Thursday, 2 July 2015

Grexit & How Austerity killed Athens!

Athens, the supposed birthplace of democracy, shall witness yet another plebiscite, in a series of referendums organized over a lot many years, all eventually leading to the double whammy the country is all set to face. In one of the most vile of all choices to make, the people have to choose a path they believe will bring lesser tragedy and gloom. And all of this when a substantial portion of the people were not directly responsible for the events that led to the extirpation of the erstwhile Macedonian supremacy. While the once star studded economy of Greece was a facade of fakes, it makes sense to see how despite the initial fallout, the government in Greece could have prevented their current tribulation. One that they knowingly, or unknowingly didn't work towards!

Part 1: When the time's right, only the wise see the wrong.

Just before inclusion into the Euro Zone, Greece was sustaining a never ending economic doomsday. Growth was not present anywhere, unemployment figures didn't seem to improve, and govt.'s promises acted as a mere placebo. Then Greece entered the Euro in 2001, abjuring their former drachma, in which it still held billions in debts. Greece, which was often referred to as the "Sick man of Europe", now became a one stop shop for investments. Suddenly, the poorest state in the union of Europe was the cortege's blue eyed boy.

Massive investments made capital flow into the country and infrastructure became the cornerstone of the Greek tragedy's apparent reversal. Tourism too picked up with Europeans, Americans and Australians alike, flocking to the some of the most spectacular of vistas holding relics of the glory of Greek's past. And then with the 2004 Athens Olympics, it seemed like the Greek turmoil shall finally come to an end!


Everything seemed fine, the country's banking system was credited as being robust, and everyone seemed upbeat. The country had received 24 billion $ from European structure funds, and German lending and investment institutions heralded Greece as a pinnacle for return generation. And the Country did indeed clock a GDP growth of 7.6 in 2006, while Spain and Portugal, also strugglers, managed around 2. And precisely when it all looked so rosy and exultant, came the biggest financial crisis since the great depression. The 2008 recessions knocked Greece out for once and for all. 

As US, UK, Germany and France all tipped over, Greece started facing indirect heat as investments from all these countries came to an absolute halt. What seemed like a stupendous growth story, was actually an investor paparazzi. The Greek government was running heavy deficits every year, and all of it had to be paid someday. The irony is that, no one realized the bubble was going to burst so soon. As recession gripped the developed world, not only the investments, but also all the tourism revenue coming from the same developed world stopped. No more lavish trips to Greek islands were made anymore and poof! Greece no longer had any capital inflows. So it was obviously not in a position to pay back the investors. 

What made the entire scenario more turbid was the revelation that Greece's books were cooked. EuroStat, the European union's prime auditing body, found out that Greece was a gone case for a lot of time. But the government hired the magnificent Goldman Sachs to make their books and financial position appear much better. And as a result, no one knew that the funds that were going to Greece were actually utilized only to a small extent. Private coffers were filled up, and no development really took place. So when the party got over, the same Germany that once sang panegyrics and praise for Greece, was the most ravenous in demanding a payback!

Part 2: The Troika! 

When the time's right, you've other lenders. When the time's wrong, you've the IMF to make it worse. Just like it did in the cases of various other recession hit nations like Iceland, the IMF proposed a bailout package for Greece as well. So this time, the trio of the European Commission, the European Central Bank(ECB), and the IMF, came up with a 110Bn Euro bailout for Greece, but the strings attached were all to much for acceptance! 


Since a great portion of the Greek construction bubble was financed by German and French banks, and Germany and France were also the most powerful members of EU. It was decided that half of the bad debt to these banks shall be written off. But on the other hand. Greece was literally placed in gallows of perdition. In lieu of the bailout, Greece had to cut 23Bn Euro on public spending, and had to sell off various state run enterprises for another 60Bn Euro. All in all, Europe tagged it as the price Greece had to pay for its supposed debauchery and gallivanting. But in reality, Greece was just jettisoned off a French aircraft with a German engine! 

Part 3: Austerity kills! 

