Capital Athens
Time Zone EET (GMT+2)
Country Code 30
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Currency Euro
Land Area 131,990 sq km
Population 11.3 million
Language Greek
Major Religion Orthodox Christianity

Financial Challenges Expose Weaknesses in Greece’s Economy and Aristocracy Structure; Default and Departure from Eurozone Possible

By Chris Deliso and Ioannis Michaletos

Greeks, foreign observers, governments and ‘the markets’ alike remain captivated by the perilous state of the nation and its finances. The question of whether Greece will accept and implement its financial bailout package in time to avert a default has been the key question on a daily basis for over a year.

However, more importantly in the long term perhaps, is how the historical centrist aristocracy will be affected, and whether – as in other European countries – the attrition suffered by unpopular governments and with them near-governmental individuals will open the doors for further polarizing influence from the far-right and far-left. Even if it is temporary, the new government’s inclusion of deputies widely seen as having fascist worldviews might indicate the latter.

However, in order for the decades- and in some cases-century old familial dynastic structure in Greek public life to be upended, serious and violent social instability would have to occur, which is unlikely for the time being. An overview of Greek political life, and the challenges facing the new prime minister, Lucas Papademos, provides a means of exploring this issue from an often ignored angle.

Swaps and Scandals

The job of leading Greece out of its budget deficit impasse and enforcing austerity measures, at least until new elections can be held for a more stable long-term government, has devolved to the man who served as a governor of the central bank in Athens at the time when Greece allegedly ‘cooked the books’ on its financial data in order to enter the Eurozone in 2001.

Due to his oversight of the Greek debt back then, newly-appointed Prime Minister Lucas Papademos would certainly have been aware of Goldman Sachs’ now-criticized role that made Greece’s adoption of the single currency possible.

The controversial role of Goldman at that time has been widely discussed, as in this Bloomberg article of February 2010, which states that the securities giant “may have also misled investors when it managed the sale of $15 billion worth of Greek bonds in subsequent years… no mention was made of the Greek currency swap in sales documents for the bond offerings in at least 6 of the 10 sales the bank arranged for since the 2002 currency transaction.”

At that time, “Goldman helped Greece pull off a lucrative cross-currency swap in which some $10 billion in Greek debt, issued in dollars and yen to international investors, was swapped for euro debt using a ‘historical’ (and very favorable) exchange rate,” reported Bloomberg, citing Christoforos Sardelis, then head of Greece’s Public Debt Management Agency.

Prime Minister Papademos has also come under fire in Greek media for allegedly not having done enough during the 1999 stock market crash in Greece, after which numerous financial scandals emerged.

A Trusted Insider

More recently, the US-trained economist served as deputy head of the European Central Bank between 2002-2008. Like Mario Monti, the new premier of similarly debt-plagued Italy, Papademos is a member of the Trilateral Commission (a non-governmental entity founded by David Rockefeller in 1973, to foster greater dialogue and cooperation between North America, Europe and Japan).

Thus, while seen as a temporary fix, it is also clear that he was chosen as a ‘trusted insider’ to quell any fears of the EU and ECB about Greece’s resolve to adopt the controversial, and already delayed bailout package required to keep Greece running.

Interestingly, Papademos was first suggested as a potential prime minister by the leader of the hard right-wing party LAOS, Giorgios Karatzaferis back in March 2009. At that time, however, it was a completely unexpected suggestion to most Greeks, and LAOS has always had only a marginal appeal. However, now it is in government and there are concerns for what this means for the far right’s prospects.

For Karatzaferis to have a role in picking prime ministers would thus seem rather improbable, and could illustrate transformations in the Greek right-wing landscape following the downfall of the former government of Costas Karamanlis, and the departure of his foreign minister, Dora Bakoyannis, from the Nea Dimokratia in May 2010 (she has since started a small centrist party of her own, the Democratic Alliance, which has four seats in parliament). However, it is not yet clear whether the ongoing political earthquake is sufficient to break the decades-long hold on power of a few familial dynasties.

The Bigger Picture: Cyclical Financial Scandals, Recurring Characters

The relationship between Greece’s political aristocracy, foreign financial obligations and ensuing scandals is fascinating, particularly for its longevity. A brief review of the interconnected nature of the Greek power structure and historical symmetries indicates this with blinding clarity.

It is necessary to point out these facts, as foreign observers today are frequently baffled by the sense of apathy and disdain at the possibility of political and economic reform expressed frequently by the other 11 million Greeks who do not happen to be related to the ruling dynasties.

The former conservative government’s foreign minister, Dora Bakoyiannis, is also the daughter of a former prime minister, the late Constantine Mitsotakis. She had in fact been expelled from Nea Dimokratia in 2010 specifically for breaking party lines to vote in favor of austerity measures involved with an initial IMF-sponsored loan meant to address the current financial impasse.

Looking further back, one finds more interesting correlations. In June 1989 elections, Bakoyannis’ father and the ND defeated the (now, recently deposed) George Papandreou’s father, iconic politician Andreas Papandreou and PASOK.

