Welcome to the GN Debate where two leading opinion writers go head to head on the issue of the day. For the opposing view to this column - why the Greek bail out package was too little, too late - go here.
The Greeks have a long history when it comes to democracy and the art of politics. Too bad that does not extend to economics — or even living within their limits.
The fact is that when Greece joined the euro in 2001, for the next seven years, its Gross Domestic Product (GDP) per capita tripled, from €10,000 (Dh39,856) to €30,000. And so did government borrowing and spending — in essence the 2004 Olympic Games in Athens was funded on money borrowed from banking institutions across Europe, or funded by 10-year government bonds issued by the central government.
On top of this spending, Greeks enjoyed social welfare programmes and government benefits that would make any Marxist proud — 13 monthly pay cheques in a 12 month year and full pensions provided to those over 60. While the trend in Europe and North America is for governments to extend the working age and the age at which state pensions are paid, Greeks enjoyed the benefit of full pensions at 60.
There is a reality too that Greece has a long culture of income tax evasion — one that is akin to an Olympic sport. And debts of Olympic proportions.
In essence, Greece has structural problems that it has failed to address. And it’s this culture of handouts and unfettered borrowing that makes this third bailout of the Greek economy a mistake.
Yes, the European Union has asked for €50 billion in Greek state assets to be placed in escrow overseas as collateral for the bailouts. But in the two previous bailouts provided by the troika of the European Union (EU), the International Monetary Fund and the European Central Bank, only €3.5 billion has been raised through the sales of state-backed assets.
Indeed, the turning off and sale of the Greek state broadcaster which was vaunted during Bailout 2, has been actually revered by the government of Alexis Tsipras.
Why continue to lend money to an irresponsible borrower?
Ireland, in 2011, applied to the same troika and received a bailout of €90 billion to prop up its banking system. As a price for those funds, social welfare benefits were trimmed, the public sector was cut, taxes were increased, and the Irish people, to their credit, swallowed the bitter financial pills that were necessary to ensure that those bailout conditions were met. There were no mass protests, no tear gas, no referendums on wanting to divert from the responsible course, no changing course.
Each of the two previous bailouts have been met with protests in Greece, and indeed, the riots outside parliament while the debate on Bailout 3 was ongoing, showed just how unacceptable these measures are. Those ruins of the Parthenon overlooking Athens are made of long-standing stone. And you cannot get blood from those stones.
If Greece wants to borrow money, let it pay back the funds it first borrowed.
Lend me €90 billion and I promise to pay it back. No wait, lend me €240 billion and I’ll make sure the €90 billion is paid back. No, better still, lend me another €86 billion more, and I’ll make sure you’re paid. If there is a mistake, it is helping Greece out for a third time with little hope of Athens ever paying it back.
The mistake
The reality is that when Greece joined the euro, its economy was in reasonably good shape and it met the criteria laid down by Brussels for debt controls. If there is a mistake, it was that Brussels failed to do its due diligence — and the Greek under-reporting of its finances certainly was not helpful — in making sure Athens abided by the membership of the euro.
But that is not reason enough then to lend it money. And more money. And even more money.
Walk through Athens — or any Greek city, town or village, and you will see homes that are permanently under construction. Not a building boom — but a clever ploy to avoid paying local property taxes. If the home is finished, it becomes taxable.
Who subsidises local city council with additional funds because revenue from property taxes comes up short? Athens? Nope — the Germans, the Finns and the Dutch. Athens, after all, has little money and is borrowing like a junkie in need of the next cash fix.
So should Greece have exited the euro? Certainly, until such a time as it becomes serious about getting its financial house in order. For the past two years, the capital markets have been building in the cost of a Grexit into transactions. Its departure — be it back to drachma or some other currency, had already been factored in. Now that a third bailout is in place — and Greek’s debt-to-GDP ratio is at an unsustainable level of 200 per cent — all we are doing is ensuring that the Greek crisis will return again.
Debt relief? Maybe — once it establishes a proven record of paying its way, collecting its taxes and making ends meet.
Beware of Greeks bearing gifts. Or borrowing money.
