Kostas Karamanlis - Greece's Gravedigger?

Kostas Karamanlis, Greece's Prime Minister from 2004-09 and, since then, a member of the Greek Parliament recently announced that he would not run again in the upcoming election, thereby "completing his parliamentary career." This announcement re-awakened discussion about the Karamanlis government's role in and responsibility for Greece financial crisis which broke out in 2009 and culminated with the signing of the first Memorandum in May 2010. 

In a lengthy analysis, the blog Macropolis described "How Greece sleepwalked off a cliff in 2009, in black and white." The facts they present there are totally convincing: if ever a government had intended to take an entire country down the tube in grandiose style, no one could have done it better than the Karamanlis government from 2004-09. Incompetence was compounded by irresponsibility. In short: Kostas Karamanlis was the gravedigger of Greece.

The conservative Ekathimerini could not let that stand. Since it is hard to debate the facts, they counter-argued on a philosophical level in a short opinion piece: "It is easy, hypocritical and unfair to target this or that former PM as solely responsible. It is much more difficult to root out from politicians’ and society’s DNA the components that can easily bring us back to the brink of bankruptcy at some point in the future."

Be that as it may, the past is the past and a discussion about it is only warranted if relevant lessons for the future can be gained from it. Macropolis argues that a most important lesson for Greece should be derived from the past, namely: if you want to avoid crises in the future, you should have a good and accurate understanding of what caused the crisis of the past. On this issue, Macropolis passes harsh judgment about Greece's political class and Greek society in general. To quote:

"All these years, Greeks have been fed a diet of half-truths, conspiracy theories and witch-hunts that mainly aimed at deflecting the attention and discouraging any serious debate about what happened in 2009. All sorts of ridiculous claims have been thrown around, from a global conspiracy to steal the country’s “rich natural resources” to scapegoating the head of the statistical office even though he hadn’t even started the job when the events unfolded."

This inability to deal rationally with the past bodes ill for Greece's future, according to Macropolis. They put the focus on 2 individuals who can/will make a difference, or not: Kyriakos Mitsotakis and Alexis Tsipras. Both could have and should have, in the last decade, lead Greece though the catharsis which, according to Macropolis, is necessary - but they didn't. And if they cannot accomplish that going forward, Greece's prospects look grim, according to Macropolis. To quote:

"Nearly a decade later, the two leading figures from Greece’s political class have been unable to lead Greece through the catharsis that is necessary. Despite representing the younger generation, they seem unable to enlighten voters and both are trapped by political miscalculations and internal party dynamics. Alexis Tsipras’s strategy to gain power was to focus on a different enemy, while placing the Karamanlis era and the man himself well away from the firing line. Kyriakos Mitsotakis, meanwhile, cannot amass the courage to accept his party’s clear responsibility without qualifying it with weak excuses that seek to deflect blame. If these are the two men who are supposed to take Greece into a new era, leaving behind the trauma of the crisis, the country’s prospects look grim."

Since I ran this blog very actively from 2011-18, I tested my memory to see how I would come out on the above issues and below is my summary.

While I totally agree that the Karamanlis government, with its totally irresponsible financial conduct, put the final nails in the coffin of Greece's sudden stop, I think more context is necessary. It all started  in 1981 when Greece joined the EU and Andreas Papandreou assumed power. Papandreou introduced a deadly mix of a bloated and inefficient welfare state with stifling intervention and overregulation of the private sector. EU membership, at the same time, increased Greece's "creditworthiness" and foreign funds flowed into Greece to pay for these excesses. Furthermore, EU membership brought along the "Four Freedoms" (free movement of products, capital, services and people) and the Greek economy was definitely not prepared for at least two out of these four (free movement of products and capital). 

According to Prof. Aristides Hatzis, the political legacy of Pasok was even more devastating in the long-term since its political success transformed New Democracy into a poor photocopy of Pasok. From 1981 to 2009 both parties mainly offered populism, cronyism, statism, nepotism, protectionism, and paternalism. The net result was the outcome of a disastrous competition between the parties to offer patronage, welfare populism, and predatory statism to their constituencies. The Spraos Report of 1997 warned of a collapse of the Greek pension system. The head of the Greek Trade Union Confederation reacted: "The Spraos Report suggests that the Greek Pension System will collapse by 2010. Well, before the Greek Pension System collapses, the Greek State will collapse". Well, as it turned out, both happened (but the Spraos Report was forgotten). 

In short, the turning point in Greece's economic and political development was 1981 and already within the following decade, one could see that Greece had embarked on a path which would potentially lead to disaster. In October 1993, a young professor at an Australian university described the Greek economy as being in 'terminal decline' and he expressed great pessimism that this could ever be reversed. His name was Yanis Varoufakis.

And then came the Euro! Whereas the common currency was expected to impose constraints on any Greek profligacy, the opposite happened. Whereas EU politicians thought that a 'no bail-out clause' would constrain financial markets, the opposite happened. The politicians bluffed the financial markets ("there will be no bail-out's") and the financial markets called the bluff. In the end, the politicians blinked first (and almost immediately). 

All of the above gave Greece almost a full decade (the 2000's) of literally unlimited foreign credit and money flowed into Greece like there was no tomorrow. The money was used to finance budget deficits, current account deficits and to provide funding for Greek banks which, in turn, pushed consumer credits to the Greek public. In short, the bulk of the money was used for consumption. From 2001-10, the accumulated current account deficit was 197 BEUR (!). Imports during that time were 446 BEUR (!). Foreign debt had increased from 121 BEUR to 404 BEUR (!). 

Kostas Karamanlis would have had to have the leadership profile of his uncle Konstantinos Karamanlis (who returned Greece to democracy after the junta) in order to have at least a chance to slow down this development, not to mention stopping or even reversing it. And that might not have worked because Greek politics and society in general in the late 2000's had been pervaded by 30 years of irrational conduct. 

On one point, Kostas Karamanlis deserves credit. If a Greek leader had decided, in the late 2000's, to bring this mad, 30-year odyssey to an end by pushing the country down the tube and if, in true Greek drama fashion, he was going to do that in grandiose style, no one could have done that better than Kostas Karamanlis.