As the Greek economic crisis enters its seventh year, the difficulties standing in the way of its resolution continue to mount. At first glance, this is surprising. After all, Greece is a small country, representing just 2 percent of the European Union’s economy, and is home to just over 10 million of the bloc’s more than 500 million citizens. But it has played an outsize role in driving the political and economic uncertainty facing Europe today, and has in many ways taken the brunt of the fallout.
For Greece and Europe, nothing has been the same since 2008, when news emerged that the country’s budget deficit was many times what the government had been declaring for years. In 2010, it stood at 15 percent, triggering the first bailout deal between Greece and a troika of lenders: the International Monetary Fund, the European Union and the European Central Bank.
The austerity drive on which the bailouts were conditioned—cuts coupled with reforms that would liberalize the sclerotic Greek economy, according to the authors of the deal—wiped out more than 25 percent of the country’s GDP, and pushed incomes down by as much as 40 percent in the lower earning brackets. In the process, every political party in Greece that supported austerity has collapsed under the weight of its unpopularity.
The formerly powerful Panhellenic Socialist Movement, known as PASOK—a party founded upon socialist principles in the 1980s that subsequently switched to the politics of the “Third Way” in the 1990s—was almost wiped off the electoral map. Its share of the vote plummeted from more than 40 percent in 2010 to less than 8 percent following the September 2015 elections. The term “Pasokification” was adopted internationally to describe the seemingly universal crisis of the center-left. In PASOK’s wake came Syriza, a formerly marginal coalition of Eurocommunists, leftists and even anarchists that won elections in 2015 but has also been tainted by its inability to end austerity.
Greece has played an outsize role in driving the political and economic uncertainty facing Europe today, and has in many ways taken the brunt of the fallout.
During that tumultuous period and since, other forms of instability have shaken the country, principally a refugee crisis of massive proportions that once again placed Greece at the front and center of European upheaval. The consecutive shocks brought to the surface political problems with deep roots, reaching all the way back to the country’s post-World War II settlement.
Today’s problems are linked in part to an economy that, upon its admission to the eurozone in 2001, became heavily dependent on borrowing. But they also stem from the European Union’s unpreparedness—bordering on unwillingness—to adopt an effective, decisive and cohesive approach to dealing with economic crises like the one Greece faced.
By 2017, the nature of the problem hasn’t changed much. Greece’s position is a tricky one: Standing at the crossroads of three continents, the country’s strategic value has always invited trouble and placed it at the forefront of nearly every geopolitical crisis of the 20th century. It was inevitable that Greece would also become an entry point for refugees escaping conflicts in the Middle East and beyond. Since 2014, more than 1 million people have boarded rafts on Turkish shores in an attempt to reach Greece and Europe, according to the United Nations Refugee Agency, UNHCR. The resulting divisions within the EU over how to respond made Greece the theater of further political conflict.
Now, 2017 brings new challenges and might just prove to be the decisive make-or-break moment for the country. As there’s hardly any more room for kicking the can further down the road, both Greece and the European Union will be forced to decide what their future looks like, and finally determine if it is a common one at all.
Domestic Trouble
With two dominant parties that until 2015 had alternated in power for four decades, the Greek political system might have projected a solid front. That couldn’t be further from the truth. The political tradition that Greece has historically drawn upon was one of division. Since the end of World War II and the civil war that followed, the left was outlawed for many decades. Exile, repression and violence against communists and even moderate leftists coincided with a program of urbanization that reshaped the largely rural society and produced modern-day Greece, with its two largest urban centers—Athens and Thessaloniki—home to almost 70 percent of the population.
Greece’s position is a tricky one: Standing at the crossroads of three continents, the country’s strategic value has always invited trouble and placed it at the forefront of nearly every geopolitical crisis of the 20th century.
