you’ll find emblems of modern-day Athens: food banks, ATM lines, graffiti, fires in barrels, trash in roadways, shuttered businesses.
Calling Athens’ fate a Greek tragedy has reached the status of cliché. Yet how else do you describe such a civilizational tumble? Greece’s unemployment rate is 25 percent and its debt-to-GDP ratio is 175 percent. It’s currently trapped in an demonic sashay with its solicitous European creditors.
How did this happen in the cradle of Western Civilization? The answer lies in Greece’s debt, much of which was accrued before it ever entered the European Union.
Rules imposed by the EU’s Maastricht Treaty prohibit members from amounting more than 60 percent of their GDPs in debt, a limit Greece has long exceeded. So Athens hired mega-banks like Goldman Sachs to conceal its liabilities with balance sheet cosmetics. That ploy won it entrance onto the euro back in 2002.
European leaders, it’s worth pointing out, were aware they were being fleeced—other nations like Italy and Portugal did the same thing. They didn’t care because the EU was first and foremost a political project. European unification, not solvency, was its primary goal.
Once it was safely on the euro, Greece went on a spending spree fueled by Europe’s bargain-basement borrowing rates. Its leaders modernized Athens and revamped public transportation. Greek citizens developed big eyes and German tastes; as of 2011, there were more Porsches in Greece than incomes that exceeded 50,000 euros. The Summer Olympics of 2004, hosted lavishly by Athens, cost $11 billion, more than 5 percent of Greece’s entire GDP.
Debt, needless to say, soared through the olive treetops. Meanwhile Greece was running its economy in the tradition of southern European socialism. Taxes were stiflingly high and favors were reserved for cronies. The public sector accounted for about 29 percent of total employment, compared to 15 percent in the United States. One of the grayest workforces in Europe meant its pension system was under constant strain.
Greece had become an economic Jenga tower and the 2008 recession finally blew it over, bringing mass unemployment and even deeper debt. Worried about financial contagion, European leaders swooped in with two bailout packages that amounted to $395 billion.
In exchange, Germany, Greece’s primary creditor, demanded that Athens hike taxes and cut spending, known as “austerity” to many economists and “death, destroyer of worlds” to Paul Krugman. But Germany’s conditions weren’t actually that searing—Baltic nations like Estonia cut far deeper and still emerged intact.
The problem was more cultural than economic: Germany, an industrious export economy with a preference for tidy budgets, was trying to micromanage Greece, a Mediterranean outpost of clientelism. That incompatibility produced tension. Caricatures began to appear in Greek newspapers of German Chancellor Angela Merkel wearing swastika armbands. This week’s “no” referendum vote was as much a rejection of Germany as it was of austerity.
Throughout this process, the absence of any notion of liberty has been striking. From Greece’s initial tax-and-spend, to the EU’s licentious lending of its own people’s money, to Germany’s micromanagement of a debtor it never should have taken on, the euro crisis’ entire history has been one long carnival of collectivism, a socialist problem with an undemocratic solution.
Many conservatives and libertarians have acknowledged the socialist part while remaining untroubled by the undemocratic part. They sound a lot like Guy Verhofstadt, a European MEP from Belgium who had a conniption fit yesterday because Greece had yet to pony up enough market-based reforms. He’s right, but who the hell is he to demand that? A Belgian clamoring for influence over Greek policies should strike us as absurd.
The IMF has already concluded that Greece’s debt is too humongous to ever be paid off. But Europeans can neither erase Greece’s red ink nor let Greece go, because both scenarios would wave the checkered flag for nationalists in other indebted member nations. Spain already has an active far-left party that opposes austerity, and Italy and Portugal are restive too. The ascension of nationalists could fracture the EU and foil the dream of a federal Europe.
So instead Eurocrats have opted for the radical middle ground of rebuilding Greece themselves. As with Greece’s entrance, this is all about politics.
Meanwhile Tsipras, for all his fire breathing, wants to stay on the euro and remains recalcitrant about serious reforms. Greece doesn’t want to seriously curtail its socialism and the EU doesn’t want to seriously curtail its imperialism. Which is why the loggerheads aren’t over yet.