Friday, July 6, 2012

Why is Greece so messed up?

Many people are wondering why Greece, the cradle of European civilization, ends up like this. In my opinion, Greece really belongs to Africa or the Middle East even though it is located in Europe. There is too much emotional baggage with European elites that grew up reading Greek classics like Odyssey and Iliad who tried too hard to include Greece in the EU family. When Greece was able to produce "evidence" that it satisfied the conditions of joining the Euro, they quickly welcomed Greece with open arms. There were even rumors that when Churchill was dividing Europe with Stalin after WWII, he was willing to give up Hungary (part of the Austria-Hungary Empire) and Romania to keep Greece in the Western European camp.

What happened to Greece in the two thousand years since the age of Socrates and Homer? A short history of Greece will be helpful here. In the 4th century BC, Alexander the Great united the Greek city states. He was heir-less and his empire was divided by his generals after his death and the Greece portion eventually became part of the Roman Empire. In the 4th century, Constantine the Great divided the Roman Empire into East and West Empires and established the capital of the Eastern Empire in Constantinople which is now Istanbul in Turkey. After the fall of Rome and the Western Empire in the 5th century, Greek had gradually replaced Latin as the lingua franca of the Eastern Empire and all bureaucrats and intellectuals were fluent in Greek classics. The political and religious center of the Eastern Empire was in Constantinople but Athens remained the cultural and intellectual capital. The unintended consequence was that there was a lot of migration to Greece especially Athens from other parts of the Empire. Similar to modern day New York and London, 10th century Greeks thought of themselves as Athenians, Spartans, Romans, Armenians or Turks but not Greeks, even though they spoke Greek, and have arguably never regained their sense of nationality since then.

Greece gradually became part of the emerging Ottoman Empire which finally finished off the Eastern Empire in 1453 with the fall of Constantinople. The Ottoman Empire generally governed the non-Muslim parts under the "millet" system. Turkish military governors with dictatorial powers supported by Turkish legions were installed in big cities and the legions could be dispatched quickly to handle external enemies and internal riots within their territories. Greek tax collectors were hired on a "commission" system to collect taxes from other Greeks and as a result gained political and financial power. Smaller cities and the countryside were pretty much governed by the Greek Orthodox churches and Patriarchs essentially served as spiritual leaders, governors and chief judges.

As the Ottoman Empire declined over time, Greek revolutionists secured independence in the 19th century with the help of the major European powers then, who installed a monarchy after a series of civil wars and assassinations, with kings drawn from other European royal families. The unpopular monarchy was replaced by a short-lived republic that was overthrown by a junta in the 1960s. The junta gradually transitioned power to elected politicians, many of which are from political dynasties like the Papandreous and Karamanlis. In the same period, tax collectors were replaced by bureaucrats that still operated on quasi-commission systems and the Greek Orthodox churches remained as influential on social issues nationwide and political issues in smaller cities and the countryside. Meanwhile, all Western European countries except the UK and Greece went through drastic changes through bloody revolutions (France), military conquests and defeats (France, Italy and Germany), breakups (Austria) and civil wars (Spain) which established modern democracies and national identities albeit with heavy costs and many deaths. In a nutshell, Greece is still running on a medieval system established by the Ottoman Turks, with the Turkish Governor-Tax collectors-Church triumvirate replaced by the Political dynasties-Bureaucrats-Church triumvirate. 

With no natural resources, little arable land and no meaningful exports other than olives and tourism, Greek's GDP per capita was not that much different from its non-Western European Mediterranean neighbors until its admission to the EU in 1981. Given the lack of national identity and the medieval tax collection system, tax evasion was rampant and rich Greeks stored most of their wealth abroad while other Greeks stuffed their drachmas under mattresses. The economy was buoyed by the admission to EU given foreign investments and transfer payments and further buoyed by the adoption of Euro and a global financial boom which allowed Greece to borrow at interest rates only a couple of percentage points higher than Germany. Instead of investing in education, infrastructure and structural reforms, the money inflow was used to enrich the political families, bureaucrats and the politically connected as well as expanding the welfare and pension systems while the money outflow by rich Greeks continued. All these came to an end as the Euro crisis unfolded following the 2008 financial crisis. 

Nobody knows for sure how this is going to end but a possible and frequently discussed outcome is that the Greek economy will decline precipitously and eventually match those of its less resourceful and democratic Middle Eastern and African neighbors. This is sad but comparing to other great ancient civilizations that had more severe declines or no longer exist, Greece at least has enjoyed a few decades of modern prosperity largely because of the emotional baggage of European elites.

Disclaimer: I have never been to Greece.


  1. Do you have an explanation on how Greece evolved into a welfare state? Why would the political families care to distribute welfare? I've been to Greece once. The people are certainly very lazy. I just wonder if there is a historical reason. Is it because of some philosophical or Orthodox teachings that they became more socialist than others?

  2. I don't think the reasons why Greece evolved into a welfare state are different from the rest of Western Europe: real and fake prosperity given global economic boom and low interest rates, vote-buying by politicians, small defense budget given US protection. The politically connected have stowed away enough wealth abroad and still have enough left to distribute to the rest of the people.

    What is different in Greece are 1) democracy is less mature and there is more corruption, 2) lower productivity, fewer natural resources and less exports.

    I don't know enough about Greek Orthodox Church's teachings to address your question. I just know it has lots of political clout.