Sixty years ago, half of German war debts were cancelled to build its economy. Yet today, debt is destroying those creditors
People exchanging food for tickets in 1923 Germany. 'Many, including Keynes, argued that [reparations imposed on Germany following the Versailles treaty] led to the rise of the Nazis and the second world war.' Photograph: Keystone/Corbis
Sixty years ago today, an agreement was reached in London to cancel half of postwar Germany's debt. That cancellation, and the way it was done, was vital to the reconstruction of Europe from war. It stands in marked contrast to the suffering being inflicted on European people today in the name of debt.
Germany emerged from the second world war still owing debt that originated with the first world war: the reparations imposed on the country following the Versailles peace conference in 1919. Many, including John Maynard Keynes, argued that these unpayable debts and the economic policies they entailed led to the rise of the Nazis and the second world war.
By 1953, Germany also had debts based on reconstruction loans made immediately after the end of the second world war. Germany's creditors included Greece and Spain, Pakistan and Egypt, as well as the US, UK and France.
German debts were well below the levels seen in Greece, Ireland, Portugal and Spain today, making up around a quarter of national income. But even at this level, there was serious concern that debt payments would use up precious foreign currency earnings and endanger reconstruction.
Needing a strong West Germany as a bulwark against communism, the country's creditors came together in London and showed that they understood how you help a country that you want to recover from devastation. It showed they also understood that debt can never be seen as the responsibility of the debtor alone. Countries such as Greece willingly took part in a deal to help create a stable and prosperous western Europe, despite the war crimes that German occupiers had inflicted just a few years before.
The debt cancellation for Germany was swift, taking place in advance of an actual crisis. Germany was given large cancellation of 50% of its debt. The deal covered all debts, including those owed by the private sector and even individuals. It also covered all creditors. No one was allowed to "hold out" and extract greater profits than anyone else. Any problems would be dealt with by negotiations between equals rather than through sanctions or the imposition of undemocratic policies.
Perhaps the most innovative feature of the London agreement was a clause that said West Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year. This meant those countries that were owed debt had to buy West German exports in order to be paid. It meant West Germany would only pay from genuine earnings, without recourse to new loans. And it meant Germany's creditors had an interest in the country growing and its economy thriving.
Following the London deal, West Germany experienced an "economic miracle", with the debt problem resolved and years of economic growth. The medicine doled out to heavily indebted countries over the last 30 years could not be more different. Instead, the practice since the early 1980s has been to bail out reckless lenders through giving new loans, while forcing governments to implement austerity and free-market liberalisation to become "more competitive".
As a result of this, from Latin America and Africa in the 80s and 90s to Greece, Ireland and Spain today, poverty has increased and inequality soared. In Africa in the 80s and 90s, the number of people living in extreme poverty increased by 125 million, while economies shrank. In Greece today, the economy has shrunk by more than 20%, while one in two young people are unemployed. In both cases, debt ballooned.
The priority of an indebted government today is to repay its debts, whatever the amount of the budget these repayments consume. In contrast to the 3% limit on German debt payments, today the IMF and World Bank regard debt payments of up to 15-25% of export revenues as being "sustainable" for impoverished countries. The Greek government's foreign debt payments are around 30% of exports.
When debts have been "restructured", they are only a portion of the total debts owed, with only willing creditors participating. In 2012, only Greece's private creditors had debt reduced. Creditors that held British or Swiss law debt were also able to "hold out" against the restructuring, and will doubtless pursue Greece for many years to come.
The "strategy" in Greece, Ireland, Portugal and Spain today is to put the burden of adjustment solely on the debtor country to make its economy more competitive through mass unemployment and wage cuts. But without creditors like Germany willing to buy more of their exports, this will not happen, bringing pain without end.
The German debt deal was a key element of recovering from the devastation of the second world war. In Europe today, debt is tearing up the social fabric. Outside Europe, heavily indebted countries are still treated to a package of austerity and "restructuring" measures. Pakistan, the Philippines, El Salvador and Jamaica are all spending between 10 and 20% of export revenues on government foreign debt payments, and this doesn't include debt payments by the private sector.
If we had no evidence of how to solve a debt crisis equitably, we could perhaps regard the policies of Europe's leaders as misguided. But we have the positive example of Germany 60 years ago, and the devastating example of the Latin American debt crisis 30 years ago. The actions of Europe's leaders are nothing short of criminal.
