The Threat to Greek Democracy

E. Wayne Merry

E. Wayne Merry, National Interest July 23, 2012

Everyone knows Europe faces the potential for Greek financial collapse, with serious ramifications for the euro zone and its financial institutions. Less discussed is the Greek impact on another key European institution, the less restrictive border regime instituted under the Schengen Treaty, and the danger of failure of constitutional democracy in an EU member state. ATHENS. (National Interest). Perhaps the smartest thing modern Greece ever did was join the European Community (now the European Union) in 1981. The Greeks’ dumbest move was to join the euro twenty years later. The EU gave their Third World economy a First World lifestyle. This miracle was achieved through massive financial transfers from richer EU members into the modest scale of the Greek economy and by pervasive Greek violations of EU

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July 31, 2012

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1. Philip Vorgias wrote on July 31, 2012 11:52 AM	Some truthful facts in this diatribe, but let's be honest-Greece would NEVER reform without the discipline enforced on it by the TROIKA. Had Greece not enterred the Eurozone the standard of living would have continued to drop under a continually inflating Drachma. Let nobody doubt that. As tough as times are now, it's forcing Greece to finally reform it's economy. This never would have happened otherwise. So all the hand-wrining of pundits like Mr. Merry aside, the Eurozone will be looked at by future generations as the turning point for Greek competitiveness. Strong medicine is not usually appreciated at the time you take it!

2. ARMODIOS PAPAGIANAKIS wrote on July 31, 2012 1:21 PM	Conjecture my friend. You have no idea what may or may not have happened in Greece’s future just like very few would have predicted in 2001 that Greece would essentially default twice in a ten year time span within the aegis of a “wealth producing” European Union. BTW, congratulations. You keep reaching new lows in condoning an outside authoritarian organization imposing its economic will (regardless of any real or perceived benevolent intent) on a sovereign nation.

3. Basil Zafiriou wrote on July 31, 2012 3:29 PM	Every statement regarding future outcomes entails conjecture, Armodios, but not all conjectures are equal. Those who argue that Greece needs outside pressure to reform can point to decades of experience, the current political climate in Greece (where the mnimonio is the government’s strongest weapon in favour of reform) and multiple indicators by expert international agencies that consistently place Greece at the bottom of the pack in terms of ability to reform (last currently among the 27 EU members in the SGI index, for example). What evidence do you have in support of your alternative “conjecture”?

4. Patrick Theros wrote on July 31, 2012 5:21 PM	Wayne Merry is an old friend and colleague so I am prejudiced. My view as stated previously is that Greece cannot reform because it has a winner take all majority parliamentary system. Withiout internal tensions (i.e., "cecks and balances" in American) the majority party will always remain dominant and therefore corrupt. The extra 50 members of parliament for the first past the post party is an example of trying to preserve this. Two possible solutions are (1) go to a more proportional system which will force parties into coalitions -- unheard of in Greece or (2) strengthen the Presidency so that it competes with the PM. With this sytem, gping into the Euro only hastened the disaster. Without outside threats, Greece cannot reform.

5. Philip Vorgias wrote on July 31, 2012 11:45 PM	Armodios doesn't engage in conjecture Basil, he KNOWS the future! I'm still waiting to hear what part of the memorandum he has issue with-better not hold my breath.

6. ARMODIOS PAPAGIANAKIS wrote on August 01, 2012 11:25 AM	I don’t know the future gentlemen, and obviously “every statement regarding future outcomes entails conjecture”, but I do know right from wrong, and the difference between democratic from fascist. Unfortunately, it seems that many of you are prepared to compromise your democratic and free market principles in order to exert “pressure” from the “outside”, as recommended by oxymoronic “expert” int’l agencies, to impose reforms on Greece. This is quite disheartening and reeks of fascism. Why not just bring the junta back and impose economic change much more expeditiously? Better yet, why not recommend changes, and let Greece choose to reform or not, democratically. If they choose to stay at the bottom of the ASGI index, so be it. Freedom to succeed requires freedom to fail - and its concomitant pain. If we all agree that free market capitalism is the best long term economic solution for Greece; why are you afraid to let the free market take its due course without the “help” of the imposing edicts from the “unholy trinity”? Free market capitalism is not just about success, it’s about failure; acknowledging it, dealing with it, and most importantly, re-pricing it - lower (i.e. bankruptcy) to incentivize and attract capital. No doubt, Greece needs to reform, but they must do it freely and from within.

7. Philip Vorgias wrote on August 01, 2012 12:30 PM	Every person, company or nation which acquires debt gives up a measure of their freedom/sovereignty, Armodios. That's why debt should be avoided as much as possible. I don't look upon the requirements of the bailout plan as being anything other than collateral for the TROIKA loan to Greece. And lets remember, Greece voluntarily accepted the requirements of this plan, it was not forced on them. They had the alternative of your desired option-going bankrupt-and they voted against it. What could be more democratic? You're losing this debate by your maximalist positions.

8. ARMODIOS PAPAGIANAKIS wrote on August 01, 2012 2:15 PM	Not quite. Democracy requires debate. There was very little, if any, consideration of bankruptcy, whether controlled or uncontrolled, as a viable option for Greece’s economic woes. Perhaps there was a hybrid third choice? Therefore the Greek government had little choice and was arguably coerced in choosing the memo. The collateral you mention in this case is not mere protection of creditor from borrower default, it more akin to subjugation of the borrower.

9. Philip Vorgias wrote on August 01, 2012 6:39 PM	There really was no other option, Armodios. As we have argued any repudiation of debt by Greece would have resulted in some sort of arrangement similar to the current one. The terms would have ended up very similar. Whether it was the TROIKA or some other arbitrator or Judge some sort of painful recovery plan would be in effect. Your vision of a Greece walking away from all it's debts scot free is a myth, it just doesn't happen that way.

