NEW YORK – To understand Greece’s recent travails and how the country got there, it is useful to quote what Mikis Theodorakis, the famous Greek songwriter and composer, wrote about it recently on his homepage:
“Until 2009, there was no serious economic problem. The major wounds of our economy were the enormous expenses related to the purchase of war material and the corruption of a part of the political and economic-journalistic sector.
“For both of these wounds, foreigners are jointly responsible. Germans, for instance, as well as French, English and Americans, earned billions of euros from annual sales of war material, to the detriment of our national wealth.
“That continuous hemorrhage brought us to our knees and did not permit us to move forward, while at the same time it made foreign nations prosperous.
The same was true of the problem of corruption. The German company Siemens, for instance, maintained a special department for buying off Greek stakeholders in order to place its products in the Greek market.
“Hence, the Greek people have been victims of that predatory duo of Greeks and Germans, growing richer at their expense.”
In 2001-2002, Argentina went through a similar economic crisis affecting Greece today. But after a few difficult years Argentina resumed growth, prompting many to wonder whether Greece should follow Argentina’s path in order to restore its economic health. What did Argentina do and can it be applicable to Greece?
Argentina’s most serious economic woes began in the mid-1990s, reaching full recession in 1999-2002. In December 2001, to avoid wider and more punishing social unrest, the Argentine government declared that it could no longer honor its debts and the country went into default.
At $93 billion, Argentina’s bankruptcy amounted to the largest default in history, turning the country into a pariah in international markets.
Although its creditors blamed Argentina’s government, Argentina’s decision was praised by several economists. Christine Rifflart, an economist expert on Latin American economics at the Observatoire Francais des Conjonctures Economiques stated that Argentina’s decision “was probably the best thing the country could have done at the time.”
The Argentine economic crisis unleashed, as is now happening in Greece, widespread social protests and unseated five presidents within a year, taking the country several years to recover. One of the main causes of the crisis, however, remains largely ignored. Argentina accumulated an unpayable debt because loans were unwisely taken and even more unwisely offered, a situation which is pathetically similar to what is happening now in Greece.
Mark Weisbrot, codirector of the Center for Economic and Policy Research in Washington, said in October, “Argentina recovered quickly because it freed itself not only from an unsustainable debt burden but also from the destructive policies imposed by creditors and their allies.”
It is now time for the Greeks to think along the same lines, demanding a drastic restructuring of its debt. Any other measure would only relieve some of the symptoms without curing the underlying disease.
It may be more difficult for the Greeks than it was for the Argentines to overcome this difficult situation. Argentina’s recovery benefited, to a large extent, from the dramatic increase in international prices of some key agricultural products such as wheat and soybeans, as the demand for these products continued to increase from countries such as China and India.
This is not the case of Greece, heavily dependent on tourism. There is a limit to Greece’s capacity to pay back debts without provoking unrelenting chaos in the country.
In 2005, when Argentina’s Finance Minister Roberto Lavagna announced the government’s decision to restructure $88 billion in defaulted debt with a 75 percent “haircut”, he was accused of “not playing by the rules.” Lavagna’s response, which could be Greece’s today, was that the country wouldn’t repeat past mistakes — “when the government ignored its own limited ability to pay to secure rapid bondholder acceptance.”
As events in Greece continue to unfold rapidly, Mariano Rajoy, Spain’s new prime minister, has told his counterparts that his budget deficit this year would be 5.8 percent rather than the 4.4 percent that he is pledged to deliver.
Also, the International Monetary Fund has cast doubt on whether Ireland, which received an EU and IMF bailout in 2010, will be able to return to the international credit markets by 2013.
Greece is an independent nation. The problem is not how banks will minimize their losses but how Greece will survive as a modern democracy. Greece’s response to this crisis will determine its future as a country and its citizens’ ability to maintain a decent quality of life.
Cesar Chelala, M.D., is a cowinner of the Overseas Press Club of America award.