On the Metaphysics of Greek Debt

There is a new government in Greece that is trying to negotiate a reduction of Greek debt. This effort by the leftist government is based on the realization that the Greek debt is not sustainable. In this blog I examine some of the causes of Greek debt. If the causes of the debt are not removed, the same problems will emerge in the future, even after reduction.

When we talk about causes, we talk about metaphysics. Yet, understanding causes is necessary in many areas, such as in the case of Greek debt, which has risen to 175% of GDP after a harsh austerity plan was implemented by lenders to avoid an outright bankruptcy of an EU member state. This was basically accomplished by exchanging unsecured Greek bond debt with secured loans made by EU states and also by the European Central Bank (ECB) buying a share of outstanding Greek bonds. It was the largest bailout in recent years but the austerity plan caused Greek GDP to plunge by nearly 25% and thus the ratio of debt to GDP skyrocketed to 175%, as shown on the chart below. It is obvious that any bailout plan that increases the debt to GDP ratio by that much is ill-founded in principle. The ultimate goal of a bailout plan should be to decrease the debt burden so that an economy can restart. However, the primary objective of lenders was not to restart the Greek economy but to secure the money owed to them. Unfortunately, it appears in hindsight that those who negotiated the plan may not have acted in the best interest of the Greek economy but sided with the interests of the creditors. Therefore, that was a bailout plan for creditors, not for Greece and the country was pushed into an economic death spiral. Countless closings of corporations, climbing suicide rate and even famine were some of the outcomes of that ill-conceived plan to bailout the creditors of Greece at the expense of the population.

Greek_Debt_1

It is all now water under the bridge as the acts of previous governments facilitated the rise of a leftist party that last month won the elections after forming a coalition with a small right wing party. One interesting aspect of this election was that the previous government tried to convince voters that a continuation of its plan, which caused the economic death spiral in the first place, was the only solution out, otherwise total chaos would emerge. But the majority did not side with that view and they lost the election.

Greek_Debt_2
Maturity Profile of Greek Debt. Source: Greek Public Debt Management Agency

It may seen form the above chart that only this year more than 20 billion euros of debt will mature and given that Greece does not have access to bond funding due to high interest rates, the debt will have to be repaid through more loans and the debt to GDP ratio will remain steady or even climb further. Certainly, this is an unsustainable scheme involving state loans to retire private or other state loan debt since there is no access to the bond markets.

After this short introduction let us try to understand the causes, i.e., the metaphysics of the Greek debt. This is necessary, otherwise neither a restructuring, nor a cancellation of a part of it will lead to a viable solution and Greece will end up in the same position in a few years down the road. The assessment of the causes of this debt is based on my own analysis. Some may disagree but there is always ambiguity in metaphysics. Remember that when we talk about true causes, we talk about philosophy and metaphysics.

At the level of epiphenomena, the cause of debt is the accumulation of deficits. But this is not a primary cause, it is only a “stretched” cause because deficit means debt and debt means deficit, i.e., they are equivalent quantities. Also, anyone who argues that Greece can reduce its debt levels by running surpluses, is talking about a tautology. The problem is: can Greece ever maintain surpluses the way, or even in any way, its economy is structured? Thus, we are interested in identifying the primary causes of debt and see if they can be eliminated. If not, there is no way out of debt and any debt cancellation or restructuring will only be a short-term solution.

According to my analysis then, the primary cause of Greek debt is the relationship between voters and politicians. It is a master-servant relationship that was strengthened during the times of the Ottoman Empire occupation of 400 years. The politician feels like the master who will provide the job and the voter can get it if he votes for him. In this way, two major camps have developed in the past, those who voted right wing parties and got jobs from them and those who voted for socialist parties and got their jobs from them. In both cases, the state acted as an employer of last resort, actually making it difficult for people to operate in a free economy by enacting all sorts of complicated tax codes and rules. To start a limited company, it would take months of paperwork and of visiting public servants, the politician voters. Thus, most of those who wanted to produce elected to depart and go to neighboring countries like Bulgaria, which despite the fact that it had a different system in the past, it made it easy to start a corporation and operate it.