10. ARMODIOS PAPAGIANAKIS wrote on August 02, 2012 11:58 AM	Yes Philip but part of a post - bankrupt Greece recovery plan, if allowed to go through, would include price discovery of many deeply discounted assets. These discounted assets such as shuttered mines, mothballed factories or even OTE, all examples, would finally become cheap enough to offer a potentially adequate rate of return on investment. This would attract capital investment and most importantly, stimulate the economy. One of the reasons that Greece’s privatization program has been such as an abysmal failure is because potential suitors have essentially “boycotted” the auction. If Greece does default, OTE for example will get cheaper; and cheaper still if they leave the Euro – so investors continue to wait – no matter how many times the memorandum compels Greece to publish their plan for “Business Friendly Greece”. Low priced assets are infinitely more business friendly than any bureaucratic plan. Meanwhile the Greek economy continues to stagnate. This is why bankruptcy IS an option for Greece and not an economic death, but a rebirth.

11. Basil Zafiriou wrote on August 02, 2012 3:51 PM	So Armodios now admits what opponents of a disorderly default have been arguing all along, namely that it would reduce Greece to pauperism. Except that what everyone else recognizes as a tragedy, he calls a triumph because, he says, it would enable outsiders with deep pockets to buy Greece for a song (and no doubt get cheap hired help in the bargain too). I suppose this is better than nuking Greece -another option Armodios has offered up in the recent past.

12. ARMODIOS PAPAGIANAKIS wrote on August 03, 2012 8:04 AM	LOL Basil. I love the image evoked by your Greece “reduced to pauperism” metaphor; desperate and destitute Greeks rummaging through garbage for food due to 25% unemployment (40% for younger adults), an imploding economy, strapped with an impossible 160% debt to GDP ratio. Unfortunately, that image is the present-day reality weighing on Greece – and all within 12 years of paternal EU guidance and protection; including 2 bailouts, countless summits and impotent memorandums. Indeed, most any default would likely be an improvement. However, to you and “everyone else”, it would be a tragedy for “outsiders to buy Greece for a song” and actually invest proprietary capital, who by having “skin in the game” would have every incentive to make their business venture grow, provide jobs and eventually jump start a moribund economy. Perversely, you have no objection when outsiders (i.e. the Troikas of the world) mandate, impose and “invest”, or in reality, loan, not their own proprietary capital of course, but Euro taxpayers’ monies at manipulated, below market interest rates, with little economic benefit, other than to saddle Greece with more debt and less freedom, it’s lauded as a “triumph” in your delusional hubris filled world of “int’l experts”. Let’s just file this in the “YOU CAN’T MAKE THIS STUFF UP” category. BTW, I also love the fascist imagery evoked by your quote in Post #3 above; “the mnimonio is the GOVERNMENT’S strongest WEAPON in favor of reform” (emphasis mine)…I guess, free markets be damned; quite telling.

13. Philip Vorgias wrote on August 03, 2012 10:10 AM	I love the discussion guys, but at the end of the day the 'Armodios option' would end up being not that different from that the TROIKA is mandating. All the bailout package bought was a little time, that's it. And sticking with the EURO is just plain good sense, there is NO arguable reason to go back to the Drachma. It would set Greece back decades in their Economic Reform process.

14. Basil Zafiriou wrote on August 03, 2012 11:18 AM	Sorry, Armodios, didn’t mean to upset you so much by restating your position on how to rescue Greece by destroying her first. Instead of hurling epithets, how about providing some facts to buttress your argument? Calling the mnimonio fascist is not an adequate substitute for identifying provisions in it that are injurious to the Greek economy: I’m still waiting for that. You look at a Greece that is already down and your recommendation for helping her up is to kick her some more. Get those Greek asset prices lower, you say, and watch private capital rush in to revive the Greek economy. Hate to break it to you, but Greek assets have already been beaten down to pennies: the Athens stock exchange is down over 90% since the crisis began --and investors are still not coming. They will continue to stay away as long as Greece remains a dysfunctional state, hostile to private capital and oppressive to business enterprise. Only reforms to correct these pathologies can turn the negative investment climate around. That is what Greece is now trying to do, aided by the bailout mnimonio. The effort may not succeed, and Greece will then default and exit the euro, with all the dire consequences that entails. Such an outcome would constitute a disastrous policy failure --you want make it a policy objective.

15. ARMODIOS PAPAGIANAKIS wrote on August 03, 2012 1:09 PM	The reason investors are “not coming” is because forestalling a Greek bankruptcy, keeps Greek debt, which now stands at a very “hostile” 160% debt to GDP, on the books, and is expected to be repaid (LOL) by future generations of Greek taxpayers, corporations, and of course, potential investors which would essentially NEGATE much of the investment benefits of purchasing assets “for a song”. Why would potential investors/entrepreneurs want pay someone else’s debts anyway? So, it makes more business sense to wait for the inevitable or look elsewhere for opportunities. Discussing or debating the particulars of the mnimonio is moot since it is contingent on partial taxpayer, funded/subsidized bailouts, and violates free market principles, since many, if not most, Euro taxpayers left to their own free will, would not have lent or approved of loans to Greece, but are forced to by their respective governments.

16. Basil Zafiriou wrote on August 03, 2012 2:36 PM	Greece’s public debt post-PSI is 132%. Expected future taxes to pay for this debt are already capitalized in current Greek asset prices: new investors will bear no part of the repayment cost (just as when a company suffers losses, it is existing shareholders that pay for the loss -not new ones after the losses have been announced).
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