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Friday, March 12, 2010

The real reason behind Greek economic problems

Relaxing Greek Cat by flik from flickr (CC-NC-SA)

According to CIA, right now Greece has GDP of $405.7bln, and debt of $552.8bln (136%) - not even counting debt hidden thanks to Goldman Sachs shenanigans. It got into massive debt by spending too much and taxing too little. But everyone seems to forget what it spent so much money on. Here's the real reason:
Greece spends far higher percentage of GDP on military than any EU country; higher than US, Russia, and any even remotely sane country in the world.


Greece spends completely insane 4.3% of its GDP on military - that not even counting forced unpaid labour system - if every soldier was actually paid the number would be even higher - and it definitely severely damages economy by taking people at their most productive age away from useful activities like studying or working.

And what's their track record?
  • They obviously lost during the Second World War, but so did everyone else, and then they proceeded to...
  • Have a Civil War 1944-1949! The first major success of Greek military was murdering fellow Greeks, with British and American assistance.
  • The Civil War being won, the army still felt like shooting some people but didn't have balls enough to face another real army, so not soon later, in 1967, they overthrew the government to kill even more Greeks (they especially loved killing students). With CIA involvement of course, like most Cold War right wing military coups.
  • What did the military junta do after they ran out of people to kill in Greece? By sponsoring a military coup attempt in Cyprus with annexation of it into Greece as the ultimate goal. That failed spectacularly, as Turkey would have none of it, and moved its army to annex Northern Cyprus. The fiasco caused collapse of Greek military regime.
  • So what did Greeks do after that? Dissolve or at least drastically reduce the army whose only occupation was shooting at their compatriots and unsuccessfully trying to occupy other countries? Of course not - they kept spending insane amount of money and forced unpaid labour on it!
Let's look at list of countries by military expenditure, some notable cases.
  • Greece - 4.3% - way too fucking high, never won a war, killed fuckloads of Greeks
  • USA - 4.06% - while being involved in countless genuine wars
  • Russian - 3.9% - you're clearly spending far too much if even Russia is saner than you
  • South Korea - 2.7% - and they're next to a nuclear-armed madmen just waiting for the best time to hit them
  • France - 2.6% - second highest in EU, manage to have built third largest nuclear arsenal for that
  • UK - 2.4% - and that includes nuclear arsenal and they even manage to win a war every now and then without American support
  • Taiwan - 2.2% - they clearly don't care about Chinese
  • EU average - only 1.69%
  • People's Republic of China - 1.7% - they're clearly all hippie peaceniks!
  • Japan - 0.8% - being in reach of North Koreans nukes? We just love our animes and do not care about such things!
There is absolutely no reason why the miserable failure that Greek military is should cost anywhere near as much as it does. And don't even try to mention of Turkey - Greece is part of NATO and has all the NATO guarantees; Turkey was never remotely interested in invading Greece; and their Greek-military-initiated confrontation over Cyprus already resulted in massive failure of Greek military.

Imagine that instead of insane 4.3% of GDP Greece spent only 1.7% of GDP in it, like a typical EU country. Over the last 20 years (before that there was Cold War, which was seriously overrated but let's excuse that), it would save them 52% of GDP - moving them from the list of bankrupt countries to the list of fairly average countries struggling with the recession. But there's more! All that 52% of GDP incurred compound interest. Average long term interest rates are about 6%/year nominal, so 1bln drachmas spent in 1990 grew all the way up to 3.2bln drachmas now (or however many euros that is). Even worse - countries which are deeper in debt have to pay much higher interest rates.

Now exact calculations would require far too much data gathering, so I won't bother at the moment, but one thing is clear even from this:

The only reason Greece is in such crisis now is because they have ridiculously oversized army. The main requirement of any bailout package should be massive reduction in size and cost of their armed forces.

23 comments:

Anonymous said...

