Who is responsible for the Greek debt crisis?

The headlines are full of Greek politics – will the country opt out of the austerity/bailout/Euro package or not? It seems the rest of the Eurozone is presenting the issue as an ultimatum.

It set me to wondering why there hasn’t been more discussion about exactly what the terms of the bailout cover, and why. Because it was a shock to learn – via Paul Seabright’s recent Princeton in Europe lecture – that by 2008 Greece had become the world’s fifth biggest arms importer (pdf), and the second and third biggest customer for German and French arms exporters respectively, presumably in deals financed by German and French banks. Even in 2011, Greece’s defence spending amounted to 3.2% of GDP, the highest in Europe as a share of GDP,  and $1230 per Greek citizen.

(Parochial note – the UK is the world’s 5th biggest arms exporter, Europe’s 3rd behind France and Germany, and our biggest customers by 2008 were the US, India and Chile.)

Stopping the purchases would make a handy dent in the 9% of GDP budget deficit. So surely would ending interest payments – even defaulting – on those loans that financed the earlier arms build-up. If German and French banks were encouraged to extend them by their governments for geopolitical reasons, then those governments should take responsibility and face their own taxpayers, rather than placing the whole burden on Greek taxpayers.

This obviously isn’t the whole story. After all, not that many Greeks are taxpayers (only just over half, it seems), so there is definitely a need for Greece to face up to its own responsibilities too. But I find it odd that the story about Greece’s astonishing military build-up isn’t better known. All I could find is one Guardian article that mentioned it.

The data source is the highly-regarded SIPRI Yearbook. This is one of the shadowy areas of the global economy that economists don’t discuss enough, along with the outright illegal economy – as I touched on at the weekend with a little rant about the vampire cephalopods of the global economy.

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5 thoughts on “Who is responsible for the Greek debt crisis?

  1. Thanks for the links, Ian. I’d missed that other Guardian article.

    Interestingly, the SIPRI stats show that Germany hedged its bets by having Turkey and Greece as its number one and number two customers respectively in 2004-2008. It makes you wonder who will intervene if, heaven forbid, Turkey and Greece ever do come to conflict.

    • Sounds like the Rothschilds who were funding all sides in WW1 and WW2 and probably every conflict before and since! Guaranteed way to make money – back both sides and pick up the pieces after everyone has killed each other. At least land doesn’t die (global warming and sea levels excepted of course).

  2. In Germany that issue has actually got some attention every now and then. Here is one of the more recent articles in liberal weekly ‘Die Zeit’: http://www.zeit.de/2012/02/Ruestung-Griechenland
    which supports your arguments. Zero Hedge provided a translation:
    http://www.zerohedge.com/news/greece-spends-bailout-cash-european-military-purchases

    http://www.diewunderbareweltderwirtschaft.de/2012/04/griechenland-soll-gefalligst-beim.html
    is a contrarian blog entry which states that the share of military expenditure in GDP has actually fallen since the crisis. In bad Google translation:

    2010 were the military spending of Greece So (based on self’s falling GDP) as low as never before in the last 10 years. If you have a decade of looking further into the past, there are military expenditures, which were often even more than 4% of GDP.

    Compared with the long-term average of 10 years earlier (or the decade before that), you could criticize Greece unsure of spending too much money for the military. The cuts are even slightly higher than the already falling GDP.

    What does the comparison within Europe? Germany is just under 1.5% of GDP target of military (SIPRI). However, a large country (relative to the low land area boundary), it is still the heart of Europe (not direct enemies), also difficult to compare with a little country on the border of Europe. Portugal uses about 2% of its GDP on the military. However, Portugal is also “alone” on the edge of Europe and the (supposed?) Nemesis has not directly in front of the door.

    What we can now draw a conclusion from it? Considering the size of Greece appear, the length of the coast, the location on the edge of Europe and the situation with Turkey, Greece’s military spending is not high so incredibly insane. It may well be some potential savings available (where there is not?), But just above it, Greece will not be rehabilitated.

    So, I guess, judgement depends on ones position to the Greece-Turkey issue. Personally I don’t get it. Yes, they share some bad history but both have been NATO members for some time. Is it still the Cyprus trauma? Anyway, the quoted blog links also to this interesting Economist chart http://www.economist.com/blogs/graphicdetail/2012/04/daily-chart-9 – connects very well to your last paragraph.

    • Yes, I think there has been a reduction in the defence imports since 2008. My thought was more about the stock of debt, probably owed to German and French banks, associated with paying for the German and French arms – where does responsibility for that really lie? Thanks for your very interesting reply and the links. That last one is fascinating.