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The myths of the Greek crisis

The people of Greece aren’t to blame for the country’s debts. Tom Walker looks at some of the myths of the crisis

July 31, 2015
6 min read

myth-greece

Myth: The bailout money went to the Greek people

We hear a lot about a ‘Greek bailout’ but in fact very little of the money went to pay for any kind of public services or welfare in Greece.

According to the Jubilee Debt Campaign, of the €252 billion (£179 billion) in bailout loans since 2010, less than 10 per cent of the money reached the people of Greece. The rest was spent on propping up not only Greece’s banks but banks across Europe that had recklessly over-exposed themselves to Greek state debt.

Europe’s leaders essentially bailed out their own banks at great expense, then claimed the money had been spent on Greece. The result of this – as with previous bank bailouts – is that what was once private bank debt is now public debt.

Myth: Before recent reforms, Greeks were allowed to retire in their 40s

Greece’s pensions have acquired true mythological status, with tall tales of people retiring implausibly early.

Retirement at the age of 55 was allowed, but only in rare cases and in the most hazardous jobs, such as coal mining – the vast majority of workers were never covered by such a scheme.

Even before the more recent cuts to pensions, the average retirement age in Greece (including all early retirements) was 58 in 2012 – the same as in Britain, European Commission statistics say. The EU average was 59.

Greece’s large spending on pensions is mostly because it has a larger than average population over the age of 65. As the Wall Street Journal noted, its spending per pensioner is lower than Germany’s and pensions overall are relatively small.

Myth: Greeks were overpaid, particularly in the public sector

You’ve probably heard that Greek civil servants get paid two extra months of salary, for the ‘13th and 14th months’ of the year. This sounds outrageous until you remember that the same happens in many other jobs – it’s just referred to as a ‘bonus’. It is also far from a universal practice.

In any case these bonus-style payments do not increase salaries overall: it is the same annual salary, but divided by 14 not 12. Eurostat says the average wage in Greece is now just €17,250 a year – less than half the average in Britain.

OECD figures show that Greeks work the longest hours in Europe – an average of 42 hours a week. The figure for Britain is 37 hours, while the lowest is the Netherlands on 30 hours.

Other examples of unusual practices, such as the government ‘ghost workers’ who were paid without turning up, were mostly tied to political corruption, with the former main government parties giving such jobs to their supporters.

Myth: The Greek state has no money because nobody pays their tax

Greece does have a problem with tax avoidance, particularly by corporations and the rich – but then so do all countries.

The myth about Greece centres on the idea that much larger numbers of ordinary people than elsewhere routinely dodge tax. In July a widely-circulated graphic, based on OECD figures, claimed that 89 per cent of Greek tax is uncollected, compared to just 2 per cent in Germany.

But Richard Murphy of Tax Research UK told the BBC that this is an ‘accounting anomaly’, caused by a build-up of historic debts that aren’t written off in the usual way – not tax that was due to be collected in a single year.

Greek tax collection as a percentage of GDP is 34 per cent, just slightly lower than Britain’s 35 per cent.

Myth: The Greek economy needs the creditors’ market reforms

The talks have portrayed Greece as a basket-case economy, full of strange distortions and regulations. The lenders’ solution to this is various forms of market liberalisation.

This has led to a degree of absurdity in the negotiations: faced with massive debts, the other leaders have preferred to talk about raising the shelf life of milk (allowing more imports), letting shops call themselves ‘bakeries’ without baking bread on-site, allowing the sale of pharmaceuticals in supermarkets – the list goes on.

Such technocratic tinkering, based on the OECD’s ‘toolkits’, is claimed to be crucial to make the economy ‘competitive’. But it is hard to see how it will have any effect on the crisis.

Syriza has an alternative list of reforms – raising public investment, tackling corruption and tax evasion, strengthening democracy and measures to combat Greece’s humanitarian crisis – but has so far been blocked from implementing them.

Myth: Greece simply borrowed more than it is able to afford

Greece is often portrayed as a sort of morality tale, not least by George Osborne, showing what happens if public debt is allowed to get too high.

Yet state debt did not cause the Greek or European ‘debt crisis’. The real trigger was the global financial crisis of 2008. This caused both a global recession and a crisis of confidence, with credit downgrades from the unaccountable credit ratings agencies, which made it more expensive for Greece to borrow. The bailouts that followed had more recessionary austerity conditions attached.

Greece is now in a debt spiral: being forced to take out loans just in order to pay the interest on its previous loans – these are the repayment deadlines the media often talks about. The legitimacy of these loans in the first place is also in question.

Myth: Debts always have to be paid back 

Debt is often seen as an unbreakable obligation, but this is a deeply ideological assertion. In reality, any bank knows that it takes a risk when it lends out money: this is a key part of the justification for the whole concept of loan interest. We shouldn’t think we have some overriding duty to make sure creditors are paid back, regardless of the consequences.

That is even more the case when debt is being bought up cheaply by speculators. According to the New York Times, many Greek government bonds are now held by around 50 hedge funds, which in buying them have placed a risky ‘bet’ on a bailout. Hedge funds that bought Greek bonds in 2012 for 12 cents in the euro quickly saw the price rise fivefold, making billions in the process. ‘People made their careers on that trade,’ investment banker George Linatsas told the Times.

Finally, we should note that there is an important precedent for debt forgiveness in Europe. Germany ended the second world war still owing some debts from the first, and from the huge cost of reconstruction. In 1953, a debt conference cancelled half of its war debts. And one of the countries that forgave Germany’s debts all those years ago was none other than Greece.

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