Note from Athens: Feeling on the ground has palpably changed

I travel to Athens about once every six months and speak with as many contacts as I can, including top policymakers, bankers, journalists, economists and academics. On my most recent trip in mid-February, the feeling on the ground had palpably changed in a number of ways that have supported my view that Greece will eventually default and exit the eurozone, but probably not before late 2013.

Sorrow and bitterness
There has been a pronounced shift on the ground in Athens in terms of the sorrow and bitterness that Greeks express. Without exception each of the Greeks with whom I spoke—whether government officials or simply engaged citizens—expressed significant concern about the generations above and below them. Every person has a story either about a pensioner who is forced to pay ever higher property taxes while his pensions are rapidly shrinking and prices continue to rise, or of a younger friend or sibling with multiple master’s degrees who has had to work in call centres or café’s because there are no job openings commensurate with his experience. Greece has a very strong family structure, with parents typically subsidizing their children and with siblings helping to support one another financially. With pensions suffering a death by a thousand cuts and youth unemployment above 40%, families are having an extremely tough time making ends meet. Increasingly, those Greeks who are able to move abroad are considering doing so.

Many of the Greeks with whom I spoke also expressed a visceral bitterness towards the troika. This underlies the epic breakdown in trust between the troika and Greece, which has recently been reflected in the discourse between the two sides as they have negotiated a second bailout. Troika representatives have clearly noted the antagonism with which they are met in Athens, as they have quadrupled the number of bodyguards in their entourages over the past year.

According to most Greeks, the troika stands solely for a reduction in wages and pensions. Responsibility for this image of the troika lies with both the Greek government and the troika itself. When the troika established targets in the memorandum of understanding for the Greek government, it did not specify exactly how the government should reach them. The adjustment Greece was asked to make was sharp and unrealistic, and the Greek government took the most expedient route to try to achieve it—cutting wages and pensions—while using the troika as a scapegoat to shoulder the blame for the measures.

The public perception of the troika as harbingers of austerity has only made it more insulting when the troika has criticized the Greek government for a lack of progress in implementing the bailout programme. It is not true that the Greek government has done nothing overall. There has been a significant fiscal adjustment, with the burden falling primarily on the public. However, insufficient progress has been made in terms of structural reforms, which are far more important in terms of returning Greece to economic growth.

Desperation to be tethered to Eurozone
Despite the clear sense of despair and anger in Greece, politicians and members of the public continue to think that the alternative—default and EZ exit—would be even worse. A top official from New Democracy, the most popular party according to recent opinion polls and the party likely to lead a coalition government following upcoming elections in April, waxed at length about how much trouble Greece would be in if it exited the EZ. He highlighted that Greece has few export industries it could rely on to grow its way out of the crisis even if it devalued its currency. He conceded there is tourism, but argued that any profits from shipping are kept out of the country and green energy is still but a mere pipe dream as an export industry for Greece. Given that Greece is not self-sustaining in agriculture, he suggested that a devaluation accompanied by hyperinflation would result in a starving population, and that the resulting civil unrest would destabilize the entire Balkan region. These arguments were reiterated by Pasok politicians I met, as well as by representatives from prime minister Papademos’ office.

Among the increasingly popular fringe left- and right-wing parties, the only party actually advocating a EZ exit is the communist party, or KKE. The KKE will have just over 10% of the vote in the election in April according to most estimates and refuses to cooperate with any other parties in a coalition. For now, the rest of the political establishment advocates doing whatever it takes to remain in the EZ.

The violent protests in Syntagma Square two weeks ago indicate that there is growing resentment among the Greek public towards the conditions demanded by the troika. Overwhelmingly, however, most Greeks express desperation to stay in the EZ. This is reflected in recent opinion polls: according to a poll conducted in February for Skai TV and Kathimerini, 70% of respondents said a EZ exit and return to the drachma would make Greece’s situation worse and 61% said they viewed the euro favourably.

In addition to concerns about what would happen to their savings and what sort of social unrest would be stoked if Greece exited the EZ, most Greeks are cynical about how a new, independent central bank would operate. They recall that the central bank in Greece before EMU regularly printed money to line politicians’ pockets and encourage favors. If Greece exits the EZ, they expect that kind of cronyism and corruption would flourish once again.

Many Greeks also cited geopolitical concerns as a reason for Greece to avoid leaving the EZ. Greece has not been independent for centuries, and so Greeks feel a EZ exit would bring with it a new power to rule the country.

