BOB: This week all eyes have been fixed on Greece; specifically on whether the new leftist government’s refusal to accept further austerity measures, and its subsequent inability to make a 1.6 billion euro debt payment to the IMF, will lead to the country’s exit from the Eurozone. As of this recording, the endgame remains unclear, but a thread running through all of the coverage is a sense of certainty that Greece has nobody to blame but itself.
“Greece got bailed out! You read the Wall Street Journal, it got bailed out by European countries. It was going’ broke.”
“To which much of the world responds: “Stop whining.” Greece’s problems are its own fault.”
BOB: In other words, what goes around comes around. Which is an understandable sentiment for European taxpayers who believe they’re picking up the tab for somebody else’s laziness and irresponsibility… except, according to political economist Mark Blyth, that narrative itself is lazy and irresponsible.
Mark, welcome to the show.
BLYTHE: Nice to be here.
BOB: Let's begin by explaining how we got to the point we're at and, uh, I'm gonna give you 30 seconds.
BLYTH: 30 seconds on the biggest mess in European history. Okay, it goes like this: they invented a currency called the Euro, and when you join the Euro, you give up your own printing press. Consequently, financial markets go, yippee, because that means your bonds are now gonna be much, much more reliable in terms of their pricing. So countries like Greece were effectively able to borrow like Germany for about seven years. And that was all fine until the global financial crisis hit and then everyone said, hang on a minute, Greece isn't Germany, they're up to their eyeballs in debt, and they'll never pay it back.
BOB: So, can we just tick down the allegations and tell me what the facts are? One of the ongoing assumptions is that the Greeks have simply been living beyond their means, subsidizing the welfare state, pensions and unemployment and government giveaways.
Greece basically concealed how much it was spending on things like a generous pension system...
We see irresponsible nations like Greece who need international funds to continue their profligate spending.
BLYTH: Most of the countries in the Eurozone were actually decreasing their debt going into the crisis. And even the Greeks if you look at it over a five year period going at the financial crisis, it was flat. There was no orgy of spending - think just isn't true. Let's think about pensions. Why'd the Greeks spend 16% of the GDP on pensions? Because they're the fifth oldest country in the world. So what happens if you then take the fifth oldest country in the world and reduce their pensions, which by the way are completely average in terms of their payouts. You will have more old poor people who will spend less in the middle of a recession. It's not clear to me why that helps.
BOB: The question of labor force competitiveness.
Greece pursued various inflationary policy, they were not competitive...
Very tough structural reforms ultimately are going to be necessary to restore Greece to competitiveness...
BLYTH: Right, so, on that one it's absolutely true that labor became more expensive and basically we just went up. Those wages are now adjusted. They've adjusted to the point that a quarter of the country is unemployed, and the youth unemployment figures 50%, so they by definition are astonishingly competitive because half the country's desperate for a job. Jobs being done, why is there no growth.
BOB: Here's another item from the bill of indictment: that Europe has poured all of these billions of Euros into Greece and that they're still overspending and unable to make a go of things...
They just cannot set the precedent of letting Greece be as reckless as they are and continue to bail them out.
Sometimes it feels like they think the money's free, there were never any strings attached. Yet the people running Greece seem to believe that this whole drama will play out in a fairytale fashion.
BLYTH: The Greeks have been given 249 billion Euros in loans, but 205 went straight back to the creditors, otherwise known as the banks. Hardly any of it stayed in Greece. The bit that was used to finance Greece's government operations was a tiny percentage of the total. And yet all we hear is that the Greeks have got all this money and spent it again, it's just rubbish. It's just flatly wrong.
BOB: The working hours, the productivity, they're just basking in the sun and drinking Retsina while northern Europe slaves away.
It's kind of a taverna type society; a lot of people sitting around a lot of people, drinking coffee, smoking cigarettes, leisurely paced, two hour lunches, and now you're telling me this translates into the workplace, correct?
BLYTH: The only people who are drinking Retsina are financial journalists who can't be bothered going to their computer and looking up some numbers. Look up international comparisons of labor hours worked. The Germans work about 1,350. The Greeks work over 2,000. They have an old, unproductive economy and they rely on tourism and everybody works two jobs for low pay, so they're relatively unproductive. This is a structural fact of an old economy in the wrong place. Not because they're lazy.
BOB: The tax collections are pitiful...
Greece and taxes - why the country is in desperate financial straits, because residents won't pay up.
Last year the government announced that Greece is owed 76 billion Euros in unpaid taxes. You have doctors with swimming pools reporting income that you know a street sweeper ought to be earning.
BLYTH: It's true they don't pay taxes, but you know what? Neither do we in the United States. How many billions are sitting off shore because American corporations won't pay corporation tax? Turns out rich people all over the place don't pay taxes. One of the things that's annoying about this is the Monday morning quarterbacking that's going on with this. There's a financial publication, used to be called "EuroWeek" - they gave their 2007 award for sovereign borrower of the year to the Hellenic republic. The markets loved Greece, they were falling all over them to give them money. Now if they all knew it was corrupt and they were lazy and shiftless and all the rest of it, why were they falling hand over fist to award them for taking their cash?
BOB: So from your perspective the people to blame here are not the Greeks, but the bankers who are asking Europe to cover their bad debts.
BLYTH: So it's not a question of Greece as blameless: of course they're blameful. But that doesn't matter if people were giving them money you can't have over borrowing without over lending. Why is all the conversation about the terrible over borrowers rather than the reckless over lenders?
BOB: What's the worst thing you've seen in the reporting of the Greek crisis?
BLYTH: Oh, every day I find myself thumping my head off the desk. The one that really annoys me is the fact that nobody gets called on their busted calls. So, you know, the number of times I've seen "Europe has turned a corner into growth!' and it went pffft straight back into recession, right? If you're a bookie and you continually make bad bets, you go out of business. If you're a doctor and you continually injure patients, they put you in jail. But if you're a financial journalist or an institutional economist, then you can make bad call, bad betting, bad policy time after time, and you get promoted! That's what's most annoying about it. Nobody calls you on your errors!
BOB: Now, I think I should observe here that you're coming from a particular point of view, kind of a leftist, economist, point of view. Your quibble doesn't seem to be so much with the coverage of the Greek debt crisis but with the Euro regime itself. You just think it's anti-democratic and designed for failure.
BLYTH: Well, as the Germans say "jein" - yes and no simultaneously. I'm actually a fan of the political project, the ability to put democracy and rule of law all the way up to the borders of Ukraine with barely a shot being fired, Serbia notwithstanding, has been a remarkable achievement. I just think that when you start to do things like replace governments and have something called the Euro group which decides that a government shouldn't be in power, that's kind of dangerous. I don't think that's kind of leftist or rightist or whatever. And everything that I've said here is based on evidence, chapter and verse, real data, the whole thing. It's not a set of just I've just made this off opinions! And what gets me is the sort of faith based reasoning on the other side. Which is, well, the Greeks haven't tried hard enough. well I can show you evidence that they've actually done a heck of a lot of reform. Yeah but that doesn't count because they're all lazy. But in fact they work like 800 hours more than the Germans. Yeah but they don't pay taxes. Yeah but neither do rich people in the United States. And you can go after point after point after point and it makes no difference - this is an article of faith.
BOB: Mark thank you so much.
BLYTH: Pleasure. I'll go back to my commie cell now.
BOB: [laughs] Mark Blyth is an economist and professor at Brown University's Watson Institute of International and Public Affairs.