Greek tragedy - no longer a myth

Published on Monday, July 6, 2015

Greek tragedy may have evolved, as Aristotle put it as a "song for the sacrifice of the goat", depicting the ancient rites in the 5th century BC based on Greek myths, but now that mythical tragedy is taking a whole new meaning.

Greece might have invented democracy, produced the subtleties of logical deduction and mastered the intricacies of reasoning power some two thousand or so years ago, but she never had national economy commensurate with her contributions to modern civilisation. Greece was at the vanguard of European and world civilisation for centuries. The Islamic civilisation reached its zenith during the period of 9th to 13th century, called the 'Golden Age', when it embraced Greek philosophy and culture and then the 'Golden Age' decayed away as Islam abandoned Greek culture and rationality. Now Greece itself, it seems, has fallen foul of rationality and the basic sense of logic.

What started as an innocuous run-of-the-mill negotiations between the two sides of the Eurozone – the lenders represented by the Troika and the borrower, Greece - some six months ago, dogma and skill-deficiency on the part of Greece spanned it into a potential tragic situation of epoch proportions. However, this situation did not develop overnight, as most mythical situations do, but came into being slowly and steadily over the last six months by the radical left Syriza party led by Alexis Tsipras.

Greece was never a country with the strong economy. Before she was allowed to join the Euro in 2001, ditching its currency drachma, she had been suffering from hyper-inflation due to government incompetence, structural deficit and in-built corruption. Greece always lived far beyond its means and that lifestyle had been sustained by excessive government borrowing in the form of government bonds and international money market loans. To defray the real value of borrowed money and to boost its export, Greek government had the habit of devaluing the currency as and when required. The consequence of this monetary trickery was to increase prices of goods and services in numerical terms at home and so inflation and hyper-inflation ensued. In addition, corruption was ripe right across the whole structure of the economy - people avoided paying income tax and the VAT fraud was at a scale similar to any third world corrupt economy. Consequently the government revenue kept dropping year after year, but the government spending remained unchanged and even increased to fulfil election promises. This state of economic condition would only lead to economic disaster.

When the European single currency, Euro, was launched in 1998, Greece saw the golden opportunity to get out of the terrible economic mess and hyper-inflation. But there were strict conditions that a country must fulfil before joining the single currency. The 1992 Maastrict Treaty criteria required, for disciplined government borrowing by a Eurozone member, a maximum of 3% of its Gross Domestic Product (GDP) a year and 60% debt to GDP ceiling. Although there were obviously striking differences between strong economies like Germany, Netherlands, Belgium and so forth and the weaker economies like Greece, Portugal, Ireland etc., the above conditions were put in place as the fail-safe boundary lines before a EU Member State (MS) is allowed to join the Eurozone.

The Greek government, it is alleged, cooked the books and showed that it met both of these criteria. As a result, Greece was allowed to join the Euro in 2001. Once the country was in the Eurozone, it found economic life so much easier. Whereas in the drachma time, the interest rates that the government had to pay for bonds, called the yield, were in the double digit figures; the new Euro bond yield was in the low single figures. The reason was that the international money market viewed that the risk of any default in Euro, with Germany and other strong economies within it, was very low and the investment was safe. The Greek government started to borrow money as if they would not have to pay it back. Life in Greece was milk and honey all the time.

Then came the global banking crisis in 2008. There was no available money to borrow, but debt repayment had to be maintained. All major economies suffered and austerity measures were put in places. Whereas stronger economies managed to pull through, the weaker economies started to falter. In 2010, Greece and then Spain, Portugal and even Italy had to be rescued by emergency loans and bail-out plans by the European Central Bank (ECB), the European Commission (EC) and the International Monetary Fund (IMF).

When the Troika comprising the ECB, the EC and the IMF looked into Greece's economic health, they found that the debt to GDP ratio was not 60%, but the yawning 145% and rapidly deteriorating. In May 2010, the Troika offered €110 billion to Greece to stave off sovereign debt default until June 2013, conditional upon implementing austerity measures, structural reforms and privatisation of government assets. Due to Greek government incompetence or wilful negligence to implement the agreed bailout programme, economic conditions worsened. The debt to GDP ratio increased to over 175% by 2013. A second bailout of €130 billion was agreed to be transferred until December 2014 in certain tranches subject to further and more clearly specified conditions.

Due to tough economic conditions following strict austerity measures, there were unrest throughout the country. Youth unemployment soared to over 25%, pension ages had been raised from 55 years to 65 and many other benefits (which any other western European country could only dream of) had been removed. The government which implemented these measures was so unpopular that it suffered no-confidence vote and fell.

An ultra-left Syriza party led by Alexis Tsipras came into power with the election promise to end the austerity measures. Hardly did he know or pretended to ignore that those austerity measures were the pre-conditions for bailout money. In any case, it was noted by the Troika that even the previous centre-right party did not implement the measures agreed before in full. For example, it was agreed at the time of first bailout in 2010 that €50 billion was to be paid back to the creditors through privatisation, but only €2.5 billion of sale had been completed until 2014. Defence spending remained at €4.6 billion which is 2.1% of GDP against the EU NATO average of 1.6%. In other words, life in Greece remained nearly as normal, although much noise had been made of austerity.

To get €7.2 billion second tranche of bailout fund, Tsipras government was asked to cut defence spending by a meagre €400 million (less than 10% of defence budget), but it was refused and Tsipras government said that a maximum of €200 million could be cut. Many of the previously agreed austerity measures were rejected by this government.

Consequently the Troika refused to release the fund unless there was firm undertaking for austerity measures. In the meantime, the Greek government failed to pay back €1.6 billion repayment to the IMF by the end of June 2015, which in theory means that the country had defaulted. But while negotiations were continuing in Brussels, Tsipras flew back to Athens and called for a snap referendum on 'Yes' or 'No' to accepting the austerity measures. That referendum took place on 5 July. The latest result is that 'No' camp got nearly 60% of vote.

However, what does this rejection of austerity measures by the Greek electorate mean in terms of bailout fund? The Troika said quite clearly that the bailout package that was presented on 29 June was the 'take-it' or 'leave-it'. Moreover, when the negotiations were terminated by the 'Referendum' call, the package that was on the table was withdrawn. This logistic impasse may mean that the 'Referendum' was conducted on a phantom 'Yes' or 'No' basis.

Now that the 'No' camp has won, which means that the austerity measures are unacceptable to Greek electorate and in the absence of any new bailout deal, Greek government will get no more money. The Greek banks were closed for nearly the whole of last week and the banks were running out of money. But the ECB kept the lifeline open until the 'Referendum' day by injecting emergency bank loans so that public can draw money from the ATMs. Now that the loan has also been stopped, it is speculated that by today the banks will run dry and the whole country will come to a grinding halt.

It is more sinister than that. If banks cannot pay, all imports – from food to medicine to fuels and everything else – will stop coming into the country. Within a short time, the country will face food shortage, fuel shortage etc. The 'No' camp is now celebrating their victory on the presumption that they have given a bloody nose to the Troika and Eurozone, but when the reality will dawn on them in a few days' time, they will realise that the mythical 'Greek tragedy' which was until now only a myth has come to haunt them for reality. Exit from Euro has never been more real and the 'good old days of drachma' seem to be back for Greece!

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