The Messiness of Euro-Democracy 1

What kind of democracy doesn't care what the voters think?

[Editor's note:  As we went to "press," there were reports that the Greek prime minister had canceled the referendum.  He is supposed to have said, in effect, "The opposition party is fine with the bailout; my party is fine with the bailout.  Why should we ask the voters?"  The opposition, knowing that the bailout is hugely unpopular and not wanting to share the blame, may back away from opposing the referendum.

"Why should we ask the voters?" being asked in Greece, the cradle of democracy, is nearly as surprising as the fact that most of Europe's great and good believed that a single currency union among countries with such different rates of growth could ever work.  We'll watch what happens and opine.]

USA Today reports that the Greek government has decided to hold a referendum to see if the Greek voters will go along with the bailout plan.

The European leaders who cobbled together a deal over dinner meetings in Brussels with bankers, investors and political elites to solve the Greek financial crisis and save the European Union forgot one thing: politics.  [emphasis added]

The New York Times asserts that some members of the Greek ruling party are angry enough to bring down the government and replace the prime minister:

Several lawmakers in the governing Socialist Party rejected Mr. Papandreou’s surprise plan for a popular referendum on the Greek bailout.

Every since they joined the Euro currency zone in 2000, Greeks have been living high on the hog based on borrowed money.  The elites who cobbled the single-currency Euro zone together lied - they told everyone that all Euro-denominated government debt carried the same level of risk.

The German economy was growing so the German government could borrow at low rates.  Having joined the Euro zone, the Greek government borrowed money at the same low rates the Germans enjoyed.

Let the Good Times Roll!

And borrow they did!  Like politicians everywhere, Greek politicians like to give away money to keep voters sweet.  Both parties stuff government employment rolls by putting supporters in cushy, no-show jobs.  The Wall Street Journal reported:

For decades, both the socialist party and the principal opposition conservative party have seized the opportunity, when in power, to pack the civil service with supporters. Greece now has thousands of teachers without classrooms and salaried bureaucrats with no job to do.  [emphasis added]

The result is both a bloated public payroll and, just as worrisome, a state sector ill-equipped to manage an epochal crisis.

Knowing that many "teachers" don't have to show up for work discourages the others.  Unemployed Greeks collect more than the average European working wage.  Government workers retire early on lavish pensions.  Lawmakers get free cars, get paid extra for attending committee meetings, and enjoy lifetime government employment after serving one term.

Greek government revenue simply can't keep up: Greek tax data show that Greeks have always been averse to paying taxes.

The London Telegraph reports that there are more Porsches in Greece than there are taxpayers declaring 50,000 euro incomes.  Depending on the exchange rate of the moment, 50,000 Euros is around $60,000.  There's no way that anyone who makes no more than $60,000 can afford a Porsche - these cars are clearly bought with income which the tax authorities have never seen.

As in the United States until the rise of the Tea Party, nobody besides a few curmudgeons ever questioned the wisdom of running such huge deficits or worried about paying back all that debt.

The Second Shoe Teeters

Unfortunately, all big-spending eras come to an end sooner or later, and the Greek crisis has been building for some time.

The first shoe dropped when the investors who bought Greek bonds to fund their spending spree realized that the Greek economy had no chance of paying back all that debt.  The question became, would the investors lose all their money through a Greek default or would the rest of Europe pay them back?

Most Greek debt was held by big banks in the rest of Europe.  If those banks lost all that money, their taxpayers would have to bail them out.  With elections coming, European leaders struggled to paper over the hole in Greek finances without having to ask their taxpayers to cover the bill, at least not until after the next election.

The Times explained why the European leaders who cobbled together the deal are in such a panic:

The big fear is that a decisive turn against the bailout package in Greece could undermine European efforts to enforce deep budget cuts in other heavily indebted European countries, especially Italy ... [which] has a far larger economy and much more debt than Greece. [emphasis added]

All Western democracies tend to spend more money than they take in as tax revenue.  Citizens like spending, don't like taxes, and vote accordingly, so governments have to make up the difference by borrowing.  Cuts are inevitable when the money runs out, but nobody wants to cut anything, ever.