Thursday, February 28, 2013
Pharmaceutical companies accused of cutting supplies because of low profits and unpaid bills
A woman gestures at the state health fund office in Athens. Chemists say patients have been going from pharmacy to pharmacy in search of prescription drugs. Photograph: John Kolesidis/Reuters
Greece is facing a serious shortage of medicines amid claims that pharmaceutical multinationals have halted shipments to the country because of the economic crisis and concerns that the drugs will be exported by middlemen because prices are higher in other European countries.
Hundreds of drugs are in short supply and the situation is getting worse, according to the Greek drug regulator. The government has drawn up a list of more than 50 pharmaceutical companies it accuses of halting or planning to halt supplies because of low prices in the country.
More than 200 medicinal products are affected, including treatments for arthritis, hepatitis C and hypertension, cholesterol-lowering agents, antipsychotics, antibiotics, anaesthetics and immunomodulators used to treat bowel disease.
Separately, it was announced on Tuesday that the Swiss Red Cross was slashing its supply of donor blood to Greece because it had not paid its bills on time.
Chemists in Athens describe chaotic scenes with desperate customers going from pharmacy to pharmacy to look for prescription drugs that hospitals could no longer dispense.
The government list includes some of the world's leading pharmaceutical companies, such as Pfizer, Roche, Sanofi, GlaxoSmithKline and AstraZeneca. Pfizer, Roche and Sanofi all said a few products had been withheld. GSK and AstraZeneca denied the claims.
"Companies are ceasing these supplies because Greece is not profitable for them and they are worried that their products will be exported by traders to other richer countries through parallel trade as Greece has the lowest medicine prices in Europe," said Professor Yannis Tountas, the president of the Greek drug regulator, the National Organisation for Medicines.
The regulator has investigated 13 pharmaceutical companies that have reduced supplies and has handed the names of eight to the ministry of health so they can be fined. Tountas did not disclose the names of the companies, saying this was the responsibility of the ministry of health, but added that they were "big multinational companies".
The body representing pharmacists, the Panhellenic Pharmaceutical Association, confirmed the shortages. "I would say supplies are down by 90%," said Dimitris Karageorgiou, its secretary general. "The companies are ensuring that they come in dribs and drabs to avoid prosecution. Everyone is really frightened. Customers tell me they are afraid [about] losing access to medication altogether." He said many also worried insurance coverage would dry up.
"Around 300 drugs are in very short supply and they include innovative drugs, medications for cancer patients and people suffering from clinical depression," said Karageorgiou. "It's a disgrace. The government is panic-stricken and the multinationals only think about themselves and the issue of parallel trade because wholesalers can legally sell them to other European nations at a higher price."
The Hellenic Association of Pharmaceutical Companies said the picture was more nuanced. Its president, Frouzis Konstantinos, said there were "probably a very few companies" that were not supplying the Greek market, and only for very specific products — "the reasons being a combination of Greece's low medicine prices and unpaid debt by the state", he said.
In Athens and Thessaloniki, Greece's second city, chemists say they are often overwhelmed by people desperately trying to find life-saving drugs. Oscillating between fury and despair, the customers beseech pharmacists to hand over medications that they frequently do not have in stock.
"Lines will form in the early morning or late at night when you're on duty," said Karageorgiou, who is based in Thessaloniki. "And when the drugs aren't available, which is often the case, people get very aggressive. I'm on duty tonight and know there will be screaming and shouting but in the circumstances I also understand. We have reached a tragic point."
Greece's social insurance funds and hospitals owe pharmaceutical companies about €1.9bn (£1.6bn), a debt going back to 2011, with companies expecting payments of €500m this month.
Some companies admitted they were not supplying some medicines. According to the government list, Pfizer had not supplied or would not be supplying 16 medicines. A company spokesperson disagreed with the total but confirmed four medicines had been withdrawn "because alternatives were available and because of the parallel trade [reselling] situation in the country". The products are the two leukaemia treatments Zavedos and Aracytin, which were withdrawn last year, and the analgesic Neurontin and the epilepsy therapy Epanutin, which were withdrawn last month.
Roche stressed it had not halted supplies of medicines to Greece, but said it had withheld supplies to public hospitals that owed the company €200m. Daniel Grotsky, a spokesman, said: "We are insisting that they [the public hospitals] fulfil their contracts and this is something we do in any country … We are withholding [medicines] until they meet their obligations."
