I’m far from an expert in economics, politics, or history; quite the contrary. Which is why I try to cast events in more familiar, anthropomorphic terms, and also why such analogies are dangerous. Caveat lector—now, let’s get on with the story.
There once was a large family, with many brothers, uncles, and cousins spread over many different places. Each of them led their own lives. The extended family spanned all sorts of lifestyles, from successful businessmen, dignified and well-dressed, to smart but somewhat irresponsible bon viveurs. They lived in many different places and they occasionally exchanged gifts and money, some more frequently than others (admittedly, this part is rather weak in its simplicity, but a single analogy can only be taken so far). But they were getting tired of running to Western Union, paying transaction fees, losing money on currency conversions due to volatility in exchange rates, and so on. Furthermore, some of the more powerful family members had gotten into nasty feuds (world wars).
So, under the leadership of some of the more powerful siblings (Germany and France) they thought: well, we have enough money to go down to an international bank and open a common family account in a solid currency, say, dollars (they in fact created their own currency and bank, perhaps to avoid associations with existing institutions, but it’s probably safe to say that they heavily mirrored those of one of the leading siblings). Then it will be so much easier to do the same things much more efficiently. The richer craftsmen and businessmen among them could send their stuff with less hassle and waste [e.g., paragraph seven], and the poorer ones could gain a bit by wisely using their portion of the funds and an occasional advance withdrawal.
The leading siblings knew how to keep their checkbooks balanced, and it seemed reasonable to assume that these methods were general enough and suitable for everyone. So, after opening the family account with all of them as joint holders, they shook hands and simply agreed to use the money wisely, pretty much in the way that had worked well for the richer and more productive ones (stability and growth pact). Once in a while they might briefly meet and agree on some further rules of how the money should be used, but basically each one of them went their way, living the life they always had, managing their portion of the family funds. One of the more cynical siblings (England) was a bit skeptical about opening a family account while living their separate lives apart, so it chose to stay out, at least for a while. Times were good for several years, but they didn’t last forever.
The first to get into trouble would be one of the younger cousins (Greece), who generally valued time more than money (he occasionally complains about that himself, but to little effect so far). Using some money from the family account, he did a few renovations to make his home look better and bought some decent clothes. Using the family account to boost his creditworthiness and sporting a sharper new look, he managed to get a credit card with a promotional 0% APR (Euro membership). He even threw a big party that impressed many (Olympic games). But after a few years, the credit card companies came back asking for payment, and he found himself in deeper trouble than before the good times had begun.
Some of the other relatives had also started getting into trouble, even if not all of them had been as irresponsible. But the immediate problem was that cousin. What was the family to do? Other people had started noticing, and were beginning to have some questions. “What kind of family are you?” Your cousin deserves what he gets, but did you really think it was that simple to run a family with such a diverse crowd? Obviously the little cousin should be taught a lesson and become more mature and responsible. But it should also be a lesson that could be repeated on other relatives, if necessary.
One option would be to kick him out (bankruptcy). It might get him to change his ways (or not), but a homeless relative does not make the family look good, even if he’s largely responsible for his predicament (which he is, by the way). And what would happen to the other relatives that weren’t doing that great either? A 0% promotional APR cannot last forever, and it’s not hard to shoot yourself in the foot with it, even if you aren’t irresponsible. Will other relatives head for the door too? If they do, will they come back? And is it possible to neatly untangle the finances, after decades of using a common account? Furthermore, the cousin may start hanging out with “strangers”, some of which may be of questionable character (IMF, Russia, etc). In fact, keeping him out of undesirable company might have played a role in inviting him to the extended family account in the first place.