Just One More Dance...

The music stops when nobody will lend any more; whoever's in office at the time loses the next election.  Quite rationally, the ruling elites always kick the can down the road, hoping to buy enough time to get past the next vote and make sure Someone Else is at the helm when it all caves in.

France and Germany together can't pay all the Greek debt and all the Italian debt; their leaders will be voted out of office if they try.  Investors know this, and are demanding very high interest to lend to either of those countries since they have no great confidence of ever seeing their money back.

The great Euro-elite hope was that by making enough promises, France and Germany could persuade the investors to roll over their debt yet again and put the crisis off a while.  Who knows?  Maybe the economy might improve in the meanwhile and kick the can down one more election cycle.

As USA Today pointed out, however, the French and German elites forgot Greek politics.

Part of the deal was additional cuts in welfare benefits and state jobs for Greeks, as well as succumbing to the EU budget monitors permanently placed in Greece to see that they lived up to the terms of the agreement, a concession to Germany that rankled the public.

Nobody has formally asked French, German, or Greek voters what they thought of the bailout plan; President Sarkozy of France and Chancellor Merkel of Germany cut a private deal without consulting the unwashed masses.  Greek voters expressed their opinion by rioting, but they, too, have been shut out of the negotiations: seems the Greeks are balking — ducking for political cover by giving Greek voters, until now lacking a place at the bargaining table, a chance to be heard, analysts say.  [emphasis added]

Throw the Rascals Out!

Of course Greek voters will balk.  The rest of Europe has demanded drastic spending cuts and huge tax increases and wants them enforced.  Polls show that at least 60% of Greek voters oppose the loss of sovereignty implied by having unelected European bureaucrats control Greek spending for the next few decades.

Having become accustomed to their government spending far mote than they pay in taxes, the Greeks are not interested in having benefits cut or taxes raised.  As one voter put it,

“This deal, like all the others, is a life sentence of austerity for Greeks.  We need to reclaim our country.”

- New York Times Quote of the Day, Nov. 2, 2011

Nobody else has explained where the money will come from to maintain the Greek lifestyle; why should we expect this voter to know?  The Times observes that governments generally fall in such times:

If Mr. Papandreou’s government falls, it would not be the first one in Europe to be toppled by the austerity demanded by European debt relief. In Ireland and Portugal, governments fell after accepting bailouts from the European Union and the I.M.F., and last month the Slovakian government fell over a vote on whether to participate in the European Union’s rescue package.  [emphasis added]

We saw this on a smaller scale in the experiences of the Occupy Wall Street campers.  When the OWS crowd started giving away free food, they attracted crowds who a) didn't support their political objectives, b) were ungrateful for what they received, c) stole whatever they could grab, and d) became disorderly when the food ran out.

Some Greek politicians don't want voters to have a say - several members of the ruling coalition have told the Prime Minister they'll vote "no confidence" if he presses ahead with the referendum.  Opposition parties oppose most of the austerity measure, but haven't explained how the government can pay its bills without the bailout.

Let's sum up the situation:

  • Like the American government, the Greek government and the governments of Italy, Portugal, and Spain have become accustomed to spending far more than they take in via taxes.  They've spent so much that there's no way their economies can generate enough tax revenue to pay the debt.
  • The French and German ruling elites don't want those governments to default because most government debt is held by banks in France and Germany.  Bailing out their banks would cost more than their voters will tolerate.
  • Investors won't lend to these countries at reasonable rates unless they see a near certainly of getting paid back.  The interest rates they're demanding suggest that investors think Greece will default in 2 or 3 years at most.
  • Greek voters are very unhappy at recent tax increases.  Americans don't like tax increases either - the Denver Post reports that voters rejected a statewide tax increase by more than 2:1.
  • Greeks and British are rioting against spending cuts.  It's not clear that any elected government can sustain the cuts that will be needed to avoid investors losing money.
  • Knowing that the US can't help, the Europeans have invited the Chinese to help out.  The Chinese are reluctant to throw their money down the European rat hole but are sorely tempted to exercise the economic power that's theirs for the taking.

