CHAPTER 1

Before the Greek Debt Crisis

In the spring of 2012, the euro crisis intensified dramatically. Theepicenter of the crisis is Greece, a country that has been experiencinga severe recession since the beginning of the worldeconomic crisis. What outcome this recession will yield is adecisive question not just for Greece, but for all of Europe andindeed for the entire world economy. We need therefore toconsider the story behind this crisis, and the restructuringprograms imposed, since May of 2010, by the so-called "troika"(the European Commission, the European Central Bank and theInternational Monetary Fund). We also need to consider possiblealternatives to these restructuring programs.

In 1981, Greece became a member of the EuropeanCommunity. A spirit of optimism prevailed in the country. TheSocialist Party (PASOK), an offshoot of the Pan-HellenicResistance Movement against the 1967–1974 military dictatorship,had won the parliamentary elections for the first time.Due to its welfare-oriented platform, PASOK enjoyedwidespread popular support.

As the conservative Karamanlis government stepped down,there began an era of social, cultural, scholarly and economicprogress. This trend was in no way affected by the monetaryrestrictions associated with the European Monetary System thathad been introduced within the European Community in 1979.Greece was not to join this system until 1993. Like the currenciesof the other new southern European member states (Portugaland Spain), the drachma was kept outside the currencyagreement. While the intra-European disparities in economicdevelopment entailed certain distortions of competition, theGreek government was able to compensate for their effects byperiodically devaluing the Greek currency. Thus there was littlepressure to reconfigure Greek economic policy on the model ofthe European Community's core states. Between 1979 and 1992,the drachma was depreciated by 86 percent. In this way, theprices of Greek exports to the European Community's core stateswere lowered almost by half. Conversely, the prices of WestGerman and French exports to Greece were increased almost byhalf.

This monetary and economic approach, favorable to Greeceand the other countries of the European periphery, becameunviable in 1992. Responding to the pressures engendered by thecrisis-ridden development of their own national economies, thegovernments of the European Community's core states imposeda new framework, which has gone down in the annals ofeconomic history as the Maastricht Treaty. It was designed toestablish the contractual foundations of the EuropeanCommunity's transition to the European Union. The so-calledconvergence criteria at the core of the Treaty establishedparameters for inflation, national budgets, exchange rates andinterest rates. They also introduced a cap on annual debt (threepercent of the gross national product or GDP), thereby setting thecourse for the introduction of a single currency, the euro.

PASOK had been re-elected as the governing party in 1993. Itseconomic decision-makers and planners now found themselvesin a squeeze. For Greece as for other countries, implementation ofthe Maastricht standards entailed abandonment of a policy of fullemployment that had until then been bolstered by a robustwelfare state. The Greek government was forced to beginworking towards the flexibilisation of employment relations andthe deregulation of the public sector. Officially, it played alongand made an effort to improve the public sector's economicefficiency. But due to pressure exerted by Greece's strong unionmovement, effective deregulation and the lowering of massincomes were out of the question. It was only in 1996, when theneoliberal Kostas Simitis replaced the deceased AndreasPapandreou as head of government and curbed the influence ofPASOK's previously dominant party left, that the consensus onthe welfare state was significantly challenged. If the floodgateswere still not opened all the way, this was because there emergedwithin parliament a stable left-wing opposition that acted inconcert with the traditionally influential communist bloc atcritical moments. Major strikes and social struggles limited theextent of the welfare and wage cuts. However, Greece's competitivenesson the European market declined continuously. As aresult, the country went from a positive to a negative tradebalance and its budget deficit soared. Even prior to the late1990s, the budget deficit's annual increase exceeded five percentof GDP, and total debt soon exceeded annual economic growth.These were blatant violations of the criteria stipulated in theMaastricht Treaty, and so the emergent scenario of over-indebtednesswas veiled by means of statistical manipulations. By thelate 1990s, Greek policy was significantly out of step with theprocess of neoliberal restructuring that countries such asEngland, France and Italy had been undergoing since the 1980s,and which was also increasingly evident in Germany and theLow Countries.

Nonetheless, in 2001, Greece was admitted to the eurozone,which had in the meantime been established within theEuropean Union. While it is true the basic statistical data Athensprovided to Brussels concealed the extent of Greece's economicimbalances, everyone involved was aware that...