Political dynasties, rather than parties, were at the roots of that system. George Papandreou, Greece’s first post-World War II prime minister, was the father of Andreas Papandreou, the founder of PASOK; his grandson, George Papandreou, became prime minister in 2009. The center-right New Democracy party, which held power from 1974 to 1981, was also dominated by two often-opposing factions: the Karamanlis family and the Mitsotakis family. Kostantinos Karamanlis was prime minister prior to the 1967 dictatorship and following it in 1974; of his two nephews who share his first name, one became prime minister in 2003 and the other is currently a member of parliament. The Mitsotakis family patriarch, Konstantinos Mitsotakis, became prime minister in 1989; the current New Democracy leader, Kyriakos Mitsotakis, and Dora Bakoyiannis, a former minister, are his son and daughter, respectively.
The multiple systems of patronage that developed around these clans are now deeply and broadly rooted. That allowed the country’s political clans—and, accordingly, PASOK and New Democracy—to maintain their grip on power across Greece, thus making reform efforts difficult or impossible to pursue. Even when it came to simple issues, factional resistances were so great that no progress could be achieved. A rather mundane example is that Greece to this day has no land-ownership registry—Syriza began working on one just last year. Every time a past government has tried to introduce one, it was met with resistance by major landowners who enjoyed the protection of previous governments and the Greek Orthodox Church, which benefits from generous land-tax exonerations. Efforts to reform the management of pension funds faced a similar fate.
From the 1990s onward, as Greece started preparing to join the eurozone in 2001, it became evident that the country was experiencing deindustrialization, with an increasing dependence on borrowing. It wasn’t, however, until the early 2000s, after the country adopted the common currency, that debt spiraled out of control. The stronger currency facilitated higher-quality technology imports and undercut the country’s agricultural production by introducing competition with countries like Turkey and Egypt—both of which could export the same products at much lower prices—in both cases rendering domestic production almost redundant. The resulting dependence on imports, coupled with access to cheap borrowing, created a toxic cocktail that paved the way for the 2008 crisis, when sovereign debt was found to have reached 165 percent of GDP. At the same time, private debt climbed to 113 percent of GDP, with the majority of it unserviceable, blocking much-needed liquidity from reaching businesses.
The political tradition that Greece has historically drawn upon was one of division.
Meanwhile, Greek society had become almost entirely reliant for employment on the service sector, which would prove unable to survive the coming shock. Demographics weren’t on Greece’s side either, with an ever-older population increasingly reliant on state-provided welfare, which was expanded by borrowing where funds and taxation didn’t suffice.
Certain of their power and influence, however, the two dominant parties failed to see any of it coming—or at least refused to act on it, as that would have risked losing electoral support. It’s worth noting here that, according to a recent investigation by a parliamentary committee, PASOK and New Democracy themselves had amassed loans worth a staggering 420 million euros based on little more than assurances of continued state funding, which Greek parliamentary parties receive according to their vote shares. Given their latest electoral results, New Democracy’s and PASOK’s bank loans are, according to data provided by parliamentary watchdog Vouliwatch, unserviceable.
Political parties were not unique, though. Nearly every sector relied heavily on borrowing. Media firms alone have borrowed more than 1 billion euros in the past two decades. Today, Greek banks hold a total of 107 billion euros in “bad” loans, and just 50 percent of the businesses that owe a big chunk of them are considered viable. The Greek banking sector was once dominant in the Balkans. But its pathologies reflected those of the country: overreliant on cheap borrowing, too tied up with politics, and resistant to change. When the crisis hit, no part of the Greek state was strong enough to withstand it.
Kicking the Can Down the Road
To understand the significant challenges Greece faces in 2017 and beyond, one must first look back to 2012, when the first tranche of funds—72.8 billion euros—from a second bailout agreement between the government and the troika of lenders was dispersed.
Prior to the crisis, the Greek state had borrowed heavily from national banks, which were often called upon to cover for shortfalls in revenue. Pension and insurance funds were also forced to buy government bonds, which at the time looked like a significantly less perilous investment than what they ultimately turned out to be. The lack of an independent civil service that could resist such practices, coupled with similar lack of independence within the private banking system, allowed the situation to go unchecked for years. Most of the remainder of Greece’s debt was held by international banks, principally German and French.
When the crisis hit, no part of the Greek state was strong enough to withstand it.
At the time of the 2012 bailout tranche, significant debt relief was negotiated alongside the bailout packages in order to make Greek debt—which then stood at 368 billion euros, or 177 percent of the GDP—viable and set the road to reforms and growth. This debt relief package, known as private-sector involvement, is now the source of constant misery for Greece and political trouble for the rest of the EU.
