Spoiled child goes to the market: two conflicting narratives about the fall of Greece

Are the Greeks the victims of unjust circumstances, or are they sinners for whom paytime is justly at hand? The international discourse about Greece has been debating this question since the beginning of the Greek crisis in 2009.

Most economists generally focus on the inherent errors of the euro to show that Greeks, not unlike other people in the European periphery, were doomed to be the ultimate losers of a common currency which lacked federal institutions for fiscal and monetary policy. In its purity, this is the “economic narrative” that steers clear of cultural and political idiosyncrasies. After all, Italy, Spain, Portugal, Ireland and Greece are all quite different and yet they have ended up in a similar mess. The theoretical basis of the “economic narrative” is to look macroscopically at the economic forces that led, inexorably, to the current situation: a small, uncompetitive country burdened with a debt that it cannot possibly repay and whose default threatens the future of the Eurozone.

Political scientists and cultural moralists offer a different narrative for the Greek tragedy: Greeks are like a spoiled child that cooked its books and grew fatter with cheap loans it never deserved. Then, when it came time to pay, the spoiled child threw a tantrum (elections of May 6) and cried ” no”. Furthermore, the brat demanded that its creditors should keep on feeding it, or else all hell may break loose upon them. The rise of the Greek Left (Syriza party – close to 26% of the vote), as well as of fringe parties to the Right like Golden Dawn and Anexartitoi Ellines (together around 15% of the vote) seems to confirm this “cultural” narrative. Interestingly, what all these parties have in common is a belief in conspiracy theories: the “West” is trying to destroy Greece because it is jealous of its past glories, “market vultures” have their eyes in the “rich” oil and gas deposits in the Aegean, etc. They also share a belief that it is all a poker game and that Greeks ought to call Europe’s bluff.

The latest furor about the comments of Christine Lagarde, head of the IMF, is telling of the conflict between the two narratives. Lagarde took the cultural moralist position when she admonished Greeks for their tax evasion habits. Interestingly, voices to the defense of the Greeks rose mostly from the political left of center. Market ideologues and liberals, presumably closer to IMF’s economic philosophy, stayed numb and silently approved of Lagarde; which goes to show the amount of confusion that exists with the two conflicting narratives.

Like in physics where we have two theoretically unreconciled narratives (General Relativity and Quantum Mechanics) that describe the world, so in the case of Greece we have two narratives that confound us with an explanation gap. The “economic narrative” shows Greece as a victim while the “cultural narrative” presents it like a dishonest player that must be punished.

Many may rush to suggest that there is no explanation gap. In fact, many analysts have been trying to combine the narratives by suggesting that the political and social culture of Greece is what caused the huge debt as well as the current crisis of trust. However this causality claim is paradoxical. Because if we take the position that the cultural idiosyncrasies (e.g. tax evasion, rent-seeking state, tendency to believe in conspiracy theories, etc.) of Greece have led it to the current mess then we implicitly accept that market forces do not apply equally to everyone, but are subject to cultural differences. If this is true then economic theory becomes culturally relativistic.  The consequence of this is not trivial; the international system of credit is based  on assumptions about a market where players act according to their self-interest, not according to their cultural characteristics. If the latter is true, then there would always be people and countries, like Greece, which will be branded by cultural moralists as “beyond market repair” , and be doomed as the eternal pariahs of the world economy. Alas, such a conclusion begs the obvious – and rather troublesome – question: by what, or whose, criteria should we choose the cultural moralists in a world of cultural relativism?

The end of Europe?

What a fine mess we’ve found ourselves in! Following a confusing election result and the incapability of Greek politicians to manage a crisis Greece is heading for the Grexit, the exit from Euro. Spain is on the brink of financial meltdown. Hollande braves storms and thunderbolts to fly to Berlin and convince the German austerity ideologues that the ECB needs to start printing money as soon as possible.  Commissioners and ministers speak in many tongues, and by that I do not mean different languages. Everyone is buying for time till July 1st when the European Stability Mechanism comes into force, but it is doubtful that the markets will wait till then. Could this be the dawn of Euro-Armageddon?

The nightmare scenario is this: Greece dances its way to a new election in mid-June, by which time money runs out. Salaries and pensions are not paid. There are bank runs and the banking system fails. People take to the streets. There are pockets of civil strife. The army is asked to intervene.  Meanwhile, people in Portugal, Spain, Italy and Ireland go to their banks and ask for their money fearing (quite rightly) contagion in the banking system. The domino effect, coupled with market worry that this is worse than 2008, sends the world economy back to recession. Obama is set to lose the election as unemployment in the US begins to soar. Germany, seeing that it is no use trying to shape the unruly southerners according to her image bites the bullet and does what it always wanted since the end of WW2: go its own way. Europe is again cut in half, or in several quarters if one adds Britain pulling out of the EU, France trying to pull the south together in one last-ditch attempt to suck up to the Germans, and the Balkans tail-spinning once again into chaos.

And all that because two years ago the wise heads in Berlin and Brussels decided to make an example out of Greece, instead of acting responsibly and trying to minimize as quickly and as effectively the fallout of the relatively small (by EU size) Greek debt.

Hope is the last to die, as they say. Indeed there might still be a chance to save Europe. But that will mean Germans start thinking like the rest of us, and the rest of us start thinking like the Germans – a tough task for all concerned.

What a pity if a year from now we look back to the 1990s and the 2000s with wistful eyes, and think of them as the best two decades the world had ever had…