A State of Chaos

(AP Photo/Kostas Tsironis)

About 2,000 protesters turned up at Syntagma Square, outside the Greek parliament, to protest against a new austerity package agreed to in October.

Greece is at the breaking point. The autumn air is filled with despair at falling living standards and the inability to meet ever-burgeoning tax burdens and with fury at the political class, members of which are routinely mobbed, showered with eggs and yogurt, even occasionally beaten. Because of striking public-sector unions, Athens regularly lacks public transport, and its streets are often strewn with garbage. The young, with little hope of productive work, divide their time between rioting and looking for a promising place to emigrate. The older generation, those with families, medical bills, and after-school tuition fees, grimly hold on, cutting consumption down to the absolute necessities and eating into their savings to survive. Sometimes, they take to the streets, too. The middle class, such as it was, is slipping into poverty, and no one can see when the bleeding will stop.

The country is experiencing a national depression, both financially and psychologically. It is accompanied by a collapse of relations between the state and society but also within society, with every group thinking itself victimized by the rest and resisting by any means necessary the surrender of privileges it has long held at the expense of the common good.

Greece’s university system is both a symptom and a central cause of the country’s disease. As August gave way to September, Greece was rocked by a wave of sit-ins in university buildings by students protesting the new law governing the administration of higher education. At its height, more than 200 departments across the country had been taken over, leading to the suspension of the fall exam period and to the threatened cancellation of the fall semester. The demonstrating students found support in many faculty members, especially deans, who in some cases decided to delay the exams to facilitate the sit-ins.

The new law will not solve all the manifold problems of the Greek higher-education system, but it is a step in the right direction. In particular, it restricts the power of the ubiquitous youth wings of political parties over university affairs, and it limits the number of years allowed for obtaining a degree. Perhaps most important, at least on a symbolic level, it repeals the academic-asylum provision passed in 1982. This provision, which had achieved totemic status among the Greek left, had been promoted to protect academic freedom from state interference at a time when memories of the dictators’ tanks invading the National Technical University of Athens to crush the student rebellion were still fresh. But, in practice, the law was badly abused. It shielded extremist groups, often unrelated to the student body, that hid from police on university grounds after causing mayhem with rocks and Molotov cocktails in demonstrations.

So why has the new law led to such a fierce reaction among many students? The youth wings of the parties are, of course, dead set against it, since it limits their influence over administration appointments and the favors they can dispense (early access to exam questions for their members, for instance). But something larger is going on. Youth unemployment in Greece is at 43 percent, worse than in any other country in the European Union, save Spain. Because of the austerity measures imposed by the European Union and the International Monetary Fund (IMF), the public sector, which used to be the employer of choice, is now effectively closed off. The ravaged private sector—the economy is about to enter its fourth year of recession—offers mostly short-term, low-wage employment, with no benefits and no security. With such a bleak future ahead, in which they will have to pay for the fatal excesses of the older generation that is still running things today, it is no surprise that young people take over university buildings and city squares, screaming their anger at a system that has let them down.


Someone seeking the source of Greece’s current predicament cannot avoid looking to the reign of Andreas Papandreou, the charismatic populist and father of the current prime minister. Papandreou founded the Pan-Hellenic Socialist Movement (PASOK) and led the country between 1981 and 1989 and then again between 1993 and 1996. When he came to power, only seven years had passed from the fall of the dictatorship of the colonels. The conservative governments that preceded him had established democracy and civilian rule over the military and lifted the ban on the Communist Party that had been in place since the 1946–1949 civil war. Despite this, Greeks of left-wing sympathies, who had spent a half-century being persecuted, were wary. They were not convinced that a left-wing government would be allowed to stand.


Andreas Papandreou changed all that. The governments that he presided over were instrumental in making left-wing Greeks feel like normal citizens; some even became members of the new establishment. This was an extraordinary achievement, but it’s also now clear that the way he did this set the country on the path to fiscal apocalypse. The 1980s were a time in which the state was vastly expanded, with PASOK hiring untold numbers of “its own people” (as appointments based on party affiliation are referred to colloquially in Greece) in the wider public sector and offering them wage increases divorced from any gains in productivity. Particularly in publicly owned utilities, like the telecom monopoly and the public power company, jobs were doled out with scarce regard for the economic viability of the enterprises. When Papandreou, formerly a head of the economics department at the University of California, Berkeley, took over in 1981, Greece’s ratio of debt to gross domestic product (GDP) was less than 30 percent, one of the lowest in the European Community at the time. By 1993, largely as a result of his policies, debt levels had skyrocketed to 100 percent of GDP. The Papandreou model was followed closely by subsequent governments, both of PASOK and the conservative Nea Dimokratia, which was also keen to pack the state with as many of its loyalists as it possibly could.

Of late, Greece’s official lenders have expressed concern over the lack of consensus between the two major parties in Greek politics. Some have argued that persistent polarization is making it much harder to get the public to support and to implement painful spending cuts and structural reforms. What is even more worrying, though, is the consensus that does exist between the two parties to safeguard the clientelistic state that they both built up over the past 30 years. It is worth asking why a pro-market party like Nea Dimokratia does not support the liberalizing program that PASOK has committed itself to at this critical juncture. The reason is that these are not your conventional Western political parties. Ideology and policy are only superficial aspects of their identity. Under the veneer of socialism and conservatism, they are primarily dedicated to gaining power and spreading spoils to their own armies of supporters.

