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Corrupt nation holding a gun to the EU's head

By Matthew Lynn

Last updated at 8:58 AM on 2nd November 2011

At the end of last week, Europe’s leaders breathed a collective sigh of relief. After months of fraught negotiations, they had finally concluded a comprehensive deal which, they proclaimed, would save the single currency.
Now, in place of the promised stability, we have been plunged into yet another crisis with the reckless decision of the Greek government to call for a public referendum for its citizens on whether it should accept the Brussels rescue package.
Already the markets, including the FTSE 100 in London, have been badly shaken by the Greek move. And within Greece itself, a mood of panic and turmoil now prevails. If the Prime Minister, George Papandreou, hoped to unite both his ruling socialist PASOK party and the Greek people with his referendum call, his move has backfired badly. 

Traders at the New York Stock Exchange watch as stocks fall sharply yesterday

One of his own party’s MPs has already resigned, cutting the Parliamentary majority to just two, while six other leading PASOK figures have demanded that Papandreou resign. Cranking up the pressure, the New Democrats, who make up the official opposition, have demanded an early general election.
Antonis Samaras, the leader of the New Democrats, yesterday expressed his outrage at how Papandreou has ‘put our future and our position in Europe in danger’. There have even been dark rumours that a military coup might be mounted against the politicians – similar to the coup in 1967 which led to the notorious ‘Regime of the Colonels’ which lasted until 1974.
What makes the move by Papandreou even more extraordinary is that he must have been plotting this decision on the referendum even as he was appearing to sign up to the deal last week.

It may be that Papandreou's decision is just a negotiating ploy to wrangle more money out of the EU

It may be that Papandreou’s decision is just a negotiating ploy to wrangle more money out of the EU. Recognising that Brussels is terrified of a Greek default, which could bring about the collapse of the entire eurozone, he could now be exploiting popular anger in Greece at the imposition of austerity measures to win an ever bigger bailout and an even greater debt write-off by the foreign banks.
Effectively, that would mean he was putting a gun to the head of the EU to win more cash.
The problem is that even if his Government survives and manages to hold the referendum, it is by no means clear what the result will be.
Judging by the almost daily scenes of protest on the streets of Athens, it might be presumed that there is huge groundswell of opinion against the EU. And increasingly those protesters see the Greeks as the victims of a German autocracy, forced to adopt ever harsher austerity measures just to satisfy the bullies in Berlin.

Certainly, current opinion polls show that around 60 per cent of the Greek electorate is opposed to last week’s deal, easily enough to give a decisive majority to a No vote.
If Greece does vote No and effectively defaults on its debts, then the country will have to leave the euro. In that case, there will be another financial crisis as banks across Europe slide towards insolvency and the whole single currency may start to unravel as Portugal, Ireland and Italy also come under intense pressure from the money markets.

 

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• RIGHTMINDS: Greeks should reject the EU bailout and resign from the eurozone
• RIGHTMINDS: Festering anger, Nazi war crimes and the £60bn the Greeks believe the Germans owe them

Could the Greeks really contemplate voting against the bail-out package and bringing ruin down on their own country? Don’t rule it out. Greece has always had a siege mentality. It is very different from the rest of the EU. It was part of the Ottoman Empire for centuries before it became an independent country in the early 19th century, and psychologically is as much a part of Turkey and the Middle East as it is of Europe. It has few shared traditions with Western Europe.
Greeks have never minded defaulting on their debts. The country defaulted in 1826, 1843, 1860 and 1893. It has been in default for half of its existence. Only two countries in the world have a worse record – Honduras and Ecuador.

On the wider question of membership of the single currency and the EU, opinion in Greece is much less antagonistic towards Brussels, another opinion poll showing that 58 per cent of Greeks are in favour of remaining within the euro.
We should hardly be surprised, given how well Greece has done out of the EU, which it joined in 1981, and the single currency.
The country is nothing like the advanced societies of northern Europe. It has little industry and much of the population is poor. Membership of the EU has meant not only lavish subsidies for public services, but also low interest rates. Before joining the single currency, Greece’s interest rates were generally above 10 per cent. But, tied to Germany’s, they fell to just 1.5 per cent.
Able to borrow money far more cheaply than before, the Greek government showed breathtaking irresponsibility, and money has been squandered on an epic scale, most of it on the massive state machine.

Risk: If Greece does somehow remain in the euro, the endless cycle of debt, crisis, blackmail and turmoil will continue

Greece has an absurdly large public sector, filled with employees who enjoy a far higher standard of living than those in the private sector. Many civil servants can retire at 49 on excellent pensions. An unmarried daughter of a state official can inherit his pension when he dies, which both deters marriage and increases public debts. Corruption, waste and mismanagement have been rampant, while paying taxes has been almost a voluntary activity.
Last year, for instance, 34 doctors in Athens claimed to earn less than £9,000 a year, which meant they were exempt from any tax. One dentist reported an annual income of £250.
Greece cannot go on like this. For too long, encouraged by misguided and self-interested politicians, the EU’s largesse and excessive credit from foreign banks, the country has lived far beyond its means. Whatever happens next, whether it be a general election or a referendum, both Greece and Europe are about to pay a terrible price for this folly.

If Greece does somehow remain in the euro, either through a Yes vote or a change of government, the endless cycle of debt, crisis, blackmail and turmoil will continue. There is no easy way out of this mess, one which only emphasises how foolish Brussels was to allow this backward, irresponsible and corrupt nation to the join the eurozone in the first place.

Read more: http://www.dailymail.co.uk/debate/article-2056396/Greece-referendum-Corrupt-nation-holding-gun-EUs-head.html#ixzz1cY8Zgc4E