The private-sector involvement deal shaved 125 billion euros off of the country’s debt. But the accompanying bailout tranches were packaged as loans to the government in Athens, backed by guarantees from other EU governments. These loans included significant funds necessary to recapitalize Greek banks, which had essentially depleted their reserves after the haircut.
To put it plainly, Greek debt was taken out of private hands and placed in public ones, on both ends of the exchange. From this moment on, any further debt reduction became politically toxic for the EU, as it would directly hit taxpayers from other European countries. The only remaining solution was to push even harsher austerity measures on Greece. Not surprisingly, within just two years, the debt, though reduced in nominal amount, had once again reached unsustainable levels, and now exceeds 180 percent of GDP.
This is the principal reason why every Greek government since then has found itself hemorrhaging popular support after its first year in power. Under then-Prime Minister Antonis Samaras from 2012 to 2015, the New Democracy government was promised further debt relief by the EU if it stuck to the austerity program, which required extensive privatizations, tax hikes and cuts in both welfare and civil service. But by 2014, amid cuts in pensions and further deregulation of the employment market, debt relief was still nowhere on the horizon, leading Samaras’ government to effectively stop adhering to the austerity program.
Greek debt was taken out of private hands and placed in public ones, on both ends of the exchange.
The economic tumult had already reoriented Greek politics. By 2012, Syriza had become the leading opposition bloc in parliament. Its young leader, Alexis Tsipras, at the time a left-wing firebrand who would later become the country’s youngest prime minister, made bold claims of not only wanting to change Greece but all of Europe. His youthful profile and energy charmed audiences beyond Greece’s borders, and his promises to put an end to EU-mandated austerity by any means necessary inspired other anti-austerity movements, such as Podemos in Spain.
In the meantime, a neo-Nazi party, the Golden Dawn, also became a major political player. Golden Dawn’s rise followed on the success of the hard-right, populist party LAOS, which was a coalition partner alongside PASOK and New Democracy in a short-lived technocratic government of national unity in 2012. Golden Dawn garnered more than 400,000 votes—7 percent of the total, granting them 18 seats—in the parliamentary elections that June, a solid block of voters it has maintained ever since. While the party attempted to become a key force in parliament, it was most dangerous in the streets, where its supporters engaged in violence, intimidation of migrants and even outright murder in two cases, most infamously of the anti-fascist musician Pavlos Fyssas. The party’s leadership and dozens of its supporters were arrested after Fyssas’ murder and are currently standing trial for forming a criminal organization.
This redrawing of the political map culminated in December 2014, when the Greek parliament, which is tasked with electing the country’s president, failed to achieve a majority to do so, triggering snap elections under the Greek constitution. The following January, Syriza came to power, forming a coalition with the populist, right-wing Independent Greeks. Analysts and voters alike believed that the union of the anti-austerity left and the nationalist right would lead to a breaking point, potentially leading to Greece leaving the eurozone and imperiling the monetary union.
But things turned out differently. In fact, after the brinkmanship that took place between Syriza’s administration and the country’s lenders in the first half of 2015, the party would find itself in the same position as its predecessors, with Greece unable to take the initiative toward meaningful reforms and the EU unwilling to work toward a meaningful resolution.
Greece Under Syriza
Since coming to power in 2015, Syriza has been steeped in controversy. Engaging in intense negotiations with the country’s lenders, the radical leftist coalition brought the economy to the brink and Greece one step from leaving the monetary union. At that time, Greece, as well as conflict-stricken Ukraine, dominated the European agenda and attracted global attention, with international media descending upon Athens in hordes.
Syriza won the elections with almost the same percentage of the vote it got in January, albeit with a smaller turnout. Since then, the coalition government, again led by Tsipras, has been implementing the components of the bailout deal more rigorously than any of its predecessors. According to a line of argument publicly articulated by several officials in the past year, there are no other options available to keep the economy from collapsing, so it is better to get the painful measures over with, while legislating improvements on social welfare at the margins. However, Syriza’s broader aim from the outset was to reform the country’s—and Europe’s—politics. Its failure to do so underscores the depth of the crises that have swept Greek society.