Another option would be to bring him and his family into the home of a richer and more dignified family member, force him into a suit, grab him by the hand (or neck), and teach him how behave like a grown up under close supervision. But the other members of the household (citizens), who contribute to its finances (pay taxes) and get food and shelter in return (welfare and other benefits) would rightfully protest. “Who is this noisy, scruffy guy in our home? Why do we have to feed him and pay so much attention to him?” The cousin’s family, who also valued time over money (e.g., preferring a relaxing lifestyle on modest means over hard work), was also not very happy. “I just wish we could go down to the beach and spend 2-3 hours enjoying coffee under the sun like we used to. And why is your big cousin telling us what to do anyway?” In addition, it was always likely that other, equally noisy and scruffy distant relatives might show up knocking at the door of the mansion, and demand the same attention. This was certainly more than big cousin had signed up for when opening the family bank account.
Then there is a third option, which does not so much focus on teaching a lesson, but on saving face and postponing the worst trouble. Just give the little cousin a scolding and some pocket money to pay the rent and interest for a few months. At least he wouldn’t be out in the street. And, who knows, he might change his ways on his own in the meantime. Sweeping the mess under the rug is unlikely (although not provably impossible) that it’ll lead to any long-term solution, but it’s the option easiest to swallow by everyone involved.
Anyway, I’ll stop the anthropomorphic analogies here. Using a different analogy, I’ll add that tweaking the knobs (fiscal policy targets) and, perhaps, changing batteries (bail-out loans) won’t do much good in the long run if the machine is basically broken. But it’s hard to fix it if getting down to the cogs and gears that make it work (politics) is taboo, perhaps even more than it used to be (compare Victor Hugo’s vision of the “United States of Europe” more than a century ago, with the Lisbon treaty).
Although it’s a rather overloaded term, you can probably call me a technocrat. As such, Deng Xiaoping’s famous quote (“it doesn’t matter if it’s a black cat or a white cat, it’s a good cat as long as it catches mice”) is basically appealing. Cats competing with each other and against mice sounds like a “natural” situation, so it’s easy to overlook whether it’s the only possible state of affairs. However, if they’re domesticated and not out in the wild, it’s not hard to imagine the mice and both cats colluding to, basically, take it easy. Sometimes what is “natural” should be examined more closely.
Greece is the first to draw wide attention to such questions, but I don’t think it will be the last, nor is it the first mishap along European integration. I’d venture that, unless the EU collapses, everyone will find their place in it. Eventually.
I’ll finish with an annotated graph (original source via metablogging.gr, and public Google spreadsheet with subset of the data), showing Greek public debt (central government) as % of GDP over the past 40 years. I’ll just point out that 1981 looks like a particularly interesting year, for various reasons.
Postscript. It’s often mentioned that “Greece has been in default for 50 years during the past two centuries.” This is true; after independence in 1821, Greece was bankrupt starting at the end of the 19th century under Charilaos Trikoupis, and ending after WWII. During this period, Greece was involved in a number of wars in the Balkans and Asia Minor, growing and shrinking in size a few times. Obviously, this didn’t help financial matters, but I don’t think it bears much similarity to the current situation.
I’ve also been puzzled somewhat about the role of corruption. Obviously, it’s not good and I’m not trying to justify it in any way. On the other hand, it doesn’t seem to be the sole cause of trouble, as is often suggested. Several East Asian countries (notably China, although it’s not the first neither the only one) have shown progress despite corruption. I don’t have an answer, but it seems to me that, when you steal money, it matters where you steal it from. If I swipe some cash from my little brother’s wallet, it will make my brother poorer and angrier, but it probably won’t bankrupt the household; someone earned that money, even if it wasn’t me. However, if I pocket an advance withdrawal using the credit card our father gave us, it’ll get everyone in trouble, eventually.
Finally, as for 0% APR credit cards, it’s rather different if, say, Bill Gates (US) gets one versus if I get one (not that I’m that irresponsible : ). One of us has deeper pockets and that makes a difference on whether we deserve it, on the kind of trouble we can get in, and even on the moral hazards we face. As long as the card is used wisely for an appropriate period of time, it isn’t necessarily bad. Any comparisons between US and Greece are, at best, premature.