Two years ago, Greece's Prime Minister George Papandreou compared his country's travails to "a new Odyssey." Since then, about half a million Greeks have lost their jobs, tens of thousands of businesses have closed, the economy has shrunk by more than a tenth, Athens has witnessed several riots, and Papandreou's government has collapsed. If Greece is truly following the course of the mythical adventurer, then it's in danger of being eaten by the monster Scylla or sunk by its partner Charybdis.
Papandreou's successor, technocrat Lucas Papademos, is attempting to steer the country to calmer waters. European Union leaders are expected to give the final approval at the end of this week for a new 130-billion-euro loan package Papademos brokered to prevent the disorderly bankruptcy of Greece, which is also seeking to slash its huge debt by more than 100 billion euros through a bond swap involving private investors. Though it's the biggest sovereign bailout ever, it doesn't disguise the fact that some of its eurozone partners have accepted Greece is a lost cause, a failed state that should be cast adrift. German Finance Minister Wolfgang Schaeuble recently referred to Greece as a "bottomless pit." His Dutch counterpart, Jan Kees De Jager, expressed grave skepticism about Greece's ability to live up to expectations. "Promises are not enough, not anymore," he said. Images of a neoclassical building housing a famous cinema being burnt during rioting in downtown Athens in February and the repeated delays by coalition leaders to agree to the measures the European Union (EU) demanded for a new bailout added to the impression that Greece had gone off the rails.
How Greece ended up here has been reported ad nauseam: political corruption, economic inefficiency, and systemic failure at both a national and European level. The last two years have confirmed that Greece has trouble functioning the way one would expect of a country that has been a member of the EU since 1981 and the eurozone since 2001. Lacking a coherent crisis-busting plan of its own, special interests, partisan politics, and bureaucratic dead-ends have all held up the country's progress since it appealed to the EU and the International Monetary Fund for help in May 2010. Throw in Europe's lingering economic crisis, and there is little chance of an economic recovery for Greece any time soon.
Greece signed up in May 2010 to ambitious structural reforms as part of the first, 109-billion-euro, loan package from the EU and the IMF. While many of the lenders' demands were never met, the government proved very effective in applying austerity measures. Wave after wave of tax hikes, pension cuts, salary reductions, and drastic public spending adjustments crashed down on the crumbling Greek economy, which had been in recession since 2008. Tens of thousands of businesses closed, retail sales and industrial production plummeted, unemployment more than doubled to 21 percent, disposable income was slashed by a quarter, and the economy contracted by almost 7 percent of GDP last year alone. The lack of political will for deep reforms, the shock fiscal therapy, and the constant hounding from some of its northern European partners make Greece appear lost.
But is Greece really slipping out of the developed world, as some have suggested?