Doing Business in Greece: An Uphill Battle
While the political elite and public in Greece remain dedicated—for now—to the common currency, it is difficult to see how Greece will manage to restructure its economy and return to growth before either the troika or the Greeks themselves run out of patience. A number of contacts described their experiences trying to open a business or buy property, which involved high fees, several trips to different tax offices and months of navigating bureaucracy. This gets at the very heart of how Greece landed up in its current condition and why rapid change is unlikely. Entire professions such as notaries, lawyers, tax men, architects and inspectors have for years had automatic income in that they have formed the layers of bureaucracy involved in doing business in Greece. At least half of the MPs in Greek parliament hail from these industries, and consequently are incentivized to perpetuate the bureaucracy that impedes opening up, running or finding investment for businesses.

This is best encapsulated in an anecdote from my visit to Athens. A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales.  However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.

Legislation in Greece has been set up on an ad hoc basis, with laws just layered over—and often contradicting—one another. No one has taken a holistic view of the system and consolidated it. Furthermore, if an investor were to need to turn to Greek courts, the case would not be heard for years. If the investor were foreign, the chances of a ruling in their favor would be extremely slim. It is hard to see how investment will return to Greece unless these issues are addressed, but the government is incentivized to obstruct progress in doing so. There is a lot of discussion among analysts of a Marshall Plan for Greece, but it is difficult to see German companies tolerating such an operating environment.

For a more in depth account of what I learned in Athens, please see RGE’s On Life Support, For Now: A Greek Trip Report

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63 Responses to Note from Athens: Feeling on the ground has palpably changed

  1. Xavier says:

    It’s sad to see a country with so much history crumble like this.

  2. Pericles says:

    What most people dont understand is that you simply CANT negotiate with the likes of IMF. Either you accept the invasion either you deny it. Im amazed that not a single one of all you economists havent mentioned that the greek crisis is mostly a political crisis.

    • Jared says:

      If by “political crisis” you also mean that the Greek political establishment criminally mismanaged Greece, then, yes, it is a political crisis.

      • Dennis says:

        He means if practical, proven and customized economic ideas were also considered from the beginning of this crises and not stick to a rigid one-size fits all ideological concepts, the outcome would have been much smoother and not still be talking about it for 2 years. Many renowned economists and analysts had warns us that those measures will not work. So as criminally mismanaged Greece economy was, the external ideas didn’t do or know any better, and probably made a bad situation worst.

  3. Question:

    Based on my knowledge of 1st and 2nd year micro and macro economics and based on the assumption of widespread tax evasion in Greece as the major problem in addition to over spending.

    Instead of increasing taxes, which only an unfortunate few would pay, would it have been “technically” feasible to pass one law taking over 50% of the equity of everyone’s home, apartment, building and farm property under the assumption that the correct taxes were not paid? The individuals would then pay back the government as a mortgage. For those who cannot pay, the amount would be added to their mortgage.

    The rich would have to pay their fair share. Everyone (I really mean everyone) would be hit at the same time and a rough fairness would ensue.

    There would have been no need to raise anyone’s taxes, but the unemployed, military and pensioners could have been “drafted” to work at collecting existing taxes.

    A lien on property would ensure that no one could dodge measure and the EU would know where the promised money is coming from.

    “Technically”, is this feasible? Is 50% too low, to high or just right.

    • F. Clusot says:

      Gee, David, what you are suggesting is now being carried out. Not as openly, of course. I’m not sure if one can see it from a technocrat’s perspective, but it sure works like a charm, doesn’t it?

      Maybe you’ll learn how a facepalm looks during year three of your studies.

    • Jared says:

      That would still lead to massive capital flight, more than has already occurred. You simply couldn’t implement it fast enough. They would have to practically exit the Eurozone in every way except using the Euro, abrogating freedom of movement laws to prevent anyone that could from fleeing the country.

      Besides getting the revenue isn’t really the problem. It’s a problem, but THE problem is that that massive amount needed to be paid is being jerked out of the Greek economy and paid to creditors outside the borders. To some extent, this was unavoidable, and the bondholders have played some ball and agreed to massive haircuts. The gripping recession in Greece is the problem.

    • What a daft idea. Why should someone who has saved carefully for years, or inherited the family home in a village be hit by the same 50 % ‘tax’ because the rich have been massively tax evading/avoiding for years? These ordinary people have already paid the taxes required when you build a home/ inheritance tax.

      In fact, a version of this kind of taxation, linked to property, has led to deep resentment already in Greece, with the extra, supposedly ‘emergency’ property tax (related to the size and zone/area of the house) which has been enforced through the electricity bill (it has nothing whatsoever to do with electricity consumption). The threat was that if you don’t pay the property tax, then your electricity will be cut off – fortunately this has not happened (yet) because it has been a long, hard winter here, in ALL respects.

  4. Pingback: Greeks Are Still Desperate To Stay In The Euro – Finding Out About

  5. I’m surprised that you couldn’t find anyone who wanted Greece out of the Eurozone. I live in Greece, but not in Athens. **Many** people here, including myself and my husband, want Greece out of the EZ. But our voices are not heard, for various reasons which I’m sure you understand. However, we do exist.

