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Greek CommunityFreedom or Debt: How Democracy Is Being Strangled in Greece

Freedom or Debt: How Democracy Is Being Strangled in Greece

Hellenic News
Hellenic News
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By Robert Zaller

On October 28, the government of George Papandreou faced an existential legitimacy crisis. It still clung to the narrow parliamentary margin by which it had governed Greece since 2009, and with which it had rammed through the draconian austerity—or, as I prefer to call them, amputation—measures imposed on Greece by the European Union as a condition of its continuing economic bailout.

These measures, which combined massive public sector layoffs (an act supposedly forbidden by law) with stiff increases in taxation for the working population (collected at electronic gunpoint by utilities who were ordered to shut off power to those who failed to pay the new levies), had sharply reduced the country’s living standards. Worst of all, there seemed no bottom to the crisis. The ordinary Greek worker could not calculate, “Well, I can work as well with four fingers as with five,” because, as the government predictably failed to hit its debt reduction targets, fresh amputations were continually demanded by the central bankers. Would Greeks wind up with three fingers, or two, or none at all? Would they lose a hand, an arm?

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What they were steadily losing was their liberty, the sense that they had a government at all, as opposed to a set of hapless butchers dispatched by Brussels and Berlin to cut digits and limbs. They felt the ground crumbling under them, and their lives in free fall. They took to the streets, but these too no longer belonged to them, and they were met with tear gas and truncheons.

October 28 was different, though. After March 25, Independence Day, it is the most sacrosanct day on the Greek political calendar, the day of “Oxi” on which Greece said no to Benito Mussolini’s demands on its sovereignty, and steeled itself to fight for its freedom as it had not done since 1821. This was a day of speeches and marches, a day for hanging out flags and affirming the nation. On this day, the streets again belonged to the people, and the political leaders who spoke to them similarly affirmed the bond between a popularly elected government and the citizens it served.

On October 28, 2011, the people took to the streets, but refused to listen to leaders who no longer represented them. A day of celebration turned into one of rebellion. It was not an act of protest, as so many other days had been, but of rejection. It involved not crowds gathering here or there, but the entire nation. It sent a message to the government that was strong and clear: We said no to Mussolini. Now we are saying no to you.
Politically, George Papandreou still had a government. Morally, he did not. 

Within a week, Papandreou sprang a surprise that caught everyone, including members of his own party, off guard. He would submit the austerity program to a popular referendum. The people would decide whether they were willing to embrace the painful sacrifices demanded of them, or face the consequences of rejection: an unstructured default, the freezing of credit, a forced exit from the eurozone, and a government not merely forced to fire some workers but unable to pay any. 

It looked like democracy, but it wasn’t. It sprang not just a surprise, but a trap.
Consider the alternatives. Papandreou could have resigned, or called for new elections. An election is the way to resolve policy differences and make serious choices, at least in a functional democracy. It provides time for dialogue and debate, the vetting of alternatives, the emergence of consensus. A referendum forecloses all options but one, and it imposes that option from above. It may make sense in certain circumstances, but it is also the preferred tool of demagoguery and dictatorship. Napoleon Bonaparte invented it to cement his hold on power. George Papadopoulos used it for the same purpose in 1973. George Papandreou played it as a last, desperate card.

It backfired at once. The central bankers exploded in fury. They had just worked out a new bailout for Greece—a new schedule of surgery—that called, for the first time, for Greece’s creditors to take the partial writedown on debt that is known as a haircut. This was not an act of generosity, but a partial and belated acknowledgment of reality. To have continued to insist on a full repayment of Greece’s sovereign debt would have imposed conditions that would have made it impossible to repay any of it. The bankers were still intent on squeezing blood from a stone; they had simply adjusted their expectations of how much they could get from it.

In Greece, there was confusion. What would the referendum ask? Who would word it? When would it be held? How binding would it be? The opposition New Democrats were (quite properly) suspicious; Papandreou’s own Panhellenic Socialist Party (PASOK) was little more enthusiastic. But the outrage of the bankers was decisive; they held the purse strings. Within days, Papandreou had withdrawn the referendum, and was instead urging the formation of a unity government. This, too, met a frosty response.

