‘Secret’ History of the Greek Crisis

The past may be prologue, but it is first necessary to know what that past is, a growing problem in a modern age when so much is miswritten, misunderstood or forgotten. This dilemma of “secret” history is now a factor in the Greek debt crisis, says ex-U.S. diplomat William R. Polk.

By William R. Polk

After all the press reports on Greece in recent weeks, can there be any secrets? Yes, there are. Indeed, I suggest that, even though the press indicates that the Greeks have given in to most of the demands of their creditors, the underlying (or secret) realities are likely to resurface in the detailed negotiations to follow in the coming days and weeks.

To consider that possibility, first let me define what I mean by “secrets.” Such “secrets” are present conditions that grow out of past events and are not generally known until some future time. They sometimes “blindside” statesmen who are reduced to saying, “never mind how we got in this mess; all we can do now is to try to deal with it.”

A scene in Santorini in the Greek islands.

A scene in Santorini in the Greek islands.

For many political leaders, the past is treated like a closed book, a “secret” history about which neither they nor their constituents inquire. That failure to fully comprehend the past often causes people to leap into even more crises in the present and the future.

What has this to do with the Greek problem today? To find out, let us look at a few of the “secrets” of the major actors in the Greek drama. Consider, first of all, the position of the main task master of Greece, the German government. Under Chancellor Angela Merkel’s leadership, it has adopted a simple and seemingly consistent position “debts must be repaid.” But, the record is not quite so simple or consistent.

As individuals, we know if we borrowed money and then lost it, we would still owe the lender the money we lost. But individuals have an escape. We can declare bankruptcy and so wipe away unpayable debt. Our grandfathers thought bankruptcy was shameful, but today it has become a business strategy. Many of our largest corporations have used it to gain advantages. Does what applies to individuals and corporations also apply to states?

In fact, over the last century, almost all of Greece’s creditors including Germany have defaulted or “restructured” the sovereign debts at least once. Some have done so several times. As economist Thomas Piketty told the German Newspaper Die Zeit, on July 10, “Germany is the country that has never repaid its debts.”

Germany’s Wirtschaftswunder (economic miracle) came about not only because of German hard work (and the contribution of immigrant labor) or even the result of about $15 billion (in today’s money) America gave Germany under the Marshall Plan. These were essential, but most economists would hold that at least as important was that, in 1953, West Germany was forgiven 50 percent of its foreign debt and allowed to “restructure” domestic debts.

Thus, the West German government was able to forge the new Germany without the burden of past debt, making it at least ironic that Germany now takes such a strong stand on Greek debt repayment. As Piketty wrote, “It has no standing to lecture other nations.” This is one “secret” that Merkel and others don’t want to remember.

And Germany was not alone. Most of the countries now lined up against Greece have handled their debts by defaulting, having their debts forgiven or devaluing their currency.

Devaluing currency was a standard technique for handling excessive debt (and amounted to reducing the value of what was repaid to creditors). But devaluation is no longer an option for members of the Euro zone. The dilemma of the European Union is that while members remain politically independent, those that joined the “Euro zone” surrendered control of their currency. They could set their own budgets and borrow money but could not control their debts by the traditional means, devaluation.

If a government could not devalue its currency, the other option was to cut expenditures and/or raise taxes, i.e., “austerity.” That is what the lenders have been demanding that Greece do.

But cutting government expenditures also has the effect of cutting jobs. That makes people suffer and reduce their own spending, which creates a downward, recessionary spiral, spreading joblessness, diminishing tax revenues and increasing demand for unemployment compensation. Since most modern governments have social welfare programs, the most obvious expense to be cut is the funding of those programs, which further spreads hardship. So, shredding the social safety net is unpopular and the Greek government has resisted doing it.

Greece has another activity that could be cut: military expenditure. In 2013, Greece was spending about 2.2 percent of its GNP or roughly $10 billion on the military. It was strongly urged to spend at least that amount by NATO. Yet, realistically there is no longer, if indeed there ever was, a need for Greece to maintain a large military force. So the government has offered, as a part of a new bailout “package,” a haircut for the generals, who won’t give up their funding easily. The new package also includes at least discussion of remission of some part of Greece’s debt and the injection of short-term loans to meet the demands of the bankers.