But it also reflects the country’s long-standing institutional weaknesses. The country’s tax code, which is rife with loopholes and contradictions, is a prime example, suffocating the state bureaucracy with red tape that makes it impossible to kick-start the economy. This also has produced a chronically weak tax-collection system, toward which previous administrations routinely turned a blind eye. When EU-mandated austerity came in the form of tax hikes, the problem skyrocketed, with Greeks becoming unable to pay their tax bills even if they tried. At the moment, tax arrears to the state stand at almost 100 billion euros. Added to the 30 billion euros owed to various insurance and pension funds, it’s easy to see why Greece’s economic challenges go well beyond its foreign debt.
Another problem is the bloated public sector and administrative bureaucracy, which is deliberately opaque and cumbersome after decades of being used as a clientelist handout. No political party in Greece, including members of the governing coalition and the opposition, is willing to take the hard steps required to fix this problem. Instead, a slower pace of change is preferred to cushion the social shock of losing the state as a primary employer, in turn slowing progress.
Syriza’s broader aim from the outset was to reform the country’s—and Europe’s—politics.
Perhaps the biggest problem in Greece is the legal system. Much like the tax code, Greek law is unwieldy and overly complicated. Laws are intentionally vague, arbitrary and at times contradictory, often in order to protect special interests or allow corruption to flourish. Implementation is routinely slow: A typical trial can take up to seven years to come to a conclusion in the country’s courts.
This institutional inertia makes reform sluggish, with an impact not just on the economy and potential investments but also on the trust citizens have in the state. Greeks are traditionally distrustful of their governments: Even before the current crisis, fewer than 50 percent said they trusted the state, according to multiple studies. Those long-standing attitudes have deteriorated further since 2014, with fewer than 20 percent of citizens expressing confidence in their government. Last year, only one in 10 Greeks said they trusted the government, and just 6 percent of those surveyed in the Eurobarometer, a public opinion study conducted by the European Commission, expressed trust in political parties. In this environment, “change” has become an almost toxic word associated with austerity. Citizens appear to be increasingly concerned that they have no voice in politics or recourse for justice in courts.
The Refugee Crisis—and Backlash
As if the economic and political crises weren’t enough, 2015 brought new troubles for Greece. Although the country’s geographic position straddling three continents had long made it a natural pathway for Europe-bound migrants, 2015 added a new burden.
Prior to the 2008 crisis, Greece was home to more than 200,000 migrants from the Middle East and Africa, who came seeking work in its booming construction and agricultural sectors. But the sudden death of both industries pushed them progressively out, as they headed north seeking new opportunities in more stable economies. Even members of Greece’s long-established Albanian minority—which numbered almost half a million people by 2009—left the country.
But the war in Syria and general instability in the Middle East drove an unprecedented number of people to seek refuge in Europe, with only two available routes: Greece and Italy. Whereas there have been years in which up to 250,000 migrants passed through Greece, nothing could have prepared the islands of the east Aegean for the almost 1 million that would head to their shores in 2015.
Though it failed in its efforts to block austerity, the left-wing political movement that carried Syriza to power in January 2015 found a new purpose in aiding incoming refugees, with thousands of Greek and international volunteers deploying on beaches and rescue boats to receive them. The mobilization was nationwide, as refugees arrived not only on the islands but also in Athens and elsewhere on their way to northern Europe.
This outpouring of solidarity lasted until October, when Hungary built a wall along its border with Croatia to stop refugees from entering. This decision had a domino effect, as country after country along the Balkans corridor began to shut its borders to avoid having to deal with refugees trapped inside their territory. Greece, with its thousands of miles of coastline, had no such choice. While the country itself had built a wall across the Evros River—the land border it shares with Turkey—prior to the refugee crisis, the islands could not follow suit. In March 2016, the EU reached a deal with Turkey, which in exchange for 3 billion euros would stop migrants from leaving its shores, and host them within Turkey instead.
