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What future for a Greece in crisis?

Will Greece see a process of painful rebuilding, be mired in stagnation and despair - or even face a social explosion?

Kirsty Hughes
24 March 2012

An early spring Sunday afternoon in Athens finds tourists and Greeks alike chattering away in cafes and on terraces soaking up the sunshine. But a walk around the centre soon reveals boarded up shops and buildings – many from closures, some from arson attacks at demonstrations this February and earlier. By the famous 'neo-classical trilogy' of buildings comprising the National library, Academy of Greece and University of Athens, you can see drug-users injecting on the pathways. It is all part of the visible face of the deep social, political and economic crisis that is battering Greece. 

Economists and other pundits continue to argue over whether the second bail-out deal agreed at the end of February will be the last and contain the economic crisis. But as the Greek economy, with 51% of young people unemployed, continues to contract beyond IMF predictions – currently at a rate of around 7% a year – and another €12 billion of cuts are demanded in the next two years, can Greek society and the Greek political system survive? 

Anger and despair 

There is uncertainty, despair and anger in the air. Few people will rule out the possibility of a social explosion if there isn't some sign of light at the end of the tunnel soon. Even those who have so far supported the reform programmes associated with the two bail-outs Greece has received from Europe and the IMF, think that something has to give. 

MP and former foreign minister Dora Bakoyannis was expelled from the conservative New Democracy party in 2010 for voting in favour of the first reform programme – an irony given that New Democracy, led by Antonis Samaras, is now part of the coalition/national unity government that has signed Greece up to the new, second bailout. Bakoyannis insists that reforms have to be seen to lead to a better future: "Technocrats and the EU see the statistics but not the people – people in Greece are shocked, they have lost about 40% of their income, 1.4 million people have lost jobs, they are in despair." 

Nikos Theocarakis, economics professor at the University of Athens, says there is huge anger at the political system, and society is mired in something akin to a "clinical depression". He  says: "I am very apprehensive as to what will happen in Greece, the social fabric is really fraying and it is hard to predict what will happen next." 

The troika (of the IMF, European Commission and European Central Bank) overseeing the conditions for, and implementation of, Greece's bail-out programme expect ongoing austerity plans to be observed. They talk of the political will needed to ensure the programme is fully implemented. But in Athens, neither those supporting nor those opposing the bail-out programmes think that they can be fully implemented without some relaxation. Loukas Tsoukalis, president of Eliamep – Greece's best known thinktank – says: "I presume that noone in the troika seriously believes that there will be full implementation of the [additional] €12 billion cuts rather than just a respectable amount [of implementation]."

The two big political parties – seen by many as responsible for Greece's clientilist and corrupt economy and political system over the last decades – also talk in less than fully committed terms about the second bail-out, which may not amuse key politicians and officials in Brussels and Berlin. Chryssanthos Laziridis advises Antonis Samaras, leader of New Democracy which is ahead in the polls at around 28%  – Samaras could well be the new prime minister after elections in late April or early May (the date yet to be announced). Laziridis says New Democracy is committed to bringing the deficit down and to "much of the structural change suggested by the troika" but calls some of the proposals "ill-advised" and warns in colourful language that: "if Greece explodes, it will be 100% blame on those who do not let a country breathe before they operate." 

The other of the two big parties dominating the Greek political scene for decades is Pasok –  the Greek socialist party. Pasok is in turmoil as its 43% at the 2009 elections has now dropped to around 11% in the opinion polls, with voters blaming the Papandreou-led government for its handling of the deep crisis even more than they blame New Democracy which was in power and increased the deficit substantially from 2004-2009.  Paulina Lampsa, international secretary at Pasok, is clear contined austerity alone cannot drive reform: "A large majority supports reforms that can guarantee more solid prospects for future generations but is not ready to accept more austerity without growth." 

On the far left and far right of the political spectrum, there is simple opposition to the reform programmes associated with the bailouts. Yiannis Bournos is head of European policy at Synaspismos whose leader MP Alexis Tsipras is also head of the coalition of the radical left Syriza – currently polling around 12%. Bournos says there is a humanitarian crisis in Greece: "The so-called structural reforms destroy every ray of hope." 