Another “secret” from the past that returns to haunt statesmen today is that Greece got caught up in clever, but perhaps illegal, manipulation of accounts. Led by the American banking firm of Goldman Sachs, the previous conservative government of George Papandreou did a $15 billion “swap” to hide Greek indebtedness, according to Bloomberg News. Goldman Sachs was alleged to have made hundreds of millions of dollars in the deal taking that money into its corporate coffers while leaving the debt behind in Greece.

Not so “secret,” too, is the nature of Greek government and society. Traditionally, Greeks living abroad remitted money to friends and relatives who stayed behind. These payments cushioned the traditional poverty of the country. But today, the movement of money has been reversed. Money is drained out of Greece into foreign secret bank accounts.

Put simply, in recent years, Greece has become an oligarchy. The very rich avoid civic responsibility. Few pay taxes. They fill Piraeus harbor with mega-yachts and put their money abroad rather than investing in Greek industry. It does not appear that even the self-proclaimed “revolutionary” Syriza government can alter this situation.

But surely these various factors are evident to the European lenders and to the Greeks? Not necessarily, because an attempt was made to keep them secret. As Reuters reported on July 3, the European nations (the lenders) tried to stop the International Monetary Fund from publishing its analysis of the Greek debt, confirming what the Greek (Syriza) government has been arguing for months about the inability to austerity alone to resolve Greece’s debt crisis. Keeping the information secret made negotiations more difficult and contributed to the suffering of the Greek people.

Finally, there is the “secret” of the Euro itself. It is a double-edged sword having different effects in different economies. In Germany it was a stimulus. By joining the Euro, Germany virtually devalued its currency so German industry got a significant advantage in foreign sales. In Greece, the effect was negative. By joining the Euro, Greece raised the cost of its exports. Projecting ahead, some economists believe that staying in the Euro would make Greece’s recovery far more difficult.

The bottom line is this: Greece has been, is and may always be a poor country. The reason why the ancient Greeks colonized the Mediterranean was that their rocky, dry soil could not support them. All their city-states sent indeed often forced their “surplus” population to leave.

Over the centuries, much of southern Europe, Egypt, much of Africa, Latin America and North America became home for Greeks who could not be supported inside Greece itself. This diaspora has helped and will help Greece, but Greece’s own very rich people probably will not.

Today, much of Greece’s hope rests precisely on its barren but beautiful chunks of rock in the Mediterranean: foreign tourists attracted by Greece’s beauty and history may be the ultimate “secret” of Greece’s success.

William R. Polk is a veteran foreign policy consultant, author and professor who taught Middle Eastern studies at Harvard. President John F. Kennedy appointed Polk to the State Department’s Policy Planning Council where he served during the Cuban Missile Crisis. His books include: Violent Politics: Insurgency and Terrorism; Understanding Iraq; Understanding Iran; Personal History: Living in Interesting Times; Distant Thunder: Reflections on the Dangers of Our Times; and Humpty Dumpty: The Fate of Regime Change.

17 comments for “‘Secret’ History of the Greek Crisis

  1. Ho Polites
    July 16, 2015 at 11:44

    Polk wrote: “Yet, realistically there is no longer, if indeed there ever was, a need for Greece to maintain a large military force.”

    There would be no Greece, still the Ottoman empire. See 1919-1922 when Greece depended on Western military support (cf. PM Lloyd George) in vain. Need we review Britain’s actions in Cyprus? Surely, too, the crux of your logic extends to Israel. Moreover, Mr. Polk vision continues to see Western military aid to Turkey continue unabated.

  2. Indiana J
    July 14, 2015 at 01:52
  3. Peter Loeb
    July 13, 2015 at 06:16


    It is seems that the role of “The Left” in Greece after World
    War Two is consistently forgotten. It included many acononyms,
    parties, relations. It was only defeated by the military invasion
    of Britain. Despite requests for assistance, the USSR declined.

    The US via the not-very-“altruistic” Marshall Plan replaced
    socialist and communist forces in power with conservatives attuned
    to “stability”.

    For an in-depth discussion of events in Greece as well as
    Germany see Joyce and Gabriel Kolko’s landmark book THE LIMITS
    OF POWER….

    In its simplest terms, the Greek situation is not unlike that of a buyer
    of modest income who passionaltely wants a Caddillac (or home etc.)
    (Read “debtor”). This the seller (read “creditor”) knows all too well.
    As a matter of mact the creditor counts on it. The creditor offers
    terms such as “nothing due for a year…” to lure the buyer into
    signing on the dotted line. At last, pointing with pride to this
    “agreement”, the creditor asserts that the law is on his side.
    He demands that the poor buyer Pay up. Now!!! (As :Polk observes
    there is no “bankruptcy court”.). Wisely or not, Greeks voted for
    their sovereignty, for their left traditions, for their nation’s right
    to determine its own future.