The left-wing party’s defeat was partly due to a financial scandal involving the disappearance of $132 million from the Bank of Crete in 1988, and allegations that Papandreou was involved with the bank’s corrupt dealings. However, he would later be exonerated.

In its 1996 obituary for Papandreou, The Economist noted that: “his failings included the massive debt accumulated as a result of reckless spending in the 1980s and dismal growth: his socialist populism frightened off many Greek entrepreneurs, so that billions of dollars that might have been invested in Greece went abroad.”

When the current financial crisis began two years ago in Greece, a frustrated Nea Dimokratia blamed the roots of it on chronic fiscal mismanagement on the part of PASOK, which had ruled almost uninterruptedly since 1981, and particularly financial statistics that Eurostat rejected in 2004, when Greece was also spending exorbitant sums on the Olympics.

The almost karmic connection between financial scandals continues today. The current finance minister, Evangelos Venizelos originally came to prominence in 1989 as the lawyer who got Andreas Papandreou acquitted of corruption charges in the Bank of Crete scandal.

Although not related to legendary statesman Eleftherios Venizelos, this longtime party rival of George Papandreou would, according to Spiegel, like to become prime minister someday- and perhaps start a new dynasty of his own under the Venizelos name.

Greece’s “European dream” had always been tied to international loans and vague promises of repayment to its lenders. In July 1961, Prime Minister Constantinos Karamanlis (another Greek political legend, and uncle of the more recent prime minister by that name), signed the Treaty of Association with the European Economic Community (EEC)- the forerunner to the European Union, then comprised of France, Germany, Holland, Italy, Belgium and Luxembourg. Crucially, the treaty involved $300 million in EEC loans to Greece; to secure them, strong personal lobbying with the leaders of France and Germany was needed- just as it is today.


To illustrate the magnitude of the recurring dynamic and the depth of the Greek aristocracy over time, one need only consider the following facts.

Constantinos Karamanlis the elder, uncle of today’s Nea Dimokratia ex-president, was born way back in 1907. Constantine Mitsotakis, for his part, was born into a political family in 1918, while his powerful uncle, the statesman Eleftherios Venizelos, was born in 1864. Both Constantine’s father and grandfather were members of parliament in the 19th century.

For his part, Andreas Papandreou was born in 1919. His father (and archon of the family dynasty), Giorgos Papandreou was born in 1888.

Compared to these lineages, the family tree of Antonis Samaras – active in the Nea Dimokratia in the era of Mitsotakis, and supplanter of Costas Karamanlis as party president today – is altogether mundane. Yet though he only had one MP for an uncle (George Samaras), the ND president has in his background something that is perhaps more important- the institutional cohesion that unites so many of today’s Greek leaders.

The Athens College, an elite school that for almost a century has enhanced American cultural and political influence in the country, is part of the Hellenic-American Educational Foundation. The school was founded in 1925 by Samaras’ great-grandfather, Stephanos Deltas, along with Emmanouil Benakis, Deltas’ father-in-law.

A wealthy merchant and national benefactor born in 1843, Benakis was also a close friend of Eleftherios Venizelos (who later endowed the school), a cabinet member and, in 1914, mayor of Athens. His son, Antonis Benakis, was an art collector who founded the city’s world-famous Benakis Museum. Today, the Samaras family retains close ties with the school and its alumni and donor organizations.

The school, still one of the most prestigious on the continent, has a long list of famous alumni; for the present topic, those that might be mentioned include Andreas and George Papandreou, Antonis Samaras, ND parliamentarian Kyriakos Mitsotakis (son of Constantine Mitsotakis) and Lucas Papademos- the current prime minister.

It is estimated that at least 25% of the current political and business elite in Greece graduated from this school- a remarkable figure indicative of a very unusual and specific social environment and history.

We must remember that at the time of the founding of the Athens College, Greece was a largely provincial and impoverished backwater, racked by years of war and a massive influx of destitute Greek refugees from Anatolia only two years earlier.

In such a society, where the availability of equal opportunities was already so low to begin with, the conditions were ideal for the sustenance of a small and well-integrated elite. The at-first humble little school in the affluent neighborhood of Psychiko would provide one key element favoring such a system, though it is important to note that it could never have acquired the “power incubator” role it has had were the prevailing social conditions not exactly right.

‘Political Turmoil Is at Hand’

Although he is an Athens College graduate, new Prime Minister Papademos does not come from a family of top prominence- rather, he encountered success through acumen. This was recognized by Andreas Papandreou, who in 1993 appointed him vice-chairman of the Bank of Greece (in 1994, Papademos became chairman). While Papademos is generally well-liked and seen as decent by the Greek public thus far, the massive weight of Greece’s financial mismanagement, going back many decades, is all but certainly too much to be overcome by any one leader.

Internationally, Papademos is also widely thought by Greek pundits as having very close relations with the German banking establishment. French sources, such as Le Monde in a recent article, indirectly linked him with Goldman Sachs. However, these powerful connections may not be enough to ensure future reform.

An experienced banker in Greece who has worked over the past 30 years as a director in both Greek and foreign bank tells that the government under Papademos faces “a gigantic task and a multitude of commitments to deliver in a very short period of time, since the early elections have already been scheduled for February 19, 2012. There is simply no way that they have enough time to achieve their aims.”

