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The Time Has Come To Cut Greece Loose

06/03/2017 00:48 GMT | Updated 06/03/2017 00:48 GMT
Gabriela Insuratelu via Getty Images

The beginning of March saw Athens grudgingly welcome back the "Troika" inspectors. After months of haggling over Greece's progress towards the goals of its bailout programme and following non-stop negotiations since January 2015, we are back where we started, the creditor inspectors are allowed in to investigate. However, something is different this time. Greece's cash-for-reforms deal is coming apart while at the same time relationships between its creditors are breaking down. We now face a situation where Greece, the IMF and the Eurozone are operating at cross purposes. It is legitimate to ask therefore whether 2017 will be the year when this all stops. Is Greece still worth saving?

The Greece I grew up in was a very different place form the one you see today. I will not bore you with statistics that you can easily see elsewhere, but I can tell you this: It did not feel like Northern Europe. Things were basic, but progressing steadily during the 1980s, and despite the occasional hiccup, people got progressively richer and life was gradually becoming easier. Still, the best thing you could wish for your kids was a state job. Why? Because in a sluggish economy the steady salary and permanent employment offered by the state was the best insurance against poverty. Were Greeks opting for state jobs because they were lazy? No, they did so because permanence made up for boring bureaucracy and modest salaries. This is a common pattern explained by historical factors in states with weak institutions making the transition from agrarian to city economies.

The political system both exploited and bred the desire for state jobs. Nepotism and clientist politics were the norm. There is nothing surprising about this, as a wide literature on emerging economies suggests. Local politicians based careers on finding jobs for their supporters and the state mechanism was closely connected with party political machines. While things were not exactly 'soviet', there was no such thing as an independent civil service. The 1990s brought with it some maturing of the political system, but also a deepening of corrupt relationships and backslapping cosy deals. PM Kostas Simitis embarked on a project of modernisation and Europeanisation of the country aiming to make Greece part of the 'core' European states, with the ultimate aim to join the Eurozone. Modernisation in this context (in the mid-1990s) meant a particular type of oligarchic neoliberalism that imported some semblance of modernity, yet entrenched elites and a deeply corrupt political establishment.

This brings us to Germany and her role in all of this. The South of Europe by joining the Euro could borrow at much cheaper rates than was previously possible. Who lent to them and what did they do with the money? Northern European Banks (many of them German) were happy to lend money to the new markets in the South. What did the Greeks do with the money? They spent it on goods produced in the North. Indebtedness in the European Periphery is the mirror image of industrial success and growth in the North. This is what people mean when they say that Germany benefited from the distortions of the Euro area, both when its banks raked in profits, and when its industrial production found willing buyers close-by.

The Greek state for its part, masked the lack of real economic growth, modernisation and progress by borrowing cheaply and allowing tax evasion to mask stagnant real wages. Who would complain about their salary not being enough to buy that Volkswagen, when they could subsidise their earnings with the undeclared income of a few rent-a-rooms by the sea? Would this go wrong? Of course it would and we knew at the time of the 2004 Athens Olympics that something was up. Sudden wealth spread across the country, large infrastructure projects were being built everywhere, there was a consumer boom and a lot of conspicuous consumption. How could all these young men sit around drinking coffees in the middle of the day? And it did go wrong, it went badly wrong. It took a worldwide financial collapse to expose the rotten core of the Greek economy, but the party came finally to an end.

The question is what to do now? The Greeks are not lazy scroungers any more than the Germans are cold-hearted capitalists. Germany benefited in the same way as Greece during the boom years and now there is trouble for both, albeit Greece is ahead on this one with a depression more pronounced than the Great Depression. It is worth thanking Germany for her support and the German taxpayers for funding that support. Many have come to realise though that rotten policies like the deflationary, recessionary austerity that the Troika is insisting on are not pointing to a path of prosperity and peace for Europe. However, the Greeks share a large part of the blame. The Greek government since 2015 has lied to its people and its creditors. It has no intention of working towards programme targets, regardless of whether they are right or wrong. Something has to give. Is it sensible to continue to subsidise state jobs for the friends of Mr Tsipras for another two years? The answer for many is no.