Editor’s note: Paul Glader has spent regular time in Greece in the past four years with friends and family, and lived in Germany. He has been following and writing about the current Greek financial crisis for Reuters’ analysis and opinion service. This second piece was originally published on Reuters. You can read his first post here.
“Tax the rich, feed the poor, ‘til there are no rich no more. I’d love to change the world, but I don’t know what to do. So I’ll leave it up to you.”
Those pessimistic lyrics sung by British band Ten Years After came from the cell phone ring of a Greek education official I was interviewing in 2011. (The official took the call, and later we got back to the interview.) The moment has stuck in my head for four years because at the time — and certainly now — those lyrics seemed to characterize the dominant Greek position toward politics, economics and the country’s ongoing financial crisis.
Many Greeks feel this way about inequality and socialism, and identify as Marxists — though certainly not all.
For that reason, one way to look at the crisis playing out between European politicians, finance ministers and technocrats is as an arm-wrestling match over what many academics call “political economy” — the study of how economic theory affects politics. Greeks — like citizens of some other European countries — have a schizophrenic approach to their own political economy. (We can thank the Greeks for the characterization: the Greek word “schizo” means “split” and “phrene” means “mind.”)
The crisis has shed light on the fact that European citizens — and Greeks specifically — are divided between those who favor a more socialist long-term political and economic order, and those who prefer a more neoliberal one.
The new Greek finance minister, Euclid Tsakalotos, is an Oxford-educated Marxist academic economist. But some Greeks calls him a “champagne socialist” because he owns several houses and lives the life of a European elite that they and he — as an early Syriza member — despise. His predecessor, Yanis Varoufakis, also identifies as Marxist and has spoken about how much he would like to replace capitalism.
At the same time, 80 percent of Greeks want to remain part of the EU. They want Greece to have access to capital markets and foreign investment. They are fed up with life in a sluggish, collectivist economy. EU payments exceed what Greece pays into the EU, and have improved infrastructure throughout the country in the past 30 years. But many Greeks aren’t sure if the Troika (comprised of the European Commission, the International Monetary Fund and the European Central Bank) is out to help them or exploit them.
Many highly educated Greeks believe that three decades of socialist leaders have dented the country’s economic optimism. “I think Papandreou [Andreas, a socialist prime minister in the 1980s and 1990s] started the country on a downhill path with his policies,” my father-in-law, Evangelos Mavrogeorgis, a member of the roughly 3 million person Greek diaspora in the United States, told me this week. Papandreou formed the leftist Pan-Hellenic Socialist Movement in 1974, created generous social welfare programs financed by massive public borrowing and was stridently anti-American.
Mavrogeorgis believes that life improved when Greece joined the EU, even though the other member states were willing to overlook Greece’s underlying fiscal problems. He thinks the country should comply with needed reforms, but that the EU should also give another bailout and, possibly, debt relief. “To go back to the drachma, the country would be in distress,” he said.
The debate between “two Greeces” mirrors a parallel divide within economics, pitting the neoliberal direction of the Adam Smith, Friedrich Hayek and Milton Friedman tradition against the modern neo-Keynesians such as Joseph Stiglitz, Thomas Piketty and Paul Krugman.
French author and economist Piketty and four other left-leaning economists have argued for the Troika to lighten up on austerity programs in Greece and to loosen the purse strings. “The medicine prescribed by the German Finance Ministry and Brussels has bled the patient, not cured the disease,” they wrote in the Nation.
But the Keynesian crowd’s critique doesn’t solve the underlying problems in the Greek economy, including an extremely bloated public service sector that employs one in four Greeks, pension plans more generous than other developed countries and too many state monopolies. (The Greek word “monos” means “alone.”)
Few modern neoliberal economists seem to be paying attention to Greece. But their ideological comrades from Wall Street and in government seem to ignore the more vocal Keynesians. A report from J.P. Morgan last month notes the “Greek crisis does not pose an existential threat to either the euro system or to Europe’s financial system.” And Germany’s finance minister, Wolfgang Schäuble, has been publicly frustrated with Syriza’s antics and shown a willingness to let Greece exit the euro.
Modern history suggests Greece would be much wiser to follow Germany’s “ordoliberal” approach that advocates free markets, guided by a strong, lean government and the social conscience of religion to maximize the potential of an economy while also preventing it from destroying itself.
German Chancellor Angela Merkel and Bundesbank President Jens Weidman adhere to the ideas of German economist Walter Eucken, who was the father of “ordoliberalism.” Eucken opposed National Socialism and after World War Two, his ideas were fundamental to the rapid rebuilding of West Germany that became known as the Wirtschaftswunder or “economic miracle.”
Both Eucken and Hayek believed in the importance of individual liberty, the power of free markets, competition and the idea that government should have limits. But they differed on the role of the state and the role of religion.
Eucken argued that human dignity goes hand in hand with competitive markets and a smart government helping to create ordered liberty. He also believed pure capitalism doesn’t have enough concern for the poor. He believed religion in society helped provide that social conscience. That thinking would gain traction in Greece, where key leaders of the Orthodox Church — arguably the most important cultural and economic institution in the country — expressed support for remaining in the EU.
The positions advocated by the ordoliberal school provide the best hope to save Greece, and should be taken seriously by other countries wrestling with political economy schizophrenia.
Greece should agree to a more neo-liberal path and the European creditors, in return, should create a program of graduated debt relief over the next 10 to 20 years to get a more competitive Greece on its feet.