So you don't think that the ridiculously low retirement age of 60 coupled with ridiculous social promises and burdens (medical, pensions, etc.), coupled with ridiculous leech worker unions are what's killing Greece?

Certainly the military expenditures aren't helping. But I think there are plenty of other areas to look to if you want to make some serious headway in terms of reducing unnecessary spending.

Socialism is what's *really* killing Greece.

taw said...

EU is filled with socialist countries like what you describe, and none of them has anything resembling Greek problems.

Economic theory says pensions aren't a big deal anyway.

Situation 1. Employer pays you 100 galactic credits. You receive them all, 70 of which you'd spend and 30 of which you'd save for retirement.

Situation 2. Employer pays 100 galactic credits. 30 of that is eaten by taxes to fund seniors, while you receive 70 - spending all of it now that you don't have to care about your retirement age. Once you get only you receive equivalent of those 30 galactic credits in form of pensions and medical expenses.

Economically these two situations are very close. Taxation for retirement is a forced centralized savings scheme. It's not terribly efficient, but as American experience of private health insurance and American and Chilean private stock market-based retirement funds show, its alternatives are probably even worse.

On the other hand army spending is just throwing money away.

Anonymous said...

There is also the slight issue that Greece neighbours Turkey, which spends 5.3% of GDP on its military (http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures)

And situation 1 and 2 are completely irrelevant. The real issue is between 70% and 30%, which depend on the time spent working vs. the time spent on a pension.

taw said...

Anonymous: Turkey is essentially irrelevant excuse, what I explained already in the post. Greek is not in danger of having to fight a war anytime soon. Many countries which are in such danger don't spend anywhere nearly as much money on their militaries.

It might be a good idea to delay retirement (Denmark already indexes it to life expectancy, that's the sanest thing to do), however:
* Wikipedia says retirement age in Greece is typical for an European country.
* This 70:30 ratio (or whatever, it was just an example) depends increasingly more on medical needs of seniors rather than on retirement age.
* This problem affects pretty much every other country in the world, and none suffer anywhere as badly as Greece. On the other hand excessive military spending is almost uniquely Greek.

Anonymous said...

Wow... Where to even start. Your description of military spending since the 2nd world war glosses over some incredibly important (as well as some less-important facts)

1. Yes, Greece "lost" WWII, but not before delaying Hitler's invasion of Russia into the winter months, which depending on who you ask (Hitler, Churchill, Mussolini would be a good place to start) changed the outcome of the war.

2. Would you suggest that not opposing a communist military junta would be the way to go? Murdering "fellow Greeks"? Sure, I guess, but under the circumstances, what choice might they have had? Nevermind the geographic clusterfuck that was created by entities completely irrelevant to the situation established countries based upon the relative levels of convenience. When you arbitrarily draw lines and try to divide territories & establish new countries in an area that has been in dispute for hundreds of years, you can expect some resistance. (Have a look at "Macedonia" for example.)

3. History is full of government overthrows. Get over it.

4. You seem to ignore the fact, that while Cyprus wasn't necessarily "Greek," (in terms of "ownership") it was 80% ethnically Greek. It sure as hell didn't belong to the British, who got that concept and ceded it to Greece in 1950. The Turks, who has least claim to it put up a fight. To lay claim to "their" island. And their 20% or less population. Riiiight.

Greece is 25th on the list in terms of % of GDP spent on military (http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures) You can argue that there is no potential for conflict, but that would only serve to illustrate your lack of understanding of that part of the world, it's tenuous borders, and Greece's relationship with Turkey.

Greece's debt HAS been increasing, but only in the past few years. As recently as 2003, the debt was ini the neighborhood of $63.5B. It held fairly steady until it jumped to $302B in 2007 before lowering to $86.7B in 2008, then skyrocketing in 2009 to $504.6B. (http://www.indexmundi.com/greece/debt_external.html)

Surely you can't be blaming the overthrow of the military junta for this.

