Patrick Cockburn: Greece sells its independence to escape the burden of debt

Special Dispatch: In the birthplace of democracy, self-determination has lost out to economic dictats from abroad. And, as ever, it's the poor who suffer the most

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Greeks expect to agree a deal with the Eurozone leaders tomorrow that will cede much of their country's independence. Greece will become an economic – and to a large extent a political – colony of Germany and its allies. Berlin will have a say in everything from the choice of prime minister to the types of medicines dispensed by pharmacies.

In return for €230bn, made up of €130bn in fresh loans and €100bn in write-downs on privately held Greek government bonds, Greece is relieved from its immediate debt burden. But the money does not go to the Greek government, still less to the Greek people. It simply leaves them to live off the money they earn.

For all the television pictures of rioting protesters, clouds of tear gas and burning buildings in central Athens over the last week, a striking feature of the political landscape is the lack of resistance to the German terms. The Greek political elite sound and look stunned, grudgingly surrendering to the demands of the Troika (EU, IMF and European Central Bank), but bereft of ideas about what else to do.

The two political parties that have dominated Greek politics for 30 years, the centre-left Pasok and the conservative New Democracy, do not come out well from the crisis. Tasos Telloglou, Greece's top investigative journalist at Skai TV who has exposed many corruption scandals, describes the members of parliament as "fat and lazy [people who] only worry about how to get back to where they were four years ago before the crisis". He says both ruling parties, which have alternated in power since the fall of the military junta in 1974, have privately agreed to continue their coalition after the next election, which is expected in 10 weeks' time.

His view of Greek voters is almost equally contemptuous. They too, he says, yearn for a return of the good times when Greece had the same AAA credit rating as Germany. He says: "We wanted to have a European income without having European productivity, so we just borrowed money." But lenders will avoid Greece for a long time, so there can be no return to the living standards enjoyed before 2008. Mr Telloglou quotes approvingly the Greek saying: "You can turn an aquarium into fish soup, but you cannot turn fish soup into an aquarium."

The mood of the political leadership is one of fatalism and despair. Simos Kedikoglou, a New Democracy MP, says of the parliamentary vote on the deal a week ago: "We had to choose between the certainty of disaster and the doubt of salvation. You can't be independent when you have to borrow €20m a day. We're in an awful shape. We don't produce anything, not even the meat we eat."

But there are clearly other motives behind the radical changes now being imposed on Greece. "It is like undiluted Thatcherism forced on the country in a few years," said one observer in Athens. For instance, the minimum wage is to be reduced by 22 per cent to €522 a month as part of the latest austerity round. The Troika believes this will increase employment, but Greek economists disagree, saying that Chinese or Bulgarian workers will always be paid less. Greeks will not get jobs for the same reason that the Greek merchant navy employs Filipinos below the level of captain and chief engineer. Cutting the pay of poorly paid state employees will also do little for Greece except reduce consumption and increase misery.

Part of the explanation for these measures is probably that German leaders want to prove to German voters that they are giving the Greeks a rough time and not allowing them to guzzle German subsidies. The punitive nature of the Troika's reforms also reflects a wish to send a message to heavily indebted Portugal, Spain, Italy, and Ireland not to dare take the Greek option of what is effectively a managed default on its debts. Even the rude things said by German and Dutch politicians about Greece last week served the purpose of showing their domestic audience that they were not being taken to the cleaners by the wily but improvident Greeks.

But on the back of the austerity programme rides a neo-liberal vision of how the Greek economy and society should be run. It sounds and looks very much like what was applied in Russia under Boris Yeltsin after 1992. There will be widespread privatisations; cuts in social security, pensions and state health provision; and wholesale deregulation. Many on the right welcome these reforms. Vagelis Agapitos, a financial consultant in Athens, looks forward to the day when houses, hotels, wind farms and fish farms can be built without any troubling regulations or permits. Archaeological surveys would be dropped. "We don't need another sculpture from [ancient] Greece," he says. "We need to break the taboo that public employees work for life."

One reason for the mess Greece is in lies in its recent history. After a ferocious civil war between Communists and their enemies, beginning in 1946, the victorious right was wholly dominant up to the fall of the colonels in 1974. Ship owners and bankers, often products of the Greek diaspora and detached from the home economy, were gently treated. So too were small shops, professionals and businesses, which paid little tax. Greece never enjoyed the sort of post-war social compromise seen in the rest of Europe, where liberal capitalism was balanced by commitments to workers' rights, social spending and the welfare state.

In the early 1980s, Greece shifted to the left just as Reaganism and Thatcherism were taking hold in the US and UK. Pasok was in power for most of the next 20 years and built up state spending on social welfare and a system of political patronage. Unsackable employees worked in redundant industries. Pasok never reformed the archaic state it had inherited, so professionals and property owners went on paying few taxes. Some 94 per cent of Greeks claimed to earn less than €30,000 a year. It is only over the last year that the Troika forced banks to disclose the real income of their customers, rather than what they were claiming for tax purposes. A list shows a hairdresser who earned €423,000 but declared just €35,000, and a gynaecologist on €1.3m who declared only €877,000.

This welfare state for the rich and the poor could only be sustained by borrowing. It is now being dismantled. But, as one Greek academic said: "In Greece only the weak and the poor get punished."

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