Wages of sin in Greek debt crisis
It’s hard to imagine that so much depends on whether Greeks take a 22 percent pay cut. And yet it does – from Europe’s economy to President Obama’s reelection.
Top European leaders insist that Greeks pay for the wages of past financial sins by accepting a hefty reduction in wages. Without that and other austerity measures, such as layoffs of 15,000 state workers, the Aegean country won’t receive a European loan to help make payment on a $19 billion bond next month. A Greek default could push Italy, Spain, and other European nations into a crisis.
“We are saying to our Greek friends that they must decide now,” French President Nicolas Sarkozy said.
By the millions, however, Greeks went on a 24-hour nationwide strike Tuesday to protest the enforced austerity. Emotions run high when one’s income will be cut and pension reduced. It’s easier to place the blame elsewhere, such as on business, than accept a chastening.
Greeks are being asked to accept a collective remedy for a crisis when many don’t accept collective responsibility. In Greece today, few will take the blame for what brought the country to its knees. As John F. Kennedy said, “Victory has a thousand fathers, but defeat is an orphan.”
Yet ever since the restoration of their democracy in 1974, Greeks have accepted high levels of corruption, a bloated bureaucracy, and restricted markets. After joining the eurozone, Greece then lied to the European Union about its finances.
The government hid information about military spending and overestimated tax revenues. The EU’s subsidies to private Greek companies were counted as official revenue. And Greeks used the easy credit of the eurozone to go on a spending spree.
Many of these sins occurred under the rule of both the socialist Pasok party and conservative New Democracy.
A nonpartisan inquiry into Greece’s past misdeeds could help Greeks accept the need for shared sacrifice. (The previous government already came clean on the faked finances.) But finding a consensus about the past can be difficult in the middle of a crisis. In Greek politics, it can lead to a witch hunt.
In the United States, Congress set up the 10-member Financial Crisis Inquiry Commission in 2009 to probe the chain of causation for the market meltdown of 2007-09. The panel ended up being deeply divided, especially on issues such as government promotion of mortgages to risky borrowers. Its 662-page report had 126 pages of dissent.
Without a national agreement on what went wrong, Congress today can’t even agree on, for example, how to fix Fannie Mae or whether to aid people with underwater mortgages.
Many other nations, including Germany, violated the euro’s rules on restraining deficits and debt to some degree. Among the eurozone’s shakiest economies, Greece was the worst offender, especially in cooking its books.
But to each, the wages of sin must fall until the mistakes are corrected. It is Greece’s turn now to accept a pay cut to bring its economy in line with reality.