Roche could not say how many hospitals were affected but said it was still supplying public hospitals with "critical medicines", which included treatments for HIV and transplantation. Grotsky said patients could still get their medicines through pharmacies.
Angeliki Angeli, spokeswoman for Sanofi Greece, said it was supplying public hospitals with medicines considered life-saving, unique or irreplaceable. "Non-unique products are supplied based on hospitals' outstanding obligations and overdue status," she said. Non-unique products are medicines for which either a generic exists or a therapeutic alternative option is recommended by treatment guidelines.
She said most Sanofi medicines on the government list remained available on the market with the "exception of a couple of dosages/forms where alternatives exist".
GSK Greece said it had never halted the supply of any product in the Greek market. "This is a joint decision taken not only at local level but also at corporate level. Equally, GSK has maintained the uninterrupted supply [to] Greek public hospitals with all its products irrespective of the accumulated debts," the company said.
Vanessa Rhodes, of AstraZeneca, said the company had not halted the supply of any of its medicines to Greece. "Our priority is to ensure patients have access to the medicines they need. Furthermore, we have an emergency 'direct–to-pharmacy' supply system in place should pharmacies find themselves out of stock of any of our products."
Zeta Chatziantoniou, of Boehringer Ingelheim in Greece, stressed it "has not halted any of its medicine supplies in Greece in the retail sector and in the public sector". Novartis said it was not halting supplies to Greece.
The pharmaceutical industry says many shortages are because of products being exported through parallel trade, and has urged the government to address set drug prices. Under EU trade rules, the free movement of goods is allowed. So for example, while a pharmaceutical company may sell a medicine to a wholesaler or pharmacist in Greece, the wholesaler or pharmacist can sell these medicines on to wholesalers in other countries. Parallel traders do this to make money on the price differences between countries.
"The government needs to correct these wrong prices to avoid a surge of exportation. Greece's drug prices are 20% or more lower than the lowest prices in Europe," said Konstantinos, who is also the general manager of Novartis in Greece.
The industry wants the health ministry to bring in a new pricing system so that Greece uses a basket of eurozone countries to calculate prices. At present, medicines are priced at below the average of the three lowest prices in 22 EU countries.
The regulator has introduced export bans for nearly 60 medicines to try to tackle the problem and is looking at 300 more products. It is also investigating 10 wholesalers and 260 pharmacists who it believes have broken the export ban. The ministry of health will decide any punishment, which is likely to be fines ranging from €2,000 to €20,000, said Tountas.
This month will be crucial as Greek officials and Greece's creditors – the European commission, the International Monetary Fund and the European Central Bank – must agree the 2013 public pharmaceutical budget, which has fallen in recent years. More cuts would put patients at a "critical level", said Tountas, who will be one of the key players at the negotiating table. The budget was €3.7bn in 2011 and fell to €2.44bn last year. Tountas is concerned creditors may cut it to €2bn for 2013.
Saturday, February 23, 2013
By Jamie Lindsay
4:51PM GMT 22 Feb 2013
A woman died and numerous commuters were left stranded in Athens after the Greek capital was hit by its worst storm in 50 years on Friday.
A woman is stuck in her car as flood waters gush past her Photo: REUTERS
At least 900 calls were made to the fire department requesting for aid to pump water out of homes, with many basements being inundated.
Another 90 rang asking for assistance after being ensnared in their cars. Many cars were seen to be swept and overturned by the deluge.
A 27-year-old woman died from a suspected heart attack after being extracted from her marooned vehicle by other motorists, in the northern suburb of Halandri.
The Greek city suffered power outages overnight, after a river bank bursting. Early commuters were brought to a standstill as a result of the flooding. A house collapsed in the city centre, but no injuries were reported.
The flooding culminated in havoc for public transport as the tram system was stalled for an hour while rail schedules were temporarily postponed after a tree fell on the tracks.
Family had ‘miracle’ escape from swollen river 22 Feb 2013
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Police also had to close underpasses and highways in low-lying parts of Athens after they were submerged.
Officials said up to 2.3 inches of rain fell in a few hours, more than the monthly average of 1.9 inches.
"This is the worst storm since 1961. We're talking about 52 years without ever having seen such a heavy downpour in this area." meteorologist Yannis Kallianos said.
Clearing water from a parliamentary roof, a worker was left dangling through a glass ceiling after tripping as she tried preventing water dripping into the assembly hall prior to a debate.
"The worker could have landed on our heads," Sports Minister Yiannis Ioannidis said.
