Monday, 13 July 2015

Greece and the Treaty of Versailles

On the face of it, there may seem to be little parallel between Greece today and Germany in 1918/9. The entire circumstance of why they are having to deal with their neighbours in the international community of Europe is, of course, very, very different. However, the more time goes on the more I begin to feel that we may be repeating some of the most basic core mistakes of Versailles in the way that we (Europe) are dealing with the Greek situation.

Let's take a quick look back at the situation Greece has got itself into (and I think that we can conclude that it has, as a country, got itself into it, though there are other contributory factors). To put it bluntly, when it comes down to the very basics, it has been spending much more than it has earned in revenue. Now, of course, when fully assessing the history of the problem we have to look at the entire international situation, the banking crisis, and so on - Greece is not an island, so to speak. That's an academic argument, though - the basic fact is that Greece has reached the point it has reached, and we have to deal with the situation that it is now in.

Now I should preface any comments by pointing out that, as usual, I do not claim to have any kind of wondrous expertise or magical insight into economics generally (or anything else, for that matter). That's not why I'm going to say what I'm going to say at all! It's just that I have a growing feeling that the international community is making some fairly basic errors that have had some pretty catastrophic consequences when they have been made in the past.

The basic issue is this - Versailles and its aftermath demonstrated the possible, and indeed likely, results of pushing a people to, and over, the brink in effectively punishing them on an ongoing basis for the actions of their leadership (and even their support of that leadership). People do generally accept that if there are economic problems in a country it might lead to relative hard times and a tightening of belts and so on, but if they are pushed too hard they are understandably going to begin to want to 'fight back'. Pushing too hard creates public resentment and anger, and that is really not a good thing to have on a national scale - it creates the circumstances for a rise in extremism and perhaps even revolutionary politics.

In difficult times, the far right and far left always prosper - they seem to offer a variety of easy and emotionally appealing solutions to the very real problems. When things are good, or even just going OK, most people dismiss their radical ideas as being ludicrous, but as times get harder more and more people are looking for solutions, and more and more people begin to think that they maybe have a point (and historically they have been experts at capitalising on such feelings among the public). We are already beginning to see this kind of effect in the political landscape of Greece, and probably to a greater extent than in the UK, for example (it is certainly happening here to some extent, but not to that extent).

More radical political parties gradually gain momentum as resentment builds, and more radical governments begin to form and start to push against the measures being imposed from outside. As time goes on, it creates conflict with the international community and within the country, with different factions often demanding radically different radical solutions. There can really, I think, be little doubt that this effect, caused by the harsh terms of Versailles on Germany and its consequences for the German people, was a major contributory factor in the rise of a particular breed of politics and government, and all that came from that rise as they sought to make their country 'great again'. When you push a people too hard by grinding them into the ground ecomically, it is, I suspect, almost inevitable that they will try to 'take their country back', and defy those who are (from their perspective) 'oppressing them'.

We have thankfully, not yet reached the point in Greece that was reached in Germany a little under a century ago, but I think we really do need to heed that warning from history. It was a lesson that was learned by 1945 - the conditions imposed on Germany were very much less severe than at the end of the previous war, and rightly so. Instead of 'reparations', the post WWII emphasis was very much on 'reconstruction', and rebuilding a country that had been shattered by war. World leaders had learned from the previous experience of what happens when you harshly punish a people and push them into poverty. We can speculate that it wasn't exactly the most seamless of process, of course, with the dividing of the country for decades and so on, but generally speaking I think it's fair to say that Germany is now in a pretty good place because of it. I'm beginning to fear, though, that some of what was learned by 1945 has now effectively been forgotten.

Of course, it is a different set of circumstances that has led Greece to where it is today, but the basic principle is the same - if what is being done is effectively punishing the people, it could be a very dangerous thing. What I think we need to be doing is emphasising 'reconstruction' far more, and dealing with some of the fairly major long term internal issues that contributed to them being where they are today.

It has, for example, long been noted that some of the southern European countries did not go through the process of meritisation of their state bureaucracies in the way that is so taken for granted in much of the rest of Europe. It has also been noted that, perhaps as a result of this, there have been significant problems with issues like tax collection - to an extent, it's not just that tax rates in Greece haven't been allowing them to pay the bills for what they have been spending, but that too much of that 'theoretical' tax is not actually being paid and collected. This is the kind of issue that the international community needs to be emphasising when it comes to dealing with the Greek situation, in my opinion, rather than just looking at the figures and insisting on very 'austerity' to balance the books. Obviously a case can be made for suggesting that Greece should never have been allowed to enter the Eurozone before sorting out such internal issues, but again that is an academic exercise, because enter it they did.

Of course, some cuts and 'austerity' are ultimately going to be needed, but that's not something that should be rushed, or forced onto Greece in such a way that it massively punishes the people with a short-term economic slamming. It has to be more gradual than that. The people of Greece do need to get used to the idea that they can't go on as they used to do, because there isn't the money to do it, but pushing the country perpetually to the verge of bankruptcy, then pulling them back from the brink at the last second with a 'bailout' that imposes even more harsh financial terms is not the way to go about it. Greece, and its people, need to be given the right kind of long term assistance and opportunity to get themselves out of this situation, rather than being punished for having got into it through demands for repayment that they can't possibly meet without significant hardship.

As much as Greece, and the Greek people, have to accept that there needs to be long term change, Europe has to accept that such change will take time, and may require them also writing off chunks of the Greek debt to allow them to go through that process without the people suffering so much that they fell there is not alternative left but to push back and destabilise the country (and the Eurozone, and the EU as a whole). Whoever is ultimately 'to blame' for the crisis, Europe has to do better at realising that it is going to need to share the responsibility, and costs, of dealing with it in a balanced manner that doesn't decimate Greece and its people. Yes, it is an added cost that Europe as a whole has to accept - the costs of the alternative could be far worse, though.

Europe has to remember the lessons learned through the turbulence of the 20th century. You can't push people too far - they will fight back, and that isn't good news for anybody. We've already seen negative responses from a referendum on bailout terms, and in my opinion that should be taken as a very stark warning about how hard the Greek people are being pushed, and what therefore may possibly be to come if the emphasis doesn't begin to significantly change.

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