    • Interesting perspective, Heidi. Do your husband and your friends ever mention a comparison to Argentina in 2002? The Argentinians went through a painful default but then were able to start growing again. I wouldn’t be surprised if more than a few Greek citizens would be willing go through the former if they could get to the latter.

      • well, of course Argentina comes up quite often, however the situation is not parallel for a number of reasons. but certainly we (I’m not Greek but I live here) are prepared to go through a lot of pain if it means there is a brighter future for our children, grandchildren, etc. Argentina is useful for preparing ourselves for the default in terms of what we can expect to have to live without and all that, but I don’t think we can expect an economic upswing like Argentina’s either as quickly or as sharply. and of course there are aspects of the political scene in Argentina which we would most certainly like to avoid.

      • @Heidi – I agree that the situations aren’t the same, particularly when it comes to Greece’s capacity for growth. I was just wondering if the topic came up in conversation with neighbors and people on the street. Thanks for sharing!

  6. Karen swensrud says:

    The last two paragraphs tell the whole sorry story.

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  9. Brad Carter says:

    Excellent post, very insightful. Please continue to provide this fine grained perspective on the lives of everyday Greeks and small business owners.

  10. Pingback: “I was in a bookstore/café that could neither sell books nor make coffee” | Facts and Norms

  11. Pingback: An anecdote of Athens — Marginal Revolution

  12. Sadly, if you read the comments below this article, you can see that Greeks don’t address their own mentality, but prefer to blame Germany for everything: http://andreasmoser.wordpress.com/2012/01/24/evangelos_venizelos/

  13. Pingback: Still more on Greece and the Euro « Blunt Object

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  15. “I was in a bookstore/café that could neither sell books nor make coffee.” Miss Greene, that one quote probably sums up Greece’s predicament better than any other single sentence I’ve read in quite some time. Interesting read.

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  17. Pingback: Eurozone crisis live: German parliament approves Greek package – as it happened | news sitedirektori

  18. Jim says:

    I wonder how many public sector employees exist to force these businesses to comply with onerous laws.

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  20. S G says:

    There is something I don’t understand with all these anecdotes of people who just discovered the wheel, sorry, I mean Greece: do you think the ease of doing business before 2008 was higher or lower? Why is it suddenly true that Greece is inherently incapable of growing, but in 2007 it wasn’t? And if you want to talk about deficits, why wasn’t it a problem in 1999 when Greece had a large primary surplus?

    Sorry but it seems to me these anecdotes are worth not much more than what economists normally treat them as.

    By the way, how is Germany growing? Can bookstores or stores of any kind be open anytime they want in Germany?

    • Dennis says:

      SG… you hit an excellent point! Greece’s society is scrutinized oin every detail in the last two years and people suddenly are surprised that a society has problems. Surely Greece has more and is the reasons it is in trouble. Athens has a coffee shop in every corner.. suddenly a place doesn’t get a licenses to sell coffee and its reflective of its problems. Anyway my opinion these are superficial discussions and conclusions.

  21. Larry D says:

    Megan; great article. I heard most of this when you were on Bloomberg radio. One thing I still don’t quite get is why you think it will take until 2013 for Greece to leave the EZ? Thanks

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  24. Pingback: Meanwhile in Athens – after finally starting a new cafe/bookstore, the owner is not allowed to sell or give away coffee or to actually sell books. « Investment Watch Blog – 2012

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  26. Really good story, will be back to read more!

  27. Very Serious Sam says:

    Are we to understand that Greece needs state building 1st, since her public structures bear more resemblance with those in, say, Somalia, than with the Eurozone countries?

  28. C High says:

    Argentina has recently been quoted by some as an example of how a massive default can free a country up to grow. However, correct me if I am wrong but one massive advantage Argentina has over Greece is the presence of generous natural resources which they used to claw themselves out of the situation. Greece is pretty poor in this regard. Regarding doing business in Greece since it joined the EZ, my businessman father worked over there in light industry back in the 1990s and he found it frustrating getting straightforward and trustworthy dealing done,so it’s not been easy to do business there for decades.

  29. olivier says:

    Nice. Greece doesnt need abrupt policy changes, it needs a steady, feasible, 20 years plan to change deep rooted beliefs and practices: change the edu system, reign in the church and the army,minimize gov role/size, put new faces in power. nothing is going to change given the present policies.

  30. Daniel says:

    The way I see it is it’s only a matter of time now until the Greeks decide to leave, and decide that the UK is a great place to go.

    The UK is already stretched to near breaking point with immigrants. We have no jobs for our own people and I can see an influx of Greek nationals into the UK costing billions to the economy here in the UK. Of course I’m no economist but honestly, if there are no jobs and they come piling in how else are they going to live other than off the state?

    This whole business has domino like effects. If Germany and France think this is the end of the Eurozone crisis then they’re very, very wrong.