As I have argued in a previous article, Papandreou’s real goal may have been to force a unity government, using the referendum as a ploy to conjure up the specter of fiscal and social anarchy. If so, the public was cynically used, and democracy itself mocked. Papandreou may have calculated, in the aftermath of October 28, that he could not govern without a fresh mandate, and that the only place to get that mandate was from the opposition party. The price of this would be power-sharing, but the price for New Democracy was higher: a commitment to the austerity they had hitherto had the luxury of opposing without the necessity of proposing an alternative.
The bankers were the ones to call the tune. They froze Greek credit at once, and made it clear that not only Papandreou but any other Greek political figure would be unacceptable as the leader of a new government. After some maneuvering, the bankers’ man was slipped into place: Lucas Papademos, a colleague and former MIT classmate of Mario Fraghi, the new president of the European Central Bank, and himself a former vice president of the bank. Mr. Papademos has no political experience, and, although he has some ties to PASOK, he has never run for public office. In short, he is someone who has been thrust on the Greek political system; his mandate is that he has no mandate, like someone imposed on a bankrupt company to oversee the liquidation of its assets. The Greek government, as of now, is in receivership.

To be sure, elections will be held next year, although when is not yet clear. But they will be meaningless if both major parties are committed to amputation, as they now are. Only the small Communist Party has rejected the bailout terms, and the chance of its emerging as a serious alternative to PASOK or New Democracy is, at the moment, extremely remote. Elections that do not offer voters a meaningful choice are, in good times, an exercise in playing musical chairs; in bad ones, they are a sham. These times are the worst Greece has known in forty years; in terms of national independence, they are the worst in seventy. The Germans could be fought in World War II; the Junta could be resisted during the period of military rule. Resisting the Franco-German condominium that now rules Europe, and the bankers who stand behind it, is more problematic. But Greece does have a weapon: the drachma.

An exit from the eurozone and a return to the drachma is by no means a wild-eyed or irresponsible idea. Many economists view it as inevitable. As Professor Stergios Skaperdas of the University of California, Irvine, wrote in the New York Times on November 10: “in the long run there is no question that [a] default, and a return to the drachma, offer the better chance of economic growth and employment [for Greece]” (emphasis added). The alternative, as Professor Skaperdas notes, is economic serfdom for the foreseeable future, as Greece struggles to pay off a massive debt with a systematically impoverished economy, while the best and brightest of its youth is forced into a new migration in search of opportunity. When one considers that the debt “crisis” was manufactured in Brussels to begin with—other countries, such as New Zealand, have had a similar debt to GDP ratio without setting off worldwide alarms—the savage punishment being visited on Greece is neither economically nor morally justified. As for the demand to surrender its political sovereignty—which is what the quisling Papademos government means—that is a condition no self-respecting nation can accede to. Greece rejected such terms in 1940. It should reject them now.

If the Greeks were to default and remonetize, credit would presumably not be forthcoming from the other sixteen member states of the eurozone. But there are other countries in the European Union, of which Greece would remain a member, and other sources of outside capital. At present, Greece has little control over the purposes to which its borrowing is put, and, as in the United States, its small-business sector is being starved. The country would have to live within its means to a far greater extent than it has done in the past decade, and its tax collection system would need to become fairer and more efficient. These are the choices a democracy makes. The new drachma would depreciate on the market, which would spur exports and tourism. That it would make borrowing more expensive would enforce fiscal discipline. The Greek economy would wean itself from the foreign subsidies that have entrapped it, and create its own model of sustainability. That, too, is a task for democracy. The clientelism and corruption of Greek politics have been encouraged by the euro, with its hitherto lax credit and accounting standards. A government that has to pay its own way in a society at last charting its own destiny is the only path to reform.

Greece has not been alone in the crisis of the eurozone. In both Italy and Spain, governments have fallen within the month. Italy’s new prime minister, Mario Monti, is like Lucas Papademos a banker minted in Brussels. It is increasingly clear that the eurozone has become a consortium of more powerful northern economies, dominated by Germany, bent on exploiting poorer southern ones trapped in a debt cycle. This is a familiar scenario that has been played out many times before by the International Monetary Fund and other predatory lending agencies with Third World economies. The European Union was, of course, supposed to be a happy family of open borders and common passports, united by the ultimate bond of a single currency. It hasn’t worked out that way. The euro has not restrained but enhanced German power, whose containment has been the primary diplomatic objective of the Continent since 1870. Two years before the outbreak of World War I, the German industrialist Hugo Stinnes observed that the German mark could dominate Europe far more effectively than military might. His theory, with the substitution of the euro for the mark, is now being put to the test.

These larger matters are for the states of Europe to deal with. For Greece, the immediate issue is national self-determination. A leader less pliable and weak than Papandreou might have been able to win more tolerable terms for Greece in sustaining its credit while repaying some portion of its debt. A strong one might have challenged the whole presupposition of a crisis laid on the shoulders of a single small economy. But the only solution now, it seems to me, is a default carried out by Greek courts under Greek law, and a currency controlled by a popularly elected Greek government. The drachma was good enough for Pericles. It can work for Greece now.

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