Blaming the Greeks

I'm really sick and tired of all the rhetoric about feckless Greeks and Italians that has been chucked around in recent weeks.

It's very easy to blame the victim in these cases--particularly when you start involving Punch and Judy figures like Berlusconi, or Athens bureaucrats evading taxes and retiring on handsome pensions at 50.

But the way I see it, you have four classes of people who were involved in this collective failure: euro zone-level bureaucrats; national bureaucrats in the basket-case countries; international bond investors; and the general public in the basket-case countries.

All of these groups except the general public had a specific professional responsibility to get their economic forecasts right. But it's only the general public who seem to be paying any price for the fact that the forecasts were wrong, in the form of high unemployment, benefit cuts, and the promise of years of recession.

There's a tendency at the moment to blame the ordinary people for what went wrong: silly Greeks, borrowing loads of money to build overpriced homes in the middle of nowhere. But that way of thinking seems to me to shred the social contract, because part of the point of having big complex societies is that we can all delegate particular responsibilities to experts.

If I get mugged I expect the police to take some responsibility for sorting it out. They're experts in criminal justice: that's why we all agree to pay their salaries. If they tell me it's my own stupid fault--don't you know the streets can be dangerous?--and, furthermore, they'll be confiscating my job and my pension to help deal with this crime wave that's sprung out of nowhere, I'd be right to feel a bit miffed.

The people society tasked with getting this stuff right, got it wrong. If you told a professional bond investor today that Greek sovereign debt is no more risky than German sovereign debt, she'd fall off her chair laughing. But if you told the same investor five years ago that Greek debt was significantly more risky than German debt, she'd still have fallen off her chair.

She'd jab a finger at the screen of her trading terminal, showing the minimal spread between the two bonds--the extra interest rate that people demand for making riskier loans. "Why isn't the market seeing these risks you're so worried about?", she'd ask.

She might even point to a chart of Greek GDP growth, which had--along with Ireland and Spain--been the best-performing of the euro zone economies ever since the currency's inception. She might then have made some sort of past-performance-based forecast of greater things to come, similar to the ones we now routinely make for China.

As we all know by now, the mandarins and business people charged with directing economic policy did very well from the decades up to 2008. Indeed, they're still mostly doing very well. Societies whose own wages were largely stagnating mostly thought this was a decent bargain because the wisdom and foresight of these people was delivering an era of unprecedented economic stability and (in the case of the euro zone periphery countries now so castigated) growth.

People are upset that this stability turned out to be an illusion and doubly so that they're being asked to pay for others' mistakes. But what really adds insult to injury is being told that the mistakes were theirs: that the average Greek supermarket manager should have seen the writing on the wall before taking out that mortgage, or getting that pay rise, and that really the whole problem is just a result of them getting greedy and having ideas above their station.