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  32. DR01D says:

    Greek companies might want to consider developing products and selling them. The profits that this activity generates could be used to support the Greek population.

    Just a thought.

  33. Pingback: Meanwhile in Athens – after finally starting a new cafe/bookstore, the owner is not allowed to sell or give away coffee or to actually sell books. « Economics Info

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  39. Constantinos says:

    “My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. ”

    As Greek I am confident to say that this is definitely inaccurate.

    • Megan Greene says:

      Good luck verifying that. It’s extremely difficult to work out what is and isn’t permitted in Greece. If you consult the legislation, it refers back to older legislation, which in turn has amended older legislation, which contradicts some other legislation… You get my drift.

      • S G says:

        There is a relatively prominent example of that: US Constitution, how many amendments? Jurists somehow find a way to deal with it and find out what is still valid, what isn’t.

        I actually dare to say, without being a lawyer, that common law countries with their case law tradition have a much bigger problem with this kind of thing that you will find in continental Europe.

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  41. ekal says:

    Hi Megan,
    The greek society goes through the five stages of grief [1]. In the beginning we denied that something was wrong with the greek development model and we also denied IMF’s bailout, next we started blaming one another (e.g. the taxi drivers or the pharmacies or the public servants or whatever), next we supported opinions saying that we should leave eurozone and that the Russians or the Chinese will support us in order to continue having a non competitive country. Now we are at the depression stage but … sooner or later we are going to accept and understand the situation. Imho this is already happening. An increasing number of people understand that Greece historically belongs to the West and that the only solution to our problems should come from Europe. They have also accepted that the cause of our problems is our economic model that we adopted the last 30 years and not the Germans or IMF. The main thing is that if you accept and see the problem you have already gone half the way to solve it.
    We will work and overcome all the difficulties and finally Greece will be a truly european country in the next few years.

    [1] http://en.wikipedia.org/wiki/Kübler-Ross_model

    • Leonidas says:

      Ekal,
      you seem very certain that you speak on behalf of the majority of Greeks.
      -Do you speak on behalf of the 1 million unemployed ( and on the rise ) who have no chance in hell of finding a job, and whose unemployment benefit has just been cut by 22%?
      -Do you speak on behalf of families with children , who’s electricity has been cut off, as they were unable to pay the bills?
      Or on behalf of the 2.5 million private employees, whos salary is cut by 22% , down to 586 euros/month ( gross)?
      Or on behalf of the 300,000 self-employed , who have closed their business nad now do not even have any health insurance?

      Of course, Greeks understand that what was wrong was our economic model.
      However, this was not created by each and every Greek individual, but by the same corrupt and power -hungry politicians who have been running the country for 30 years – it just so happens that they are the SAME ONES who are supposedly ”saving” the country now.

      No, our problems will not be solved by ”Europe” – i.e. Germany , Netherlands and Co.
      They have created the Eurozone on German terms, disregarding the difference in the economies of the south.
      Still, their model worked fine for 12 years, they made a nice profit ( the latter countries had a trade surplus every year , to Spain,Portugal and Greece)., the Greek politicians were taking huge loans and buying German equipment for exorbitant prices, and everyone was happy.

      Until… Greece was unable to pay …

      Now, Our European ”partners” just want to ensure they get their money back, and that the greek ”contagion” does not spread rapidly to their Banks.

      Still, this austerity plan is doomed to fail. Social unrest is continually on the rise.
      The two parties now in power only get 19% and 8% , and they hope that fear will lead Greeks to voting for them again.
      BUT, hunger and destitution says otherwise..

      WE shall see, the time is nigh.

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  46. PR Guy says:

    Looking at the latest manufacturing, unemployment, etc. figures coming out of Greece this week, they are clearly falling through the floor. We are in grave danger of seeing a ‘failed state’ in the EU.

    I still think we will see a default and Euro exit well before late 2013

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  48. The methodology used here in order to capture what is happening in Greece and what the majority of Greeks feel is limited. The journalist is speaking to “top policymakers, bankers, journalists, economists and academics”. But the sample is not representative. The people you are talking to are in their vast majority part of the same “group” of privileged Greeks with access to the state’s coffers directly or indirectly. They are also the ones who are part of the country’s elite/ privileged class.
    This article also relies on Kathimerini for polls, which was recently criticized of its methodology (I have a link but it’s in Greek) and that it was rigging the questions to get the desired results. Kathimerini and SKAI Tv for the past two years have been promoting all the policies suggested by the Troika, explaining how they are necessary and just and received money from the Church to create a documentary to justify the Church’s corrupt dealings with the Greek state.
    There is a great divide between Greece’s political and other elites and its citizens and this article only replicates an elite perspective here.
    With all due respect, try speaking to some non-English speaking Greeks from less privileged classes.

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