I REMEMBER the lyrics “Tax the rich, feed the poor, ‘til there are no rich no more. I’d love to change the world, but I don’t know what to do. So I’ll leave it up to you” because the Ten Years After song was the mobile phone ring of a Greek education official I interviewed in 2011.
Then, and certainly now, those lyrics characterise the Greek position toward politics, economics and the country’s financial crisis.
Many Greeks feel this way about inequality and socialism, and identify as Marxists — though not all do. One way to look at the conflict between European politicians, finance ministers and technocrats is as an arm-wrestling match over what academics call ‘political economy’ — the study of how economic theory affects politics.
Greeks — like citizens of other European countries — have a schizophrenic approach to political economy. (We can thank the Greeks for the characterisation: the Greek word ‘schizo’ means ‘split’ and ‘phrene’ means ‘mind’.)
The crisis has shown that European citizens — and Greeks specifically — are divided between those who favour a socialist, long-term political and economic order, and those who prefer a neoliberal one.
The new Greek finance minister, Euclid Tsakalotos, is an Oxford-educated, Marxist academic economist. But some Greeks calls him a ‘champagne socialist’, because he owns several houses and lives the life of the European elite that they despise.
His predecessor, Yanis Varoufakis, also identifies as Marxist and has spoken about how much he would like to replace capitalism. But 80% of Greeks want to remain part of the EU. They want Greece to have access to capital markets and foreign investment. They are fed up with life in a sluggish, collectivist economy.
EU payments exceed what Greece pays into the EU, and have improved infrastructure throughout the country in the past 30 years. But many Greeks aren’t sure if the troika (comprised of the European Commission, the International Monetary Fund and the European Central Bank) is out to help them or exploit them.
Many highly educated Greeks believe that three decades of socialist leaders have dented the country’s economic optimism.
“I think Papandreou [Andreas, a socialist prime minister in the 1980s and 1990s] started the country on a downhill path with his policies,” my father-in-law, Evangelos Mavrogeorgis, a member of the three-million-person Greek diaspora in the United States, told me this week.
Papandreou formed the leftist Pan-Hellenic Socialist Movement in 1974, created generous social welfare programmes financed by massive public borrowing, and was stridently anti-American.
Mavrogeorgis says that life improved when Greece joined the EU, even though the other member states were willing to overlook Greece’s underlying fiscal problems. He says the country should comply with needed reforms, but that the EU should also give another bailout and, possibly, debt relief. “To go back to the drachma, the country would be in distress,” he said.
The debate between ‘two Greeces’ mirrors a parallel divide within economics, pitting the neoliberal direction of the Adam Smith, Friedrich Hayek and Milton Friedman tradition against the modern neo-Keynesians, such as Joseph Stiglitz, Thomas Piketty and Paul Krugman.
French author and economist, Piketty, and four other left-leaning economists have argued for the troika to lighten up on austerity in Greece and to loosen the purse strings.
“The medicine prescribed by the German finance ministry and Brussels has bled the patient, not cured the disease,” they wrote in The Nation.
But the Keynesian crowd’s critique doesn’t solve the underlying problems of the Greek economy, which include an extremely bloated public service sector that employs one in four Greeks, pension plans more generous than in other developed countries and too many state monopolies. (The Greek word ‘monos’ means ‘alone’.)
Few modern neoliberal economists seem to be paying attention to Greece. But their ideological comrades from Wall Street, and in government, seem to ignore the more vocal Keynesians.
A report from JP Morgan, last month, said the “Greek crisis does not pose an existential threat to either the euro system or to Europe’s financial system.” And Germany’s finance minister, Wolfgang Schäuble, has been publicly frustrated with Syriza’s antics and has shown a willingness to let Greece exit the euro.
Modern history suggests Greece would be much wiser to follow Germany’s ‘ordoliberal’ approach, which advocates free markets, guided by a strong, lean government and the social conscience of religion to maximise the potential of an economy while also preventing it from destroying itself.
German chancellor, Angela Merkel, and Bundesbank president, Jens Weidman, adhere to the ideas of German economist, Walter Eucken, who was the father of ‘ordoliberalism.’
Eucken opposed national socialism and, after World War Two, his ideas were fundamental to the rapid rebuilding of West Germany that became known as the ‘wirtschaftswunder’ or ‘economic miracle.’ Both Eucken and Hayek believed in the importance of individual liberty, the power of free markets, competition and the idea that government should have limits. But they differed on the role of the state and the role of religion.
Eucken argued that human dignity went hand in hand with competitive markets and a smart government that created ordered liberty. He also believed pure capitalism didn’t have enough concern for the poor. He believed religion provided that social conscience.
That thinking would gain traction in Greece, where key leaders of the Orthodox Church — arguably the most important cultural and economic institution in the country — expressed support for remaining in the EU.
The positions advocated by the ordoliberal school provide the best hope of saving Greece, and should be taken seriously by other countries wrestling with political-economy schizophrenia.
Greece should agree to a more neo-liberal path and the European creditors, in return, should create a programme of graduated debt relief over the next 10 to 20 years to get a more competitive Greece on its feet.