The central element of the setup they constructed was a bloated, inefficient public sector, financed by European money and ever-expanding binge borrowing, with out-of-control spending on every level, from pensions and arms to public works and hospital supplies. This was combined with a widespread tolerance of tax cheating and other kinds of illegality (for example, in home building, which flourished outside any and all planning restrictions) and collusion between politicians and powerful interest groups in the private sector. Such groups, including politically connected construction companies but also closed industries like drugstores and trucking, were protected from competition and were thus able to thrive. The aim of this spoils system was to cater to Greeks’ long-standing, fundamentally contradictory view of the state: both as an alien power to be avoided or openly resisted and as the predominant source of sustenance and professional advancement.

What this led to was a society where knowing the right people was more important than hard work and where obeying the law made one a dupe. It also led to decades of budgetary lunacy, as puny tax receipts translated into wages and benefits of Scandinavian generosity. Short breaks of prudent fiscal management delayed the flood but couldn’t turn the tide. As a result, Greece’s public debt has reached for the stars: It is projected to rise to 158 percent of GDP by the end of the year. In absolute numbers, it is today close to $500 billion. That’s almost $50,000 for every citizen of the country.

This twisted system, which went into overdrive in the past ten years because of the low borrowing rates afforded by membership of the eurozone, was given a curious gloss by the dominant populist ideology of the time. It went something like this: While Thatcherism and Reaganism were sweeping the planet, Greeks were fighting hard to retain a mixed economy with a social conscience and to resist the heartless, undemocratic dictates of Anglo-Saxon capitalism. This view was often combined with an increasingly knee-jerk anti-Americanism, which had its roots in U.S. complicity with the junta and which saw the market as a nefarious imperialist tool to turn Greece into a Western protectorate.


This view remains extremely strong even today, and it cuts across ideological lines. It is the reason why many of the people massing in the city squares of Athens and Thessalonica are focusing their wrath on the government’s surrender of fiscal sovereignty to the EU and the IMF, instead of on the 30-year pandemic of mismanagement, corruption, and tax evasion that made that surrender inevitable. 

Not all Greeks are of the same mind-set, of course. There is an influential minority, especially among the younger generation, that is socially liberal, technologically fluent, and environmentally conscientious. They want Greece to be a less introverted society, more competitive and meritocratic. And they—some of them, anyway—saw in George Papandreou, the current prime minister and leader of PASOK, a man who shared this vision.

Papandreou, American-born and still more at ease today in English than in Greek, is a soft-spoken cosmopolitan who made his mark as minister of foreign affairs between 1999 and 2004. In that period, Cyprus was able to join the EU while Greek-Turkish relations underwent an extended thaw and a phase of growing commercial ties. In stark contrast to his father, he has avoided taking a belligerent tone with Ankara (something for which he is held in eternal suspicion by self-styled Greek “patriots”). On the international scene, he is the picture of diplomatic engagement and consensus-building.

Unfortunately, this attitude did not extend to the home front. In 2007, after a bad election defeat at the hands of Nea Dimokratia, Papandreou was challenged for the leadership of PASOK. To fend off the challenge, he turned to what is known as deep PASOK, the wing of unreconstructed socialists, leading members of which were the heads of the major public-sector unions and union confederations. Papandreou went on to lead the opposition to the government between 2007 and 2009 in a particularly nihilistic manner. He refused to support major privatization projects that had been initiated by previous PASOK governments—most glaringly in the case of OTE, the former telecoms monopoly—and he opposed all the admittedly timid efforts of the Nea Dimokratia government at controlling public-sector pay and benefits. He even joined union demonstrations against these efforts.

This made it difficult for him, once he became prime minister and revealed the parlous state of the public finances, to push through the much more radical cuts and reforms demanded by the troika of lenders (the European Commission, the European Central Bank, and the IMF). The public-sector unions have been among the most militant critics of the government’s austerity measures, both because they feel betrayed and because they have the most to lose: The average annual salary in the publicly owned companies (where the state has a controlling stake), even after the first round of cuts, was more than 37,000 euros. By comparison, average earnings in the private sector were 28,550 euros. Add to this the impossibility of being fired, the shortened working week (it was 37.5 hours until a few months ago), and the many opportunities for early and lucrative retirement, and you can see why a job in the public sector was every Greek mother’s dream for her kids.

The Papandreou government has repeatedly shown itself unable to break with its clients in the employee rolls of the state. Forced to meet the draconian targets set by Greece’s lenders in a display of self-defeating deficit-cutting fetishism, it has failed to crack down on the true sources of waste by closing down useless agencies and tackling overspending, especially in health care. Instead, it has resorted again and again to unjust, indiscriminate wage cuts (hitting low-paid doctors as well as overpaid customs officials) and to new taxes, which have brought economic activity to a standstill and have made meeting fiscal targets ever harder.