Greece accepted the bailout with various strings attached and it was known to everyone that the citizens were going to be in for quite many hardships. Unemployment figures skyrocketed, number of suicide attempts went up. HIV outbreak in the middle of Athens made international headlines, there was a Malaria outbreak recorded in southern sections, and the country was in absolute doldrums. And while austerity was already undertaken, the cuts in spending on medical care took the blasphemy to a whole new level.

The total healthcare budget of Greece was cut down from 24Bn to 16Bn Euros and that too amid the highest infant mortality and other recorded pandemic outbreaks. Govt doctors were laid off, and private practice now shot the rates making medical care unaffordable and inaccessible for more and more. Elderly forewent necessary medical care and the first case of maternal HIV transmission was recorded after decades!


So while austerity ruined the lives of people because of massive public sector layoffs and ever rising unemployment, the social protection net of medical welfare that people needed the most was being deliberately downsized so that the troika's stated caveats on budgetary slashing could be met. And while the nation was crippled under all the cuts, the auditors and regulators and everyone praised that the healthcare for "it was being modernized and had become more efficient". While in reality, some queues in front of private clinics were so long that people decided to actually let go. 

Part 4: Endgame Athens.

As the citizens of Greece waded through the years of austerity with exacerbating health and a ruined social safety net, they thought maybe their penance and their ordeal shall dawn upon a new and more delightful era for Greece. But instead of Greece's debt lowering, their deficit kept increasing. And there is only one way this could have happened. Massive connivance and corruption! And secondly, the bailout capital was simply funneled back to the European creditors who caused the massive malice.


When Greece was forced to undergo another round of IMF's proposed budgetary cuts, the then Prime minister proposed a referendum. But Europe opposed and used chicanery and influence to force the PM from stepping down and putting the referendum in a casket. Democracy thus was blatantly murdered in its birthplace. And the citizens of Greece were forced to flagellate for sins they didn't know they committed! This finally put the country in a never ending economic despondence which was outright avoidable, but which was necessary for some appetites to be satiated. 

Part 5: A way out?

In retrospect, this gargantuan Greek tragedy had its provenance in lack of preparedness. Everyone ballyhooed Greece when it roared, with no one noticing the Lion was terminally ill. Greece gave into austerity and could never get itself out of the imbroglio. IMF itself had data that suggested that austerity is not needed always. And in fact financial stimulus in the form of increased and not reduced govt spending may bring an economy back on track, In fact IMF later admitted their mistake. They believed that the investment multiplier(How much every unit of investment can produce) was 0.5, hence indicating that a stimulus would mean further loss. But later on they found out it was more than 1, thereby negating the very premise troika forced Greece to give in to. 

But then Greece was in a bad position. They didn't even have money to pay the salaries of municipal personnel to collect litter. The future looked so moribund that Greece accepted the bailout with the strings attached, hoping they might see some economic remission. But things just aggravated and now finally, Greece doesn't have the money to pay the IMF, and is all set to default on all payments to the ECB.


Greece is on the verge of being eliminated from the EuroZone which means dastardly consequences for an already ailing economy. And the second choice is to take another bailout expiry extension with another painful dose of austerity. While the latter has the only hope Greece can ever have, they'll inevitably fail to stimulate their economy again and once again they'll be forced to undertake more budgetary cuts sometime later. Sooner than later, the citizens will crumble under the lack of any state welfare and hence a doomsday is inevitable. 

On the other hand, exiting the Euro shall bring an impeding disaster with first the restructuring and transition to the former drachma or a new currency, as well as massive losses as various European partners will move out leaving Greece astray in the middle of a growing continent. However, it may be possible that the country will finally get a way to utilize whatever resources it has in whatever ways it pleases them. And while the amount of money and resources may be a morsel, the country will still have freedom to do things for their people, as opposed to making more and more cuts and making lives worse. The country will either bounce back and show some growth, which is a bleak possibility but a possibility nonetheless. Or the country will spiral out of control, go rampant and bizarre, and may witness a self immolation of sorts. But whatever it'll be, it's people could finally feel some dignity within them for the first time. And dignity is something surely worth fighting for!