Greece was left to handle the fallout from these flawed policies, with more than 60,000 refugees trapped in the country when the Balkans route closed, and more continuing to trickle in. The EU provided 700 million euros, to be dispersed over a three-year period, to help Athens deal with the situation. Prior to that, the union had provided just 22 million euros to the countries of the western Balkans.
With the borders essentially shut, numerous EU programs were proposed to help relocate the migrants stuck in Greece, but these have failed to accommodate the large numbers living in limbo. Worse still, the crisis has become largely invisible. Lesbos, the island formerly seen as the frontline of the refugee crisis, is now abandoned, not only by the international media but also by the tourists that used to be its main source of income.
The refugees unlucky enough to be stuck in Greece after the borders to Macedonia closed have been distributed in camps across the country. Those established at the points of arrival, known as “hotspots,” are overcrowded to the breaking point. Violence often erupts between refugees, locals and the police; last summer, Human Rights Watch reported that the lawless camps have contributed to a spike in violent hate crimes, attributing rising xenophobia in Greece to the dismal conditions inside refugee shelters. In January, a spate of deaths was recorded in Moria, a camp on Lesbos, due to extreme cold weather. The camp has also seen instances of police violence against unaccompanied minors. Last September, tents at Moria were set on fire by protesting camp residents after false rumors spread that large numbers of Afghans were about to be sent to Turkey, forcing the evacuation of 4,000 people. Refugees were forced to sleep on the streets, and local residents, who oppose the presence of the camp, seized the opportunity to attack them as well as their activist supporters.
With the borders essentially shut, numerous EU programs were proposed to help relocate the migrants stuck in Greece, but these have failed to accommodate the large numbers living in limbo.
The violence is a reflection of anti-refugee sentiment being stirred up by the Greek far right, led by followers of the Golden Dawn party. Attacks on journalists on Lesbos and the nearby island of Chios have become more frequent. There is talk of vigilante-style citizen patrols around the camps, manned by residents worried about their security.
Now, for the close to 60,000 refugees waiting in limbo while their asylum applications are processed, it’s a waiting game that looks more like prison than anything else. Meanwhile, deportations back to Turkey—rocked by political instability and increasingly targeted by terrorist groups—have effectively stopped, with only a few dozen refugees sent back, despite the fact it is still deemed a “safe third country.” The lull in deportations is due to both the unworkability of the deal and expected resistance on the ground. When refugees are sent to Turkey, activists have reported that they are deported covertly and without formal processes or legal protections.
Areas across Greece are affected differently by the crisis. Migrants inside camps in Athens and Thessaloniki, by far the biggest, live in almost inhumane conditions, surrounded by drugs and violence.
Human Rights Watch reported that the lawless camps have contributed to a spike in violent hate crimes, attributing rising xenophobia in Greece to the dismal conditions inside refugee shelters.
Children have not been spared from the chaos: Since 2015, more than 5,000 minors have arrived unaccompanied in Greece and, like other migrants, have been sent to so-called refugee hotspots such as Moria. About 2,500 are still in Greece. Unaccompanied minors are hosted in special facilities where conditions tend to be better than those available for adults. Others, who haven’t gone through the hotspots or fled shortly after being placed in them, live “off the grid” in rented accommodations, squats or on the streets.
Meanwhile, local communities on the islands are becoming less tolerant of the refugees. For now, residual compassion and the money that comes in from the European Union are holding things together. Little has changed in Greece this winter, but by spring the situation will cease to be classified as an emergency by the EU. NGOs and the government are worried, as budgets are expected to be cut by up to two-thirds.
A Perfect Storm
Greece entered 2017 in dire straits, as political and economic upheaval, coupled with the lingering refugee crisis, prove nearly impossible to resolve. The government’s ability to manage the instability is further complicated by the serious backlash it faces at home over the austerity measures it accepted in 2015.
At the moment, the Syriza-led coalition government is locked once again in talks with the troika over the next tranche of bailout funds. While Syriza has perhaps pushed through more austerity and reform measures and been somewhat more cooperative on privatizations than any Greek government before it, EU politics are now more complex than ever. Brexit and the election of Donald Trump as U.S. president have EU governments worried about troubles closer to home, with far-right parties on the rise and anti-immigrant sentiment seeping into the mainstream. While Geert Wilders, the far-right and anti-EU Dutch populist, came up short in that country’s elections, his momentum before the vote is part of a larger trend in Europe. Depending on the outcomes of elections in France, Germany and elsewhere, Greece could find itself increasingly isolated.