Wednesday, February 20, 2013
By Rebecca Clancy, and agencies
2:44PM GMT 19 Feb 2013
Francois Hollande has pressed his pro-growth agenda in a visit to Greece, saying austerity alone is not enough to achieve fiscal reform, while urging French companies to invest in the debt-laden country.
French Leader Francois Hollande said he expected French companies to return to Greece and bid for state firms being sold as part of the country's multi-billion euro privatisation plan during a visit to Greece to meet prime minister Antonis Samaras. Photo: THANASSIS STAVRAKIS/AFP/Getty Images
In the first visit of a French leader to Athens since the euro debt crisis began there more than three years ago, Mr Hollande offered to help the bailed-out country with privatisations, tourism and a public sector overhaul.
"We must make sure that growth and jobs come back in Greece," Mr Hollande said.
"I didn't come to sell weapons ... we have to show the Greeks solidarity, support and also confidence that will allow growth to come back.
Mr Hollande, a Socialist who won last May’s election emphasizing growth over austerity, repeated his commitment to keeping Greece in the 17-nation euro area and pressed Greek Prime Minister Antonis Samaras to forge ahead with the revamp of his nation’s economy.
"Greece should make efforts, it should meet its commitments, but its efforts have been considerable," Mr Hollande said.
"No people in Europe have undergone such a test, so we must be at the side of Greece", he added.
The French leader said he expected French companies to return to Greece and bid for state firms being sold as part of the country's multi-billion euro privatisation plan.
The two leaders also signed an agreement to boost the flow of French tourists to Greece. Tourism is the country's biggest money spinner but French visitors were less than 7pc of total arrivals last year, half as many as from Germany.
Athens, whose international lenders unlocked bailout aid in December after a six-month stalemate, hopes Mr Hollande's one-day visit will spur badly-needed investments to ease record-high unemployment.
Mr Samaras praised Paris for having helped Greece stay in the euro zone, despite its debt crisis.
"France has given us vital support over the past few months to stay in Europe and is supporting us today to exit the crisis," he said.
The timing of Hollande's visit coincided with a journalists strike in the country, which left the event without coverage in the Greek media, infuriating the government.
The journalists' 24-hour walkout, staged to protest austerity measures and income cuts, pulled all news broadcasts off the air and left news websites without updates. Newspapers will not publish Wednesday editions.
The move angered the government, which accused the main opposition Syriza party of deliberately instigating the strike to "cause a news blackout of the visit of French President Francois Hollande."
Journalists' unions have been protesting firings and pension and benefit cuts among other issues. Hundreds of journalists in the private sector frequently go unpaid for months at a time.
Greece's economy has shrunk by about 20pc since the recession began in 2008, with its downturn exacerbated by fiscal austerity demanded by its international lenders to shore up public finances and attain a primary budget surplus in 2013. Unemployment in the debt-laden country hit a euro zone record 27pc in November.
Mr Hollande's visit contrasted with that of German Chancellor Angela Merkel in October for the absence of protests against austerity imposed in return for European bailouts.
Tens of thousands gathered at the barricades of a massive police operation to protect the German Chancellor as she met with Greek leaders who are searching for a new package of budget cuts to secure bail-out funds largely underwritten by the German taxpayer.
Saturday, February 16, 2013
With Greek debt contagion cutting GDP by 25%, opposition leader Nicos Anastasiades expected to inherit poisoned chalice
Rightwing candidate Nicos Anastasiades is expected to win Cyprus's presidential election. Photograph: Petros Karadjias/AP
Cypriots are preparing to vote on Sunday in crucial presidential elections amid rumours of money laundering that could imperil the bailout needed to keep the crisis-hit island's economy afloat.
For the first time since the 1974 Turkish invasion, the vote is about the economy and not the perennial efforts to reunite feuding Greeks and Turks on the isle. It is an election that takes place in an atmosphere of fear, and the uncertainty that has come with the shock of violent change.
From her flower shop in the heart of the divided capital, Nicosia, Avgousta Neophytou has had a front-seat view of that change. "Custom is down by 50%," she said. "This week was an exception because it was Valentine's Day and I did surprisingly well, but usually people walk through those doors and moan about how they have lost work, how their shares have been wiped out, how from being rich, they suddenly feel very poor."