Meanwhile at the party headquarters of the far right Laos party, sitting under paintings of classical Greek scenes, vice-president Georgios Georgiou explains why they left the current governing coalition (formed under Lucas Papademos last November when the Papandreou government collapsed): "I suggested we leave the coalition…we said not to touch pensions and wages and to get rid of the two million illegal immigrants…you cannot have Germans coming in sitting in ministries ordering ministers what to do." 

Surprisingly little worry is expressed that if Greece did not fulfil its austerity programme the EU and IMF may just pull the plug which could push Greece into even more disastrous territory – although for most any ''return to the drachma" scenario is seen as a nightmare outcome. 

Low social capital leaves families bearing the strain 

As falling GDP, rising unemployment, cuts in wages and pensions, increases in taxes, cuts in public services all continue to bite, the question may not be why are there so many protests in Greece but rather why there aren't more. In studies of social capital – or the capacity for social cooperation and trust – Greece comes out at the low end for a European country. It is the family that is the heart of Greek informal social support more than wider society. And many say that it is the strength of Greek families that have borne the brunt of the crisis so far. But this informal support system could buckle under the strain soon with unpredictable consequences. And there is much anger too that the pain has not been borne equally – tax evasion has gone up not down, while those with pensions and salaries face higher taxes and lower pay. 

Nikos Theocarakis thinks the ability of families to keep supporting their unemployed younger family members is rapidly disappearing: "The grandparents' pensions have been cut so they need it for themselves as they are at subsistence level…  there is no fat left to support those who are unemployed." Many heads of families are unemployed, sometimes both parents are out of work. Theocarakis describes limited coping mechanisms: "It was a hard winter but people didn't buy diesel but carried an electric fire from room to room. They don't go out: they cut back on food." While the poorest in society are hardest hit, Theocarakis talks about the 'new poor' and 'new homeless' – those who were well off before but now are unemployed or find they cannot fall back on their assets: "The market for assets has collapsed so even if you've got a house or a car you can't sell it and get cash to use...   this creates a ripple effect everywhere." 

Some attempt to be more positive – talking of the talents ex-pat Greeks show in business and education abroad, or placing their hopes on Greece's as yet unexploited deposits of natural gas and other resources, or the continuing potential of the tourism sector. Some even see rays of hope in local efforts in some communities to establish social coping mechanisms – whether soup kitchens, rubbish collection or free additional tutoring for poorer children. But there are darker new forms of cooperation too, with some vigilante groups being formed, and crime on the increase. The neo-Nazi Golden Dawn party may well get over the 3% hurdle needed to have a presence in the Greek parliament. 

Platon Tinios, professor at Piraeus University, has carried out research on both the formal and informal welfare systems in Greece. He is worried at what happens if the family support system starts to give way: "Cuts in benefits and welfare payments have put severe pressures on the informal support system that Greek families provide. In some circles, there is too much complacency about the capacity of the informal family system to absorb the shocks from the crisis – and when and if that system buckles under the pressure it may do so more suddenly and in a more anarchic way than many anticipate."

There needs to be some light at the end of the tunnel soon. For Loukas Tsoukalis the question is whether and when the economy will hit rock bottom. If it starts to rebound, even slowly, he thinks confidence will start to return: "but if the economy continues sinking for another year, it will be very difficult." He puts the possibility of the country becoming ungovernable at around 25%, an order of magnitude with which some others also concur. 

Can elections provide the platform for political recovery? 

Many expect that New Democracy and Pasok – held together for now as unlikely partners in the coalition under technocrat Prime Minister Lucas Papademos – will form the next government. While New Democracy leader Antonis Samaras is campaigning for an absolute majority, the polls do not suggest he will achieve that. But even with the Greek system which gives an extra 50 seats in the 300 seat parliament to the party with the largest share of the vote, it is not at all certain that the two big old parties will have a majority. 

For now Pasok is polling barely in double figures. Some expect it will rebound somewhat in the weeks ahead but polls are volatile. Many voters are undecided whether to vote at all or whom to vote for. If New Democracy and Pasok have to do a deal with one or more of the smaller political parties, with new parties being formed at a rapid rate (often by disgruntled or expelled members of New Democracy and Pasok) this will already shake the old system a little. 