If far-right parties make gains across Europe this spring, Greece will likely have little choice but to maintain the austerity measures of the past several years. Leaders in Athens are warily watching France, where a victory by far-right candidate Marine Le Pen would further reduce the prospects of any leniency for Greece from Brussels; in Italy, despite declarations of solidarity with Athens, politicians have seemed unwilling to effectively challenge the austerity orthodoxy. In Germany, where it matters most for Greece, the governing Christian Democratic Union is afraid of showing any sign of lenience, as caving into the demands for debt reduction coming from the IMF and Athens could mean losing voters to the anti-European, far-right Alternative For Germany party. The victory of any one of these parties would also be destabilizing for the European Union itself, with inevitable consequences for Greece.
These developments leave Greece increasingly short of allies. The line from Berlin is that Greece is not implementing reforms fast enough. By contrast, the IMF is now threatening to pull out of the rescue program if no debt reduction is promised and harsher austerity is applied in certain sectors like pensions, which have now become the de facto welfare system supporting almost 50 percent of Greek households. Meanwhile, Tsipras recently announced that his government simply sees no more room for austerity and argues that the country has fulfilled its obligations to its lenders. At the same time, Germany will start sending asylum-seekers back to Greece—their country of first arrival—this spring, and some other countries have already started to do so. Certain German politicians have gone so far as to blame Greece for the conditions in some of the refugee camps.
If far-right parties make gains across Europe this spring, Greece will likely have little choice but to maintain the austerity measures of the past several years.
If all this sounds like a dead end, it’s because it is. Back in 2015, there were signs for optimism. Consumer confidence was picking up, with new businesses opening, aided by record tourist arrivals year on year. Even unemployment was marginally down by 2016. There was some hope that the economy might see some significant growth. But continued austerity measures have choked the Greek economic engine of both fuel and oxygen. As a lot of these new measures take the form of tax increases, the economy bleeds money to keep up with debt repayments and prop up the largely problematic pension and insurance funds.
Greek society is currently held together mostly by family units and private acts of solidarity. The health system is at its breaking point; education has lost almost 80 percent of its funding in some cases; and public welfare is almost nonexistent. Youth unemployment is stubbornly high at 50 percent, while joblessness is down to a still-staggering 24 percent for the general population.
While Syriza’s first year in power can be accurately characterized as shambolic, this was mainly a function of failed policies that were imposed from the outside, reflecting the EU’s unwillingness to put forward new ideas. Some believe that a new administration might help Greece, but Syriza has declared that elections will take place in 2019, as the law dictates, and for now the rest of Europe seems to agree that there’s little a new administration could bring to the table. In the current context, any Greek government would only have room to shift the economic burdens around. New Democracy, for instance, had announced proposals to reduce taxation on businesses, which are currently high for small and medium-sized enterprises, and higher-income individuals; and decrease the personal allowance bracket—the amount exempt from income tax—to 5,000 euros, a measure that would only hurt those on low incomes further, in a country where almost 40 percent of the population is teetering on the poverty line. During the latest round of negotiations between Greece and its lenders, however, it has become clear that Syriza will almost certainly have to do this anyway.
Meanwhile, in Brussels, the blame game continues. And while it’s almost certain that Europe will once again cobble together a solution to keep Greece afloat, the long-term problem will not be solved. Now, however, the future of more than just Greek citizens is on the line: While the country is not a major player in the EU economy, anyone who downplays the destabilizing impact of a potential “Grexit” is playing with fire.
As ever, the periphery serves as a good example for what the future holds in the heartland. Greece has largely been a model of what not to do during a crisis. Its European partners might soon be learning through first-hand experience.
Yiannis Baboulias is a writer and analyst based in Athens. His work has appeared in Al Jazeera English, Al Jazeera America, Foreign Policy, The New Statesman, The Observer, Politico, The London Review of Books and more. He is currently working on a book on the European far right.