Thus if the hastily-assembled government cannot meet and really implement its commitments in time, the early elections will likely be suspended until May-June 2012.

Moreover, the banking source notes that Papademos – not a politician by background – “lacks essential political skills and the depression in Greece is sufficiently severe- and will get much, much worse. So I am afraid political turmoil is at hand.”

Steadying the Ship- but No Commitments

Since the scale of public unrest and protests in Greece since 2009 has centered on the nepotistic and dynastic nature of Greek politics, as discussed above, the appointment of a non-polarizing outsider at this crucial moment was seen as an imperative in order to increase the likelihood of public acquiescence to extremely unpopular austerity measures. While Papademos is not a politician by background, however, his father was a leading Greek archeologist and high-ranking civil servant.

Shortly before his abrupt resignation, the former prime minister, George Papandreou shocked EU leaders and world markets by calling for a referendum regarding acceptance of the EU bailout package. Although he dropped this unexpected demand quickly, it reaffirmed Brussels’ mistrust of the Greek leadership’s general reliability.

The apparent game of chicken seems to be continuing, however. More recently, new Nea Dimokratia leader Antonis Samaras – himself an old political operative dating back to the Mitsotakis era – argued that Greek politicians “should not be forced to sign written commitments demanded by the European Commission as part of the bailout package,” Kathimerini reported on November 16, noting that that Samaras was supported in this by LAOS leader Giorgos Karatzaferis.

However, Eurogroup head, and Luxembourg’s Prime Minister Jean-Claude Juncker has confirmed that “written statements from Prime Minister Lucas Papademos and party leaders that would commit them to the terms of the second bailout agreed on October 26” are necessary- an indication of the ongoing lack of trust from the EU’s side.

Negative Scenarios

Nevertheless, several sources in the British political risk and analysis community have attested for that investment houses, banks and governments as well are prepared for a series of negative scenarios, including the likelihood that Greece will be unable to withstand the pressure that its economy – which registered a staggering -7% GDP decrease in 2011 – is facing.

Indications are for a similar and probably higher decrease in 2012. Thus it is likely, these sources believe, that Greece will indeed eventually default, and return to the drachma- an outcome that has been seen as anathema – to use an appropriately Greek word – but that has been predicted by various local and foreign analysts as one option ever since the crisis began.

Whether Greece leaves the euro is less important than whether the single currency itself will survive. Greeks, including the deposed Papandreou, have argued that whatever is done to handle their own debt and economy will ultimately not save Europe, as the Italian and Spanish debt totals are much greater.

Concerns beyond Greece

The above information correlates to recent investment reports by Barclay’s Bank, which says that the European Central Bank would have to print money “before it is too late” if it wants to save the euro. However, Germany, the steadying force that has attempted to guide the Greek bailout in order to save the Eurozone, is strongly opposed to the euro depreciation/inflation that would ensue, as it would affect its own economic well-being. Yet without strong German backing, the euro has no real guarantee. “The only buyer for debt obligations from Italy and Spain is the ECB, which cannot cover the (much larger) amounts,” notes a concerned foreign investor, “hence the impulse to print money.”

Beyond Greece, Italy and Spain, some experts are also looking with concern at countries like Hungary and Belgium. Nevertheless, even if Greece is not the ultimate cause of the Eurozone crisis, it will feel the shocks more strongly than other nations. Civil and civic life “will stop abruptly if and when the next 8 billion euros [in bailout funds] is not received,” notes the investor, adding that the Greek political establishment’s brinksmanship up to now with the EU will not be tolerated.

Outlooks and Possibilities

Unfortunately, there are many scenarios by which individual, party or public pressure prevents a smooth execution of all the demanded terms, meaning that the risk of not securing the funds is high. In such a scenario, a long-term depression, political unrest, increases in crime and civil unrest would plague Greece for at least 2-3 years.

Through all of the current uncertainty, it is important to keep in mind a sense of historical perspective. Greece has suffered – and survived – far worse calamities than the current ones, including wars, occupations and martial law. Considering that the Hellenes have survived various ups and downs for around 5000 years now, odds are that they will manage in the current scenario as well.

And, though the younger generations may not be aware of it, until relatively recently Greece was historically a poor country, a Balkan country notable for an agrarian economy and subsistence livelihood, gripped by superstition, xenophobia, tribalism and provincialism. In this light, the last couple decades of unprecedented wealth and growth, as well as a somewhat fulsome aspiration to a ‘leadership’ role in the region signify more the exception than the rule.

At the same time modernization, access to information and general changes in the value perception of education in the world may in time diminish the singular power that specific institutions like the Athens College had in the past for the perpetuation of a gilded elite.

Economic pressures may now force Greeks to enter a process of internal self-scrutiny which might manifest in various displays of right- or left-wing extremism at times. However, given the cultural cohesion and conservatism that has marked the Greeks for centuries, it is hard to imagine a truly revolutionary spectacle overtaking the country- rather more likely is a redistribution of wealth and assets that may see the creation of new aristocratic dynasties, and the participation of new and different foreign owners in the country.

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