In June, when the deficit was already running away from the targets set for the year, pressure from the troika resulted in a blitz of new levies (on income, property, consumption, cars and boats, you name it). In September, when the breakdown of negotiations with the troika threatened the sixth tranche of the original 110 billion euro loan, the government, despite the worsening recession, thought up more taxes. It included a property tax to be levied through the electricity bill, with anyone unable to pay—and there will be many—facing disconnection from the power grid.


Meanwhile, the promised privatization program has barely begun, no salaried government employee has yet been fired, and surreptitious increases in overtime pay and travel expenses have offset public-sector wage cuts. Papandreou has done nothing to punish the ministers responsible for these outrages. Only now, under tremendous outside pressure, are substantial cuts for the highest-paid officials and even some redundancies expected to take place. Nea Dimokratia has been similarly, disgracefully reluctant to push for a more frugal state. Tackling tax evasion over the past two years has had insignificant results, largely because the corrupt tax service is unwilling to improve its performance—tax collectors have gone on strike repeatedly—and because government is unable to shake it up or, as a last resort, bypass it.

Thus the prime minister has failed to fulfill the expectations of the reform-minded members of Greek society. He could have united them under the banner of a smaller, smarter state, with employees allocated more rationally, paid more sensibly, and promoted based on merit, and of a private sector released from bureaucratic bonds, competing freely and looking to make inroads in foreign markets instead of relying almost exclusively on domestic demand. They would have accepted the pain if they saw that it was equitably distributed—that those who all these years extracted scandalous privileges through their political connections or avoided paying their fair share in taxes would bear the heaviest load. Instead, Papandreou has managed to turn everyone—overprivileged public-sector workers and underpaid private employees, honest taxpayers and perennial tax cheats, unemployed university graduates and uneducated 45-year-old pensioners—against him. It is a spectacular political achievement.


Badly targeted austerity has led to more-than-dire economic consequences. Break-ins, increasingly violent robberies, and murders have surged this year. A large swath of the historical center of Athens is effectively a no-go area, a living hell for the remaining residents, with daylight muggings, junkies shooting up in plain sight, and prostitutes haunting the streets at night.

But the most tragic example of austerity hitting the weakest members of society involves mental-health care. In late August, the Finance Ministry decided to reduce state funding for mental-health units by 45 percent. What’s worse, because monies for the first half of the year had already been spent, this meant that funding would fall to near zero. Given that 210 public-private institutions—guesthouses, boarding homes, autism and Alzheimer’s centers, and others, which cater to more than 35,000 patients across Greece—depend on the state for 90 percent of their funds, this, if the measure is implemented as it stands, would deal a catastrophic blow to the mental-health system. In particular, it would be a devastating setback for the decades-long effort at deinstitutionalization.

Since the late 1980s, under close EU supervision and with almost 1.4 billion euros in EU funds, a number of large psychiatric asylums have been closed down, and about 1,500 mental patients have been transferred to community guesthouses, where they receive better care and have been able to improve their condition. The Ministry of Health has vowed that none of the units will be closed down (though two already have been) and is scrambling to find enough resources to keep the system going. If the situation is not resolved, the EU could demand back the 1.4 billion euros it has paid to fund the reform over the years.

The tortuous but successful history of psychiatric reform is a telling example of the benefits, largely unsung by Greek politicians, which have come the country’s way because of its membership in the EU. These days, the toxic mix of Greek anger at the external imposition of harsh economic policies and northern Europeans’ anger at bailing out a member state that seems impervious to reform places Greece’s future in Europe in grave jeopardy.

In the October 26 Eurozone summit, the Europeans agreed in principle to a 50% reduction of Greek government debt held by private investors. Let us assume—something by no means guaranteed—that this happens in as orderly a fashion as possible: that it makes Greek debt viable and keeps the country in the euro without any Lehman-like implosions in the European banking system or contagion to the sovereign debt of the other beleaguered eurozone countries. What comes next for Greece in this “best case” scenario?

For one thing, the country will be cut off from the markets for an unspecified period, during which it will continue to depend on the largesse of its eurozone partners and, to a lesser extent, the IMF. This will only mean more austerity, though one hopes it will abate as investment returns with the resolution of the debt impasse. But even with the debt restructured, few sane long-term investors will want to get involved in a country with ever-shifting taxation, a chaotic bureaucracy, a legal system that offers endless possibilities for blocking new investment, closed professions that raise the cost of doing business, and unions that prefer stagnation to a more dynamic work environment.

In other words, even if the Europeans do their part, it will be to no avail if the Greeks themselves do not radically change their attitude to the state, work, competition, and tax-compliance. The government needs to regain the trust of its citizens and thus remove their excuse for free riding and leaving it broke. What is most worrying is that the crisis is driving away the young—the very people who haven’t had the time to be corrupted by the ancien regime and who could therefore serve as agents of change. The more of them who leave, the more likely the epic task of modernization will fail and the war within society and between society and the state will persist. If this happens, the country’s economic decline will continue, and eventually, Greece will choose by itself to abandon the euro, and with it, all hope of becoming a normal country.