Back down to earth with a bang

Wednesday, March 3, 2010, will go down in history as the day that a modern Greek government made a conscious effort to bring the country and its economy in line with reality. It is most appropriate that the unprecedented step was taken by a PASOK government, headed by George Papandreou, as it was under PASOK, in its first term in power under Papandreou's father, Andreas, that Greece slipped the bonds of economic reality and began to live way beyond its means. But the New Democracy party, with which PASOK has alternated in power since the restoration of democracy in 1974, is no less guilty of bloating the public sector and buying «social harmony» by giving workers whatever they wanted, leading to a relentless rise in wages and pensions irrespective of what the country produced. As deficits and the country's debt burden grew, governments just kept on borrowing - borrowing to meet their obligations in terms of wages and pensions, borrowing to import more than Greece exported, borrowing to pay off previous debts. There was no effort to break the borrowing habit. In addition, membership of the eurozone brought monetary stability and historically low interest rates, prompting a massive boom in mortgages and consumer loans, which hid the economy's underlying weaknesses. The late Andreas Papandreou's strategy in the 1980s was to give the disenfranchised, who formed the bulk of PASOK's voters, a shot at living like the middle class. If this meant throwing European assistance and subsidies around like political favors and giving pensions to people who had never contributed to social security (such as farmers), then so be it. At last, all those who had been shut out by the right-wing establishment which triumphed in the Civil War in 1946-49 - and which was thoroughly discredited by the dictatorship of 1967-74 - would get to share in the wealth of the nation. The fact that this new middle class was founded on wealth that the country was not producing meant that the economy broke free from all logic and went into its own orbit. PASOK established the National Health System and poured money into education but it also undermined the gains by destroying any semblance of hierarchy, accountability and recognition of merit in the public sector. This meant that no one really knew how much money was being spent nor whether those who deserved it most were getting it. Costs rose while productivity plummeted. A wasteful public sector, in turn, condemned the private sector to inefficiency and lack of competitiveness. New Democracy, especially in the 2004-09 period, made the situation worse by doing almost nothing to cut costs and increase revenues, allowing the economy to career out of control. The easy money of the past three decades had a devastating effect on the economy and on the Greeks themselves; they now have to come to terms with the basics of finance - that you cannot spend more than you earn, that you should not borrow more than you can afford. The terrible legacy of the past years is that not only is the country deep in debt but the irrationality of the borrowed, unearned funds allowed the public sector to get away with being a drain on the country's resources and a plague on its people. No one really knows the true size of the monster. And though the flow of funds to it may be curbed by 7 or 8 percent annually, this will not make it any more efficient. Now that PASOK has finally got itself to break with the past, it will have to stand firm against the rage of opposition parties and unions - and of its own supporters. George Papandreou has finally realized that running Greece does not depend only on appeasing the most voracious sections of his own supporters - he has to make the country more efficient and its economy viable. But the sacrifice will come to nothing if the public administration and education system are not reformed radically so that they can serve the needs of their country rather than narrow political interests. Wednesday's measures were a good start. But only a start.