The simple fact is that Greece's economy is in the condition it is due to the conversion to the Euro, but more importantly because of the same credit shenanigans that have tanked economies around the world.

Research, man....

Charlie said...

The Greeks faithfully met their obligations to their allies, with heroism and self-sacrifice. As a small country, the human sacrifice and mega-devastation Greece suffered in World War 2 were much more than those of the almost all other countries that were on the victorious Allied side. In World War 2, Greece lost one of the highest percentages of its population in comparison to the other members of the victorious Allies. Greece lost, on a percentage basis, about 12% of its population, meaning about one million people.

British Prime Minister Winston Churchill said of the Greeks: "Today we say that Greeks fight like heroes, from now on we will say that heroes fight like Greeks."

taw said...

Anonymous:
* It seems that every single country that took part in the war claims that in some way "they" caused Axis to lose. I find all these claims rather dubious.
* Right wing military forces happily killed civilians, also before the Civil War erupted. I don't care much about the standard excuses.
* Do you see a single country in top 25 that's not totally fucked up? I don't.
* Old Greek debt figures are known to be fraudulent.

Charlie: While you're correct about WW2 loses:
* These are almost all civilian deaths, and mostly due to famine; these weren't people who died fighting Nazis or anything like that, and Nazis couldn't care less about them.
* I only started with WW2 because Greek Civil War which followed provided background for the junta (which is actually relevant).

Baz W said...

BW Greece ...

While we are debating "The real reason behind Greek economic problems" and the post war turmoil that Greece has fought it's way through. Having lived in Greece for a number of years and seen the recent changes and further turmoil here, and reading around the subject I would conclude that all of the above reasons have compounded financially but most of all in moulding the modern Greek persona.

It's been a case of the governments stealing from the state so why should I give up my hard earned money for them to steal it from me. The money here is shade darker than Black ... this we all know has been well documented.

The recent and well documented debacle with Siemens is but one example of the financial mess or financial irregularity. Irregularity!! I laugh there has been no regulation in Greece, it's a financial free for all.

In my honest opinion and that is all it is .... Greece has been 'Raped Financially' by it's own people for far too long and now we have a Government which has been forced to tell the truth and start accounting for the countries past or lack of actions.

There is now some basic regulation emerging and it's the new Greek past time and it's fast developing into a competition ... Who can get the most receipts!! For tax benefits at the end of the fiscal year. Finally the Greek Businessman is forced to pay the correct taxes ... time will tell if this affects all financial classes.

You may well be familiar with the old adage here that 'Greece is a poor country full of rich people' No Tax for the rich lots for the poor.

Civil unrest will grow in Greece ... someone needs to be accountable for the mess ... that person is Greece itself and the Governing Bodies and Families who have lined their own pockets for over half a century in post WWII chaos that just never stopped.

"In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of" ... Confucius

1. Price Fixing ... How can I buy Toothpaste in England for £1 come to Greece and buy the same product for over 2.5 euros. Just but one example. Why do I do all my clothes shopping in the UK? Because there is real competition and value on the identikit High Street.

2. Some of the lowest salaries in the EU

3. Tourism is now too expensive is no longer as popular compared to other South Eastern destinations Croatia and Turkey. It's more expensive for a Greek to go to a Greek island than a Brit.

4. 25th on the list of military spending? 27th Largest economy in the world (http://en.wikipedia.org/wiki/Economy_of_Greece) that's somewhere near parity looks okay to me

5. All sounds a mess to me and I live here every day ... and i'm not looking forward to the next 365.

Think i'd better stop now ... thanks for listening as i'm new to this lark ... please correct me if i'm wrong on anything I have said

Quickshot said...

Looks like it is quite a mess over there in Greece. I think I heard that the EU itself was planning on increasing fiscal scrutiny in the future as well. So I imagine other countries will find it harder to copy this debacle... well hopefully atleast.

taw said...

