George Papaconstantinou has been through hell. His reputation as the finance minister who cowrote and signed Greece’s first bailout agreement with the eurozone in the spring of 2010 cost him his cabinet post the following year and his parliament seat the year after that. He spent the next three years fighting charges that he tampered with state documents to help relatives evade taxes, which could have jailed him for life.
During all this time, Greece went through four changes of government, each bringing more pain and austerity than the last, while its recession spiraled into a full-blown depression. Both socialists and conservatives found it convenient to make a sacrificial lamb of Papaconstantinou as the bringer of austerity. Under indictment, it became impossible for him to appear in public because he was openly vilified; unable to do so much as take out the trash, he lived effectively under house arrest.
Last year, however, the supreme court acquitted him, and Game Over is Papaconstantinou's moral comeback: an attempt to pare away the paranoia and suspicion that have hounded him and recast the record of his time in office—from October 2009, when the socialists swept to power, until June 2011, when he was ousted—on the basis of fact. "For five years, I believed reality was so compelling that it would shape attitudes," he says. "Instead, common sense and pragmatism gave way to conspiracy theories and hatred. . . . I was amazed by the power of populism in shaping people's minds."
That populism filled the body politic throughout the crisis like seawater pouring through portholes, sinking government after government. Papaconstantinou describes accurately how this lack of bipartisanship not only raised the political mortality rate but also scuttled Greece's negotiating position at critical moments. "The power of experience is immense," he says, explaining why Greek voters constantly fell for false promises. "What you do not experience has no comparable weight."
Papaconstantinou correctly blames the factional, egomaniacal, and populist character of Greek politics for Greece's failure to face a national crisis with a national front; but he omits to mention that his own party behaved in exactly this way when in opposition, killing crucial education reforms in 2005-06. He also fails to mention that it was the socialists who instituted deficit spending on a massive scale in the 1980s, setting a standard for the profligacy of future governments that led to today's 328 billion euro debt.
As a member of the Eurogroup—the informal council of eurozone finance ministers—Papaconstantinou also provides an insider's account of the painstaking process through which the eurozone gradually realized that it had to provide a distress fund for Greece, later enlarged to cover other governments priced out of the money markets.
The idea that wealthier eurozone members never came around to, however, was that some sort of debt reprofiling would be necessary to give underwater eurozone economies time to rebuild growth. This is because Angela Merkel and other fiscal hardliners, such as Finland and the Netherlands, accepted the distress fund only on condition that their taxpayers would recoup their money. Rescheduling the debt of Greece would amount to a transfer. The eurozone instead forced heavy losses on private holders of Greek bonds in 2012, which made markets even more skittish.
Game Over does more than portray a eurozone led by markets, its policies slithering on the belly of necessity. It tracks how the sovereign debt crisis elevated Germany to the status of indispensable monetary power with the ability to veto ideas (such as debt rescheduling) it doesn't like. The International Monetary Fund now asserts that Greek debt is not sustainable and suggests extending Greek repayment schedules to the end of this century. The German government has single-handedly postponed any such discussion until after it has faced parliamentary elections in late 2017.
By the time Greece signed its third bailout agreement last summer, it had already defaulted on the IMF with no visible repercussions from markets to other eurozone economies. The systemic risk of letting Greece default is now, provably, zero. The German finance minister Wolfgang Schäuble had first suggested, in September 2011, that Greece take a leave of absence from the euro. By denying Greece a debt reprofiling, he now appears to have set the trap for Greece to abscond. Sacrificing the Greeks helps keep other eurozone economies in line. Since Ireland, Portugal, Spain, and Cyprus have returned to markets, the Greeks can be blamed for their own fate.
ould Greece have spared the eurozone all this trouble—and preserved its sovereignty in the process? And could it have renegotiated its sovereign bonds without calling the eurozone's credibility into question? Game Over is too much a defense of what Papaconstantinou did do—cut the deficit by more than a third and begin the process of liberalization—to address the broader issue. He could have slashed spending while counterbalancing the recessionary effect of austerity, but only by overhauling markets and cutting back the state on a revolutionary scale, something that ran against the consensual instincts of Prime Minister George Papandreou.
Modernizing Greece incrementally has been painful. In 2008, at the height of its borrow-and-spend profligacy, Greece took 57 billion euros in tax revenue from an economy worth 242 billion euros. Seven years after Wall Street's financial meltdown, the economy had shrunk by 27 percent to 176 billion euros, but tax revenues were only marginally lower at 51 billion euros. The Greeks are paying more or less the same taxes on much lower income. That transition is on the European statistical record: In 2008, tax revenues represented 32 percent of the economy compared with an EU average of 39 percent. Last year, they were 39 percent, compared with the EU average of 40 percent. A pension reform passed in May will raise the tax burden further. Looked at from an individual standpoint, too, Greeks are now as highly taxed as anyone in Europe: The average single worker pays 39.3 percent of income to taxes and social security in the latest OECD figures to be released.
This was done by constantly shifting the tax focus. As unemployment rose and revenue from personal income tax slipped—from 11.6 billion euros in 2008 to 7.8 billion euros last year—governments raised the sales tax and consumption taxes to make up the difference. But consumption and sales, too, fell after 2011, so new taxes were introduced—principally on labor and property.
Greeks survived all this partly by tightening their belts, partly by spending their savings (bank deposits have fallen by 60 percent during the crisis), and partly by working and trading in an extensive black economy. It is this last, difficult-to-quantify aspect of Greek survival that has encouraged hardliners among Greece's creditors to keep pushing for higher taxes, evidently believing that taxes that look unreasonable on paper work in practice because they draw on unregulated income. Thus, under the government's latest pension reform, workers are called upon to pay 24.5 percent of their income towards social security, 7 percent towards the national health system, as well as a 22-45 percent income tax.
The effect of these taxes is to push Greeks further from regulation and destroy any culture of payment. By assuming dishonesty, it is cultivating it. Those who don't go underground go abroad. A recent survey by Endeavor Greece, a nonprofit promoting high-value startups, found that 4 in 10 businesses are thinking of relocating abroad for tax reasons, up from a quarter last November. Capital drain was preceded by brain drain. Greece's statistical agency has found that Greek society has suffered a net loss of 270,000 people since 2008. In short, the declared economy is disintegrating, and as a result, so is society. Live births have been falling since 2006; three years ago they slipped below the death rate and are still falling.
Greece does need more austerity, but that now needs to be focused solely on shrinking the bloated state and using the proceeds to provide a survivable environment to businesses that want to stay honest. Before the crisis, one in four employed people worked for the public payroll. Today, that is still the unacceptably high ratio. The ruling Syriza party will not rectify this because it is a defender of big government. Honest and hard-working Greeks are thus forced to bear the weight of Syriza's promise to protect unnecessary civil servants and of Angela Merkel's promise to collect her loan sooner rather than later. It is only a matter of time before they collapse under the weight.
The bold proposals Greece needs to resurrect itself cannot be discussed with creditors who fundamentally distrust the Greeks—and each other. So no one is currently in a position to empower the Greeks to pull themselves up by the bootstraps. This is clearly not what either George Papaconstantinou or the eurozone had in mind when they instituted the first bailout; but the politics of necessity, which Papaconstantinou amply describes here, have become the politics of overlordship.
John Psaropoulos writes from Athens for the Daily Beast, the Washington Post, and other publications.