Having set the stage in this article, the next article in this series explores some of the possible outcomes.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Foreign Affairs.
Reader Comments

The situation is yet another example of government trying to run an economy. This mess did not start with that aim but people being people, the temptation to make people like them, the elected gentry, they borrowed and spent money that was not theirs. Now the chickens have come home to roost.

Greece has people on the government payroll that do not have even show up for work much less produce anything, those that do work pay little or no taxes and the people in office have a lifetime pension just to iterate a few of Offensicht's points in his article. The producers of Europe are afraid that if Greece defaults their banks will lose money and they will have to bailout the banks which in turn results on a tax on their people.

As I recall about a year and a half ago the Greeks were granted a bailout of about 120 billion euros. Their total debt is now 480 billion euros. There are roughly 11 million Greeks. This is unsustainable. That works out about $44,000 per Greek citizen.

As the can is kicked down the road the situation is delayed but not solved. What to do? In my opinion allow the Greek citizens to have a vote. They will inevitable vote for the can kicking scenario and then Europe should bite the bullet. Allow Greece to leave/be kicked out of the eurozone and fend for themselves. In Greece cut taxes to zero, only have revenue for the government generated by tariffs and consumption taxes with government employment the exception rather than the norm. This would be accomplished by not paying the people to do nothing, they would leave. A new government would have to be formed based on free market principles. If the Greeks would do this they would become the wealthiest country in Europe. It won't happen as they are addicted to the government like a crack addict is to his/her fix.

What would happen to the French and German banks if the above were to occur? The leaders would be kicked out of office as they should be. Perhaps the people would be introspective and decide that what happened in Greece could happen to them. Probably not because crack is hard to get off of. To attempt to regulate life and economy has been tried in the past with a 100% failure rate so why should this time be different. This attempt to consolidate the Europeans has long been a dream of the intellectual elite (kinda sounds like the group out of our Northeastern universities). In reality they are like Libya is described in being a diverse bunch of tribes with different agendas and aspirations. Europe like Libya will be a mess until the natural rights of the individual are restored and enforced. Mankind if left alone will work it out as he will do what is in his best interest and will become more productive which in turn produces more wealth than any government regulation could ever do. Mankind has to have faith in himself.

As a side note look at the parallel of the US to this mess. We owe $15 trillion. We spend 40 cents out of every tax dollar on debt alone. What would we look like as a country if we paid off that debt? Can you even imagine what could be done with the 1.5 trillion that we spend on interest each year? Left in our pockets each American would have more, a family of four each would have $45,000 less in debt or $180,000 at their disposal and have little tax obligations every year. Prediction: The US will become Greece as we, like all people, love something for nothing. Where, Who, and When will John Galt come back?

November 4, 2011 12:15 PM

The EU prevents the normal solution to this problem - inflation, by lumping so many different economies together. The cure, as Bassboat mentions is sovereignty for Greece. As a sovereign nation what goes in will equal what goes out as controlled by the free market. Greece spends more than it has, then inflation balances the books and those government payrolls start looking skimpy when the cost of food doubles and triples.

Were it not that the Dollar is still the world's currency, we would be in the same boat. Fortunately for us, the rest of the major countries in the world are a tad bit worse as governing than we are. As I told my late good friend, I don't have to out run the bear, I just have to out run you. Our house of cards will fall as soon as there is a more stable currency than the dollar. It looks like the Euro has no chance. But, if the Chinese play their cards right, they might be able to collapse our economy by replacing the Dollar as the most secure currency in the world.

That is why this next election is so important. We have to get this economy going and growing or start learning Mandarin.

November 4, 2011 4:05 PM


Well stated.

November 4, 2011 6:37 PM
Add Your Comment...
4000 characters remaining
Loading question...