    It should be noted that the US and West manipulated Greece and
    other dependents into these positions with the less-than-altrusitic
    Marshall Plan. (See also Joyce and Gabriel Kolko op.cit.)

    Peter Loeb, Boston, MA, USA

    • Masud Awan
      July 13, 2015 at 18:58

      Or an example of envy: if your neighbour has got red cheeks you slap your pale face to turn your cheeks red.

  4. James Lake
    July 13, 2015 at 01:08

    Regarding Greece we can’t ignore the fact that they are hooked on the “Euro dream” and have made it difficult for the current govt to manoeuvre. The people repeatedly say they don’t want the Dracma back. What is their govt to do?
    The EU promises of higher living standards etc; have never been fulfilled for them but still like all theses Eastern european countries they want to be in the club. What does it give them? A feeling they are part of a civilised democratic world? I don’t know the answer.
    It’s clear that the EU is really a U.S./ german project to dominate all of Europe.

    • Santell
      July 13, 2015 at 08:17

      Hello, the statement that “all these Eastern European countries want to be in the club” is far from correct, I’m afraid. There is a great cultural and historical diversity amongst the lands of Central and Eastern Europe and different attitudes were and are prevalent amongst them as regards closer ties with other European nations (neighbours and non-neighbours), perceived or real constraints on their sovereignty, etc.

      It is worth noting the case of the Czech Republic, which joined the EU under the presidency of Mr. Klaus, a fierce Eurosceptic–while a majority of Czech may indeed support accession to the EU, merely on practical grounds, it would be naïve to confound this with support. It should be noted that albeit nominally a full member, the Czech Republic has been less than enthusiastic in the effective implementation of EU policies–the most notable being its practical refusal to adopt the Euro.

      Another interesting case is that of Bulgaria and Romania where, as a first-hand witness during 2005 and 2006 I was able to witness the wildly different popular attitudes in both countries as regards EU: while the generality of Romanians, both officials and common citizens were very much eager to join the EU, the opposite was the case in Bulgaria, where it was feared that its accession would entail the loss of control of its economic structures to foreign capital (mostly German and Northern European), and an increase in the cost of living–housing in particular.

      Even amongst the voting population in the Baltic countries (which does not include so-called “non-citizens”), support for joining the EU was tepid at best.

      To an outside observer, European expansion towards the East seems instigated at least as much by the EU itself and NATO, out of stability and security concerns–justified or otherwise, as by the desire of a part of the population in the countries concerned, largely motivated by the promise of better living standards and economic opportunities.

  5. Roberto
    July 12, 2015 at 20:51

    Very very true. As soon as the Greeks go back to the drachma, we vacation there. It is as simple as that.

  6. paul wichmann
    July 12, 2015 at 13:55

    “Debt to GDP” and “GDP” figures taken from charts on Trading economics.com; I then calculated the debt:
    year – debt to GDP – GDP – debt
    06 – 100 – 247 – 247
    07 – 106 – 273 – 289
    08 – 105 – 318 – 333
    09 – 112 – 354 – 396
    10 – 129 – 329 – 424
    11 – 146 – 299 – 436
    12 – 171 – 288 – 492
    13 – 156 – 249 – 388
    14 – 175 – 242 – 423
    15 – 177 – 237 – 419

    GDP peaked in ‘09, and is now two-thirds of what it was then.
    Debt peaked in ‘12 and dove in ‘13. It is now the same as it was in ‘10.
    Debt to GDP has been almost stable since ‘12
    CONCLUSION: ‘09 to ‘15, GDP has fallen by one third, while the debt is essentially the same.
    It is obvious that the six year course is unsustainable and a vicious failure. On the present course, the GDP will go to zero while the debt remains static.

  7. guest
    July 12, 2015 at 12:16

    Note mentioned is the Kosovo war impact on the Greek economy? Many refugees ventured from the NATO bombing of Kosovo and that placed considerable economic pressure on the economy, it displaced higher paid Greek residents from Jobs they had held for years, and it cost the welfare system of Greece quite a bit.

