This book review was published by the Times Literary Supplement.
You cannot read Game Over without a sense of nostalgia for the relatively innocent European Union that was swept away by the Eurozone crisis. Assumptions of solidarity, unity and convergence between the member states have been abolished. The process of bailing out Greece, Ireland, Portugal and Spain may have built contingency mechanisms that have defended the Eurozone against market speculation; but it has been at least as noticeable for punishing weaker economies with austerity and recession, concentrating more power and wealth in the hands of one member, Germany, and shaking the political centre across the continent.
For Greece, six years of financial and fiscal oversight by the Eurozone and the International Monetary Fund have brought a cumulative loss of 27 percent of its economy, an unemployment rate stuck at 24 percent, and political instability. Since 2009, governments have averaged 17 months between elections.
Perhaps no one emerged as traumatised from this train wreck as the author, former Greek finance minister George Papaconstantinou, who was defenestrated from politics in 2012 after a meteoric rise. It was he who drafted Greece’s first bailout agreement with creditors in May 2010, and became its voice and face. Game Over is his apology, in the Socratic sense.
Although it spans the length of the Greek economic crisis, most of Game Over is devoted to his time in office, from October 2009, when the socialist Pasok party came to power, until June 2011, when he was forced to resign under popular discontent with austerity.
In it, Papaconstantinou flicks away the most touted arguments against his medicine: that Greece could have borrowed cheaply from Russia, China or the Arabs once it found itself priced out of markets; that he didn’t drive a tough enough bargain; and the conspiracy theory that his government artificially inflated Greece’s 2009 deficit of 15.4 percent as a pretext for inviting the IMF.
Papaconstantinou argues plausibly that any government would likely have suffered the fate of the socialists, who fell from 44 percent of the popular vote in October 2009 to 13 percent in May 2012.
They inherited a €36bn deficit and managed to cut it by a third in the first year. That wasn’t enough to convince markets, which felt that Greece had a long road of market and administrative reform ahead, not to mention further cost-cutting. Having spent his first six months in office convincing the Eurozone to put a “loaded gun” on the table in the form of Greece’s first, €110bn bridging loan, Papaconstantinou now set about trying to convince them to help Greece restructure its debt.
This was because austerity was shrinking the economy twice as fast as predicted. Debt was rising unsustainably as a proportion of GDP, and markets were afraid they’d never recoup their money.
Debt restructuring was a much more difficult task, because the European Central Bank, a key creditor, was against asking financial institutions to accept losses on sovereign bonds so soon after they had been bailed out of losses to American banks. Germany was also against restructuring because it feared that once Greece had abrogated its sovereign signature, markets would bet on other weak Eurozone economies doing the same. Soon, the entire Eurozone would be under attack.
That attack came anyway. From the summer of 2010 to the summer of 2011, as Papaconstantinou and his Eurozone colleagues fruitlessly tossed responsibility for the Eurozone’s falling credibility across the table, first Ireland, then Portugal had to be bailed out. The Eurozone had to act as one, Papaconstantinou argued, with wealthier members effectively underwriting poorer ones. Time and again he was sent away with instructions to slash expenditures further and find new sources of revenue. In the absence of a fiscal union that would enable wealth transfers from stronger members, it was Greece that would have had to convince markets that its word was its bond.
Yet Greece was not in a position to convince anyone that its heart was either in reform or fiscal frugality, because a powerful conservative opposition pledged to overturn austerity policies as soon as it came to power. Trapped between this and a Eurozone that could offer markets no further reassurance, the socialists were doomed. Prime Minister George Papandreou abdicated in favour of a former central banker whom the conservatives would also back. An ensuing conservative administration would succumb after 30 months of austerity. The ruling leftwing Syriza party, which rose on a platform as unrealistic or insincere as Samaras’ to rid Greece of austerity, is also floundering. Anyone might think that Greek politicians would eventually learn that unilateralism didn’t work, but they never did.
Papaconstantinou apportions blame to himself for not doing more sooner to cut the extraordinary waste of the Greek state; to the Greek political system for its opportunism and complete lack of responsibility; and to his own government for allowing him to shoulder the political cost almost alone.
Greece’s psychoses have undeniably played the biggest part in keeping the country a briar patch for investors. But Greece’s “reluctant rescuers”, as Papaconstantinou calls the Eurozone’s leaders, played their part, too. France’s president, Nicholas Sarkozy, set a positive initial tone in March 2010, saying, “If Greece needs our help, we will be there.” But Germany wasn’t going to allow France to run the Eurozone.
“The lesson we learned to our cost,” says Papaconstantinou, “was that nothing mattered much until Berlin made up its mind; and until it convinced everyone else to follow suit – on its terms.” German hegemony meant that the silver bullet of federal bonds was off the table. Greece’s first bailout was conceived as a series of bilateral loans with other Eurozone members. It meant that when a permanent rescue fund for distressed Eurozone governments was finally agreed to in late 2010, it drew the line at protecting private bondholders. This re-triggered market runs on not only Greek but also Irish and Portuguese bonds, eventually forcing those countries off the market and into bailout loans.
The folly of this policy was demonstrated in 2012, when private holders of Greek debt were forced to accept losses of more than 50 percent on €100bn in bonds. Unfortunately, most of that debt was owned by Greek banks, Greek pension funds and Greek universities – not the rash hedge fund speculators and investment bankers Merkel was trying to hold accountable. The write-down crippled them, forcing the Greek government to borrow more to bail them out and adding to an already unsustainable debt. Finally, Germany’s power of veto on the rest of the Eurozone has meant that debt rescheduling for Greece remains off the table even now, despite repeated promises to the contrary.
Game Over exposes Greek politicians’ hubris in believing they could use a national crisis for political gain; but it also lays bare a Eurozone driven by markets and a northern bloc of competitive economies making sure they lost none of their advantage to the south.