The Only Leader Who Understood Greece's Real Problem Is Resigning

Greek Prime Minister George Papandreou seemed to grasp what others in Europe are missing: finances are only a symptom of Greece's broken society

Greek Prime Minister George Papandreou seemed to grasp what others in Europe are missing: finances are only a symptom of Greece's broken society

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In August 1992, a man named Stefanos Manos landed a job as the finance minister of Greece. He had been in and out of Greek politics since 1977, but Manos finally had the job he wanted and the platform to pursue something he'd evangelized for a decade: privatization. The Greek public sector was enormous and growing ever-larger, beyond what Manos believed was sustainable. But the problem, as the journalist Michael Lewis reported for his new book Boomerang, turned out to be worse than probably even he had imagined. After looking into Greek finances, he announced that he'd discovered, among other things, that the Greek national railway was so poorly run and its public employees so overpaid that it would be cheaper for the state to shut down the railway entirely and give every customer taxi fare to their destination. The situation is not much better today: the Greek railway has 700 million euros in annual expenses, 400 million euro of which go to pay its employees, against 100 million euros in income. Manos warned them, but Greeks didn't want to listen, and 15 months after he took office he was forced to resign.

This weekend, Greek Prime Minister George Papandreou announced that he will resign once he and the Greek Parliament can finalize details on an emergency election and interim government to lead the country through the tumult of severe austerity and an increasingly certain default on the country's massive debts. Papandreou has been pelted by criticism from Greeks for accepting European-imposed austerity measures and from Europeans for scheduling (and then cancelling) a Greek referendum on whether to accept the austerity measures. The Prime Minister has two constituencies right now -- Greek citizens and European Central Bankers -- and he's not pleasing either.

But Papandreou seems to understand something that Stefanos Manos had hinted at 20 years earlier: Greece's problem isn't financial, though that's certainly a symptom. A few thousand years after Greeks invented Western civilization, the basic premise behind it has broken down: the Greek individual and the Greek state no longer work in concert. Over the past generation, Greece has been slowly devolving into a state of quiet anarchy. Maybe the soon-resigning Prime Minister understood this as well as he appeared to or maybe he didn't. But whoever succeeds him will have to address Greece's growing ungovernability before he or she can hope to fix its finances.

Papandreou's possibly most controversial move since his country's crisis began was his decision to schedule a popular referendum on the European Union bailout, which would also mandate severe and unpopular austerity measures. The referendum enraged Europeans, who feared that Greeks might unwisely reject the bailout, leading to a much harder default that would harm the entire continent. And, even if they did pass it, the delay would add unneeded instability to the already dangerously shaky European markets. There seemed to be little point beyond giving himself some political cover. But, whatever his actual motivation, Papandreou's referendum would have done something that Greeks badly needed: rebuilt some of the lost relationship between the Greek people and their state.

European Central Bank critics were missing the point. Though a bailout and austerity might help Greek balance sheets, they would do little to resolve the underlying crisis: Greek people were out for themselves. The Greek state, simultaneously attacked by so many of its citizens, was unable to defend itself. Greek public sector workers had teemed up to exploit wildly inflated salaries and benefits that the state could not afford. Private sector workers became such incredible tax cheats that the state had less and less revenue to pay out its expanding bills. At home, cheating was common for everyone: Athenian taxpayers declared 324 swimming pools, on which a tax is levied. But a study using Google Earth found that Athenians actually have 16,974 pools. Only one in about 52 Greeks in this particular sample size and on this particular issue, it seems, was honest about their taxes.

People are honest to the tax man for two reasons, one conscious and one often less conscious. The first is that it's the law -- dodging on your taxes can land you a fine or jail time. The second is that you recognize it's part of your unstated compact with your government and with the society around you. Your country might not collapse if you lie a bit about withholdings, but it will if enough people keep back enough tax dollars. It's in your interest to sacrifice a bit of your own money to the larger collective, and most people in developed societies recognize and consent to this. We consent to be governed. But, at some point along the way, Greeks withdrew some of that consent. The state wasn't something they sacrificed for; it became, as Michael Lewis put it, a pinata.

This is part of why Greek people are so angry about the imposed austerity cuts, irrational though that may seem to an outsider. No one Greek broke the state. An individual person or family simply found themselves within a system that encouraged cheating and exploiting from the state and discouraged honesty or self-sacrifice. You saw something like this after Hurricane Katrina hit New Orleans, where it broke the social code, among other things. Before the storm, New Orleans residents had largely observed the law. But when so much of the city began looting grocery stores to secure enough food to survive, a lone individual -- even if he or she wanted to be honest -- suddenly had every incentive to join the looters. The federal government didn't announce it was arresting thousands (or tens of thousands) of Orleanians for looting; it recognized the problem was a broken social compact and sought (however poorly) to fix the underlying issue. So while the European Central Bank's imposition of austerity measures on Greece is entirely reasonable, it only addresses the symptom of Greece's problem.

Papandreou's referendum wouldn't have fixed that problem, but it would have at least addressed it. A nation-wide vote on accepting a bail-out that Greece clearly needed would have forced every Greek voter to decided, individually, if he or she consented to the Greek state and was willing to make the necessary sacrifices to keep it alive. It would have forced them, in other words, to acknowledge that they are part of a collective that will stand or fall on individual behavior. This wouldn't have ended the quiet Greek anarchy, but it would have been a step away from it.

Even the Greek Prime Minister's pledge to resign will help move Greece a step further from anarchy and toward national collaboration. The conditions of his resignation -- a Parliamentary deal on an interim government and national elections -- forced the conservative opposition to work with Papandreou on forging the new government, making them complicit in Greece's governance. As in the U.S., the Greek political opposition had been consent to sit on the sidelines and pelt the country's leadership rather than participate in actual governance. Now they will have to join in making the hard and necessary choices about how to best keep Greece afloat.

If the European Union is going to survive, Greece will have to begin remedying its real problems -- not just its financial ones, which will surely repeat if the underlying social issues remain. For any society to function, its people must consent to be governed; Greeks have been giving less and less consent for years, something that did not become clear until its financial crisis. Papandreou tried to bring the Greek state and people back together, something that will takes years to actually accomplish. If his successor is to carry on this mission, he or she will need the European Union's support. They should give it, and not just because the EU relies on Greek financial stability. Italy is showing similar breaks in the social fabric; corruption is on the rise and the political system appears less and less capable of governing. Italy is the world's eighth largest economy, larger than India or Russia. It's too late for Europe to prevent Greek financial anarchy, but it might have time to at least learn from it.