Therefore, one metaphysical cause of the Greek debt is the thirst for power and for control of other people’s lives. This is what the Turks did to Greeks for 400 years and now Greeks do it to themselves. The peak of this decadence was in 2004 when the candidate for prime minister with the right wing promised a secure job to about 250,000 (you read the right: two hundred fifty thousand, it is not a typo) civil workers on contract that were employed by the previous socialist government in exchange for votes. These voters determined the outcome of the election, they were hired, and in just 4 years the Greek debt skyrocketed to 113% of GDP, as shown on the first chart. This behavior by politicians is continuing nowadays. Only a few weeks ago we heard politicians promising civil servant jobs to voters, in exchange for their votes of course.

There are even deeper roots of the problem. The Greek society since antiquity has been an oppressive system with the exception of the golden age. Tyrants dominated the political scene. Then, during the Byzantine years, Greece was a theocratic society in which different opinions had little chance to survive along with those that held them. The theocratic oppressive society morphed into a political oppressive system after the liberation from the Ottoman Empire. The military junta of 67-74 was the peak of this oppressive system. After the junta, the oppressive system morphed again from direct military and police state to political oppression of a system that offered exchange of votes for a job. Governments ran large deficits after 1980 to finance their oppression and power. The Debt to GDP ratio rose from 22% in 1980 to 98% in 1993, as shown on the chart below:

Greek_Debt_3

Greece was already bankrupt by 1993 but the political system managed to keep the economy alive via a debasement of the drachma. By 1997, further debasement was not possible and politicians decided to join the euro in an attempt to avoid bankruptcy. They concealed the finances by doing complex swaps and convinced the EU to accept them. But the urge for power was already beyond control. Political scandals were widespread. Politicians were accepting bribes from foreign corporations. By 2007 the debt was over 105% of GDP and the future course was known. Debt to GDP ratio exploded to 143% by 2010. Bust…

Yet, voters and the media still reward politicians who seek power and control in exchange of promises and by mortgaging the future generations. This is the real cause of the problem: an oppressive political system that is far from democratic although it appears as such because democracy stays at the freedom of speech level only so that politicians can justify their elected status.

In the 2012 elections a new phenomenon was witnessed that proved that the oppressive nature of the Greek society went one step further by electing an extremist right wing party supposedly to punish those who in the first place have benefited the voters of that party by offering them civil servant jobs and other benefits but were not able to continue doing that because of the debt problems. Thus, instead of the voters understanding their mistakes and voting for a party that would do real reforms, they elected to seek for revenge by voting for an extremist party to punish those that offered in the past the lost benefits. This shows the serious oppressive nature of the Greek society and that those that are willing to work hard so that the country moves ahead are suffering.

Can this oppressive nature of the Greek society that gives rise to politicians who are willing to exchange votes for power and control change? Not unless some things happen and one of those is the cooperation of the media and journalists that continue rewarding incapable politicians and present them as authorities. Not unless there is a large scale campaign to convince the population that “gifts” from politicians mortgage the future of the country and what they get will be paid back in multiples. Not until the media stops creating role models based on singers, athletes and other types from the entertainment sector and focuses on making successful business people role models for young people.  The problem is complicated because the whole system has been structured so that private incentive fails and politicians maintain control over people’s life and votes. This is not even communism because in that system the educational establishment was not under attack as it is in Greece, with universities in the mercy of political fractions exercising control over it.

Yes, Greece has political tyranny that operates as borderline democracy. Europeans struggle to save Greece because of its history and ancient culture. But time is running out although for Greece time moves in a circle with a decadent political system at its center. Will Greece be saved if all of the debt is cancelled? Probably not, unless the political system is also cancelled with it. This is exactly what the Europeans must demand although their position is difficult since they do not want to appear as interfering with a “democratic” system. However, Europeans must understand that there is little connection between true democracy and a political system that thrives on having the voter as a client. When this is realized, the direct interference may become easier. Greece is a great country with great history, it is a beautiful place with many hard working people but with a decadent political system that struggles to stay in power and maintain its control. Part of the agreements for the aid should include modernization of the political system and establishment of laws that will prohibit the exchange of votes for jobs and will demand tight control over deficits. But this will be only the beginning. Greece deserves a chance. The Europeans must offer it because their civilization is based on Greece’s achievements of the past. The Greek people should accept to make more sacrifices in the road to purging the decadent political past.

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