    Some one needs to compute the contribution of the Kosovo input to the current condition of Greece.
    Is the new ASIAN Investment bank a possible funding source for Greece? The new 2.2 billion Russia oil pipeline deal with Russia and Greece promises to bring sustainable energy at cheaper than European prices? The opportunities for Greece seem to be improving especially if they get out to the Euro box.

  8. Joe Tedesky
    July 12, 2015 at 11:04

    All this is the doings of the New World Order. When something seems to good to be true, well that is when it probably means it is to good to be true. Over the pass twenty years (maybe longer) bubbled equity along with easy credit has been the scheme that has reeled in the unsuspecting borrower into the bankers den of indebted torture. Then after the borrower is shaken down to nothing we the people are needed to bail out the lenders due to their shortfall. A shortfall based on a bubbled equity that in essence never existed. Credit issued to a borrower who everyone knew was not worthy of such credit has a fundamental flaw to it so big that you could sail the Queen Mary through it. There is something very wrong with this picture.

    At first I thought of how if the Greeks were to join with other down on their luck Euro countries that this could be away upward and out. Then I remembered how much I believe each Euro country maybe better off by un-uniting from the Euro. To make something of each of their economies work better for them. Not to survive as a whole by having some number written down in some Euro ledger. Instead, to actually survive from having their own currencies along with full employment in each of their countries support them on their own. Maybe I am dreaming, but this is what I thought at first. Now, I want to see the Euro along with NATO split apart. I get it why many feel the Greeks should leave the Euro, but why isn’t Germany thinking of leaving it to? If you were as successful as Germany, then why would you want to put up with all of this with the lesser countries which belong to the Euro?

    • F. G. Sanford
      July 12, 2015 at 12:36

      Joe, as I understand it, Germany looked at all her options. After careful deliberation, she decided that staying in the Euro was easier than invading France and Poland.

      • Joe Tedesky
        July 12, 2015 at 13:33

        Heil Merkel!

        • N Dalton
          July 13, 2015 at 21:41

          Joe, as I understand it FG Sanford is an certified Idiot . . . a Moron at best.

          Two generations and 70 years after a war that left it divided and in ruins, Germany is once again willing not only to play a leading role in Europe — which it’s been doing for years — but to discuss its role openly and even proudly.

          That was the clear message on Monday here from German Ambassador Peter Wittig, who invited reporters to his vast, coolly geometric Bauhaus-style embassy to explain the view of his country — and the European Union — on the controversial new financing deal for Greece.

          Germany, he said, was acting in the interest of all of Europe, which needs not only a common currency but the integration of “economic and fiscal policy.” In a “rule-oriented” European Union, he said, Greece must accept the same austerity and budget-balancing medicine that had been administered — with success, he said — to Spain, Portugal and Ireland.

          Europe needed to unify and modernize its labor rules, regulations and investment rules to compete in 21st century trade, Wittig said. If Germany was blamed for insisting on as much, then that was a price it would pay, in the interest of a “European project” that has bred peace and prosperity on the continent.

          Well-liked and well-connected here, and sure of his ground in talking with Americans, Wittig acknowledged that “there is concern” in Germany about a backlash from its allies against its highly visible role as the bad cop in the Greek drama.

          Leadership comes with strong criticism,” he said in a matter-of-fact tone.

          • F. G. Sanford
            July 14, 2015 at 06:45

            Hitler said the same thing….also in a matter of fact tone.

      • Anonymous
        July 13, 2015 at 23:42


  9. kafantaris
    July 12, 2015 at 11:00

    Just when we thought Germany was tamed and we need not worry it might again overrun Europe, we come to find out that Germany already overran Europe — only this time by economic means.
    And Wolfgang Schäuble says not to trust the Greeks?
    It is the world that should not trust the Germans.

    • josephconrad
      July 12, 2015 at 17:32

      Germany has gotten a free pass from the U.S. because it guards the east flank of NATO against Russia. Russia could really care less. To make a point, the U.S. has used the basketcase Urkraine to rattle Russia’s cage. Greece must default on its criminally fraudulent debt to Goldman Sachs as should Spain and Italy. It is the only rational strategy for these three poorer E.U. members. It is clear the E.U. and Euro are scams run by the Elite and their bankers. BUT WHY ISN’TANYONE TALKING ABOUT THE AMOUNT OF USAROUS INTEREST ON THE DEBT?! The interest is a huge issue undiscussed!

Comments are closed.