Quickshot: There's very little EU can really do about that now, other than giving Greece a stern look.

The fact that Greeks falsified their deficit data was publicly known for many years now, it's nothing new. Nothing was done about it.

Quickshot said...

I wasn't claiming about doing anything now, though technically speaking they can fine you for this kind of stuff. So maybe in the future they'll be a bit more diligent about checking the finances and fine people for bad accounting.

I guess we'll have to wait and see what they finally propose, though if they wanted to, I'm sure they could figure out multiple avenues to apply considerable pressure, via something way more then merely a stern look or letter.

Anonymous said...

I don't know where to start with your post. Even if the facts that you used were true, and they are NOT, to take 70 years of history and reduce it to five bullet points is simple minded.

(1) Greece was in the side of the Allies sin WW2. Your statement is false. Greece was occupied by German forces and suffered terribly during those years.
(2) The Civil War was Greece's resistance to Communism. Again in the right side!
(3) The military Junta was a dark period in Greek history, but once again the brave Greek people stood up against oppression.
(4) Turkey's invasion of Cyprus has been condemned by the entire world. To date, TRNC remains an illegal and unrecognized state.
(5) Greece needs to maintain a well equipped modern army to protect itself from aggressive neighbors. Some of those neighbors, especially Turkey, have shown and continue to show that they mean business.

Mihai (Romania) said...

After reading your blog, Wall Street Journal needed 4 months to research the details and to write the article :)

http://online.wsj.com/article/SB10001424052748703636404575352991108208712.html

Mihai (Romania) said...

Since the link isn't working, the title of the article is "The Submarine Deals That Helped Sink Greece "

Anonymous said...

dude, more than half of the us budget is spent on the military.
slightly less than half of the us debt was spent on the military.
since the us debt is nearly 100% of the gdp now, the us has spent 50% of it's gdp on the military.
and you call greece for 4%? get your numbers right...

Anonymous said...

i just think they are lazy

Anonymous said...

@anonymous 4:08pm,

if we use the same reasoning, why is the us debt so high and its economy going down?

a society can manage itself very humane, providing for everyone. there are countries today doing exactly that. are they "socialist" i dont know, i dont care for the name. it is irrelevant.

spanker said...

i liked this post it helped me a lot with my government class

Clarissa Smith said...

Military overspending--very interesting, thank you so much!

Do you know what kind of overspending happened in Italy and Spain?

taw said...

Unlike Greece which was screwed up even before crisis happened, Spain, Italy, Ireland, and all other European countries in crisis are in deep ship only because of euro.

Clarissa Smith said...

I am fighting right-wingers and libertarians on Thom Hartmann's blog. It's actually good for me, because I'm learning by doing -- but at times difficult. Yesterday a new libertarian came in and I attacked him at once.

I googled a little on Spain and found a lot about corruption, so I used that. Italy makes me at once think of Berlusconi -- extremely self-interested guy.... very young girls, money, crazy luxury ect. -- so no wonder as I felt.

Actually Merkel is very much for the Euro. Some say the Germans misuse the Euro for their purposes, but maybe it's a prejudice.... I guess the rather sound German policy comes from their coalition system: Merkel is very conservative, but had to mind contracts with her coalition partners on her left. So is she making active Keynesian policy without really wanting it? Fortune favors fools. Or how the Germans say: "Der dümmste Bauer ernted die dicksten Kartoffeln."

Anonymous said...

The person who posted the link "http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures" and then claimed that Turkey spends 5.3% of it's GDP on the military is clearly ignorant of their own references or is a Greek and lying is normal for them. The article clearly states that Turkey spends only 2.3% of it's GDP on the military.

Damn lying Greeks, always with the bulls**t history full of lies!

Anonymous said...

is greece following socialism or capitalism(voz in your blog it is mentioned socialism whereas in mamy other blogs it is writen as capitalism pls answer this question as it is very important)