It is also possible that a New Democracy-Pasok coalition could have a majority of MPs in parliament but with more than 50% of the popular vote going to parties (of left and right) that oppose the bailout reform programme. Platon Tinios thinks the choices voters face are at best uninspiring: "The choice is not very appealing. On the one hand 'realistic alternatives' promoted by the people who are responsible for the current mess. On the other irresponsible alternatives with no chance of implementation whatever.  The paradox of the current elections is that all attempts to provide an alternative in the centre have come to nought." 

A new parliament could have 8, 9 or 10 parties in it compared to 5 in the current parliament – a fragmentation that some think is inevitable and others think will be temporary. Some foresee an unstable political system for some time with elections happening more frequently, perhaps as often as every 6 or 8 months, as coalition politics and the bailout policies take their toll. 

Opinion is split between those who cannot foresee (or cannot admit the idea of) a political future not dominated by New Democracy and Pasok, and those who think the political system will be transformed over the next two years for better or worse. Dora Bakoyannis admits that she is part of the old political class but says her Democratic Alliance party (polling at under 3% in the polls) stands for allowing youth and new people and a new type of politics into Greece: "The old political system is expiring, it is dying….first the political system has to change and then the state, not just its large size but the clientelist, corrupt and ineffective system." 

Young people are especially disillusioned and disgusted at the social and economic crisis the Greek political classes have produced. How they will react over time to the crisis, and how and whether they will vote in large numbers or stay in or leave the country (or return from studying abroad) is unclear. At Pasok, Paulina Lampsa says "There is a real problem with youth disengagement from traditional politics. To attract young people we should first of all change the way we are doing politics, we should open and modernize our parties." But if  large numbers of young people do re-engage it may well not be through the big old parties.  When Evangelos Venizelos was elected as Pasok's new leader last Sunday (18 March) the turnout was higher than expected but it was the older voters, the over 40 year olds, who turned out, much more than younger voters. 

So will many or indeed any politicians from the old political class have a role in any renewal of the new Greek political system that may emerge in the next two years? It is an open question. Some refer to the experience of countries in central and eastern Europe after 1989 when in many cases a new generation of younger politicians came through rapidly. 

What future? 

The lack of optimism in Athens is not surprising. For now, most do not see a social explosion (or even a revolution) as very likely. But few will rule it out. There remains support for staying in the euro and in the EU, despite a vocal anti-European minority, but also anxiety about the path the EU is on. This could change if the economic decline continues with no hope or glimmers of recovery visible for the next few years. Restoring liquidity to the banking system is urgent – loans are almost impossible to come by, and many importers can only get goods if they pay in cash not credit. Some voice fears of a sharp worsening of economic governance if western investors stay away – Russian and Chinese investors, say some, could come in instead with unpredictable and undesirable longer-term consequences. China has already invested in Piraeus port. Russia's Gazprom is said to be watching Greek planned privatisations.

Few will deny the possibility of a social explosion as cuts and economic decline bite deeper. Some foresee economic and social stagnation and despair, a less-than-muddling through scenario. But Dora Bakoyannis hopes to avoid the worst: "There is always a chance of an explosion but I have a very strong trust in the instincts of my fellow Greeks." At New Democracy, Lazaridis is less sure: "The problem is what is going to happen in the next 1-2 years: I am really afraid of an explosion." 

Loukas Tsoukalis is somewhat more optimistic than this: "The more likely scenario is a government doing a bit better than muddling through, unemployment around 23%, the first signs of recovery….almost nothing left of the two big political parties." 

The next one to two years will be crucial. A rebound is possible, stagnation is likely, further decline possible. Some hope that in Brussels there is growing recognition that austerity alone, without any more positive measures, cannot continue. Some say the technical assistance provided to Greek ministries by the French, Dutch, Germans and others is bearing fruit. Others put their hope on the political impact across Europe of a possible socialist victory by Francois Hollande in France.

Greece for now is in a downward spiral – its economy shrinking, its social fabric tearing, its political system in disarray and decline. How Greece changes politically in the next one to two years is crucial. Whether it rebounds, and in what social, political and economic direction, will depend in part on decisions taken in Brussels and Washington. But in the end, Greece's political destiny lies principally in its own hands. 

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