Until last year, Europe's most easterly member seemed insulated from the economic crisis savaging Greece. But, say officials, a tempest took hold when Nicosia, in the name of EU solidarity, stood by debt-stricken Athens, agreeing to participate in a "haircut" that saw the value of privately-held Greek bonds drop by over 70%. Instantly, the island's banks lost 4.5bn euro. "Overnight Cyprus lost 25% of its GDP," said George Sklavos, a senior official at the finance ministry.
Reckless exposure to Greece plunged its banking sector – one of the key pillars of the economy – into crisis and brought the island to the brink of penury.
"When the banks got into trouble it underscored how bad the fiscal situation was and our failure to take necessary measures earlier," the former finance minister Michalis Sarris said.
In a replay of the scenario that has haunted Greece, officials now speak of public coffers running dry. With Nicosia cut out of international markets since May 2011, help is imperative if bankruptcy is to be kept at bay. "At the beginning of June we will face a big debt repayment of €1.6bn and if we are not given financial assistance, it will be a make-or-break situation," said Sklavos.
"It is vital that a rescue programme is agreed with the EU and IMF," he said dismissing concerns that public debt would likely reach 140% of the island's GDP. "We are not asking for a gift but a loan that will be paid back."
The tell-tale signs of crisis are not only in the closed shops that now dot the streets. Soup kitchens have begun to appear as both public and private sector employees have suffered steep salary cuts. In a blow to tourism, hotels, unable to afford heating oil for the winter, have closed. The Cypriot middle class – which grew with the resurgence of the Greek-populated south in the wake of an invasion that saw a third of the island seized by the Turkish army – has also been hit.Many complain they can no longer afford private tuition fees or the gas to run fancy cars. In a society that takes its status symbols seriously, maids – like Porsche Cayennes – have disappeared.
The outgoing president, Demetris Christofias, an unrepentant communist, has been widely blamed for bringing Cyprus to this point. But even those who do not hold him responsible for failing to act earlier, taking unpopular reforms to shore up the economy, express fear. They look at Greece and shudder.
"Yes, I am frightened," said Christos Tombazos, general secretary of the Pancyprian Federation of Labour, the island's biggest trade union. "Unemployment is at 15% when two years ago it was at 5%. I am in contact daily with comrades in Athens and we all know what's happened there. They're one step before fascism," he said, referring to the ascent of the neo-Nazi Golden Dawn party.
Whoever wins the poll – and it is widely expected to be the conservative opposition DISY leader Nicos Anastasiades – inherits a poisoned chalice.
The island's predicament has not only brought the eurozone crisis back into sharp focus, just when market sentiment was beginning to improve but, once again, has raised fears of the bloc breaking up.
The bleak mood has been exacerbated by a feeling of injustice at the way Cyprus, the fourth country to seek financial aid, has been treated by its fellow EU member states.
German accusations of money laundering have angered many, with Nicosia vehemently denying that the island has become a tax haven for Russian oligarchs. Instead, officials say Cyprus has fallen victim to internal politics in Berlin and vicious in-fighting ahead of general elections in September.
"If you look, you will find Russian money everywhere, Germany, the UK, everywhere," said the foreign minister Erato Kozakou-Marcoullis, pointing to international risk rankings giving the island a better rating than Germany in its ability to crack money-laundering.
"They are welcomed by everyone and definitely their money is not branded as dirty," she said. Hypocrisy is one element of the crisis enveloping Cyprus. Another is the massive reserves of natural resources in the form of oil and gas that Cypriot officials believe lie within the island's territorial waters. "It is a treasure, a gift from nature … and it has to be taken into account by our partners in the eurozone," said Marcoullis. "Whatever loans are given will be paid back fully."
Thursday, February 7, 2013
EU country is accused of ignoring supreme court decisions and keeping asylum seekers in unhealthy conditions
Nicosia, Cyprus. The city prison's block 10, described by Amnesty as dark and unhealthy, is the main centre for detaining asylum seekers. Photograph: Sipa Press/Rex Features
It was like a scene from a film, said Arif Mohamed. He was sitting in a Jeep hemmed in by police officers on either side. They planned to whisk him to the airport for immediate deportation to his native Sri Lanka.
By chance, his lawyer spotted him in the Nicosia traffic and hammered on the vehicle, demanding that the police stop what they were doing.
A Tamil who had been an army intelligence operative during the civil war, Mohamed would be at risk from both sides in his still bitterly divided country if he was deported. But Mohamed was out of luck, and the police got him to the airport.
