Dispatch

Is Greece a Failed State?

Not yet. But it’s running out of time -- and money.

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?

"Greece is more a dysfunctional state than a failed state," says Megan Greene, a eurozone expert at Roubini Global Economics who visited Athens in February. "There is legislation, and it is eventually upheld in most cases. The state still provides basic services such as pensions and healthcare. Despite recent violent protests in Syntagma Square, the rule of law presides over every day operations. But the Greek government doesn't do any of this very well."

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The terms of Greece's new bailout show the lack of faith the eurozone and the IMF have in Greek politicians to take ownership of the program and Greece's public administration to implement the reforms being demanded. The eurozone has demanded that Greece pay money into an escrow account to ensure the country's debt is serviced before the government can cover the cost of wages, pensions, or anything else. The eurozone also wants inspectors from the IMF, the European Commission, and the European Central Bank to have a permanent presence in Athens.

The reason Athens is willing to accept what many Greeks see as a breach of their country's sovereignty is that they fear the other option -- having to quit the eurozone -- would set Greece back decades economically and break its political bonds with the core European countries. Switching to the drachma would cause a drastic devaluation that would make basic imports, such as fuel and food, unbearably expensive. If Greece's banking system collapses and hyperinflation hits, the government could have trouble providing basic services, families could find it difficult to purchase basic goods, and rioting could intensify.

Greece's fading hopes depend to a large extent on it fixing its archaic public administration system. For decades, the Greek government has been staffed largely based on political criteria while being starved of targets, training, and technology. Some modest improvements have been made since the crisis began. Tax offices are using new software that allows them to crosscheck records and as a result, dozens of major tax evaders have been arrested over the past few months. Yet too many taxes go uncollected, waste at public hospitals is not yet under control, and cases keep piling up at courts. The Greek political system is steeped in inertia and sprinkled with corruption, and fed by individuals and groups that cling to the fading hope that nothing will change. "Every stage of doing business in Greece is mired in bureaucracy, with the state impeding business activity rather than facilitating it," says Greene.

Still, Greece might be on the cusp of positive change. Before the Athens 2004 Olympics, many feared the games would be a catastrophe. In the end, they passed off without a major hitch, and visitors and pundits regarded it as one of the best Olympics in years. Stratos Safioleas, who ran the media relations department for the Athens 2004 Olympics, sees this as a similar opportunity, though on a much bigger scale, for Greece to prove the doubters wrong. "Despite being hit hard by the crisis, Greece can still be counted among the rich countries of the world," he told me.

Rather than wait for the state to fix itself and provide better conditions, many Greeks are stepping in to fill the void it has left. From the young couple that left Athens last year to breed edible snails for export on the island of Chios to the unemployed Athens man who has started a soup kitchen with his friends for the city's homeless, to the activists in the town of Katerini that have encouraged potato producers to cut out profiteering middlemen and sell directly to customers, there are many examples of people overcoming their government's failings and pushing back at the crisis.

Last week, more than 20 major Greek businesses joined forces to take out full-page advertisements in several European newspapers in an attempt to do what the Greek government has failed to since the crisis began: to convince Europeans that Greeks are serious about change. "Greeks feel let down by their institutions," says brand strategist Peter Economides, who helped design the campaign. "I sense there is a desperate need to connect, and they will connect -- with each other." Highlighting the cost of the austerity measures and the gradual efforts at reform, the businesses asked for patience and solidarity. "Give Greece a Chance" is their message.

"A new generation of Greeks, highly educated, capable and bold, are eager to take the country out of its predicament," says Safioleas. "The old political establishment that plagued the country, one that based its existence on developing a clientelistic state that passed out public money to its domestic allies in exchange for power, is finally crumbling."

Worryingly, however, there has been a surprising lack of new political movements over the past two years despite the growing unpopularity of some of the established parties. Power, be it in government, Parliament, or the civil service, still rests largely in the hands of the generation that came to the fore after the collapse of the military dictatorship in the mid-1970s.

"Over the last few decades, Greece has survived occupation, civil war and a junta. It most certainly has the potential to survive this crisis. It just has to," Safioleas says.

Odysseus survived too. He managed to navigate past Scylla and Charybdis but when he eventually arrived home in Ithaca, he was alone. For Greece, where some 60,000 small businesses alone are projected to close this year, leading to 240,000 redundancies, this ending won't do. Greece's passage to safety is growing narrower: It has to regain the trust of its eurozone partners through rapid reforms that will create a functional state capable of supporting growth, otherwise a crushing political and economic collapse loom. This might be enough to keep the country afloat while the economy improves, and Greeks who genuinely want change try to make a difference. In Greece's new Odyssey, one man's survival won't be enough. This one is a tale of all or nothing.

Milos Bicanski/Getty Images

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