On the plane, after his handcuffs were removed, Mohamed said, he started to shout and throw things around. "The police tried to shut my mouth and one guy grabbed my hand and broke my wrist. I was saying to myself: 'I will die, but at least I will die in front of witnesses.'"
In the event, the pilot refused to take him and Mohamed was bundled off the plane. Similar dramas have taken place in other countries after asylum seekers have had their applications rejected. But what made Mohamed's case remarkable was that it was still pending before the Cyprus supreme court.
The deportation of asylum seekers whose cases are unresolved is one of several complaints made by Amnesty International in a report on Cyprus's treatment of irregular immigrants published last year. The organisation also accused the Greek Cypriot authorities of using detention unnecessarily and of keeping detainees in substandard conditions. The main centre is block 10 of Nicosia's central prison, which Amnesty described as dark and unhealthy.
Elsewhere, asylum seekers are kept in police stations that were never designed for long-term detention. The organisation said some had been held for more than three years.
Andreas Ashiotis, the permanent secretary at the ministry of the interior, called Amnesty's position "extreme and unjustified". He said a new detention centre was being prepared. Asylum seekers were only detained once their case had been rejected.
"It is common practice that the minister decides after two months whether to release them. Then we re-examine the case after six months," he said.
But he did not deny that some, who had appealed to the supreme court, were deported before their cases were heard. "Only if they can get a provisional order forbidding the deportation does [the asylum seeker] have the right to remain in Cyprus," Ashiotis said.
Mohamed's lawyer, Michalis Paraskevas, said that violated a 2005 EU directive giving asylum seekers the right to be heard by a court. On Cyprus, cases are examined by the asylum service and, if an appeal is made, by an independent reviewing authority. Ashiotis said the latter was composed of lawyers and was thus a quasi-judicial body.
Paraskevas said that, even when cases did go to the supreme court, the judges' decisions were sometimes ignored. "On 18 January 2011, I won a case in the supreme court and the judge ordered the immediate release of my client. They did not release him. I was shocked. I couldn't believe it."
He went to the judge in chambers who said there was nothing he could do. Paraskevas then wrote to the ministry of the interior, informed the press and finally, the following March, staged a demonstration, all to no avail. It was only after a radio journalist invited him to talk about the case that his client was released, four months after the original court order.
Ashiotis said: "I am surprised Mr Paraskevas is taking this position that we are not obeying supreme court decisions … in every case we implement the decisions."
Securing permanent residence in EU country is major attraction for Chinese property buyers in city of Pafos
Pafos accounts for 90% of all properties in Cyprus sold to Chinese nationals between August-October. Photograph: Paul Quayle/Axiom/Getty
One of the first things you see after landing at Larnaca airport is an advert for a property development company. It is in Chinese.
"Everything will be Chinese," says Pafos mayor, Savvas Vergas, in his office in the pretty, whitewashed city hall, fronted by classical Greek pillars. "Meals … folklore … Everything will be on Chinese culture."
The carnival will be a way of celebrating a most unusual boom in a country which, like others in southern Europe, has been stricken by the euro zone crisis. Property prices in Cyprus have fallen by around 15% since 2007. Yet an official survey published last month found that between last August and October more than 600 properties were sold to Chinese buyers, 90% of which were in Pafos.
"The real growth came after August because that was when the government made clear the terms and conditions for third country nationals to get permanent residence," says Giorgios Leptos, a director of the Leptos property group and president of the Pafos chamber of commerce and industry.
The opportunity to secure permanent residence in an EU member state is a huge attraction for Chinese because it offers them visa-free travel throughout the union. Almost 4,500 miles away, Lisha Tang, a young client at a Beijing property firm, is relishing the prospect.
"A house in Cyprus means travelling freely in Europe, which is great for young people," she says.
And not just for young people – older Chinese who obtain permanent EU residence can put their children into European schools and visit them without difficulty. According to the 2012 Hurun report, 85% of China's 1.4 million dollar millionaires plan to send their children overseas for their education.
To obtain permanent residence in Cyprus, investors from outside the EU have to spend at least €300,000 (£260,000) on a property. They must also prove that they have no criminal record and are in good financial standing and agree to deposit €30,000 for a minimum of three years in a local bank account. Their permit normally arrives in about 45 days.
Cyprus is not the only EU state to be exploring this way of reinvigorating a stagnant property market. Last year, Ireland and Portugal also offered residency to foreigners who bought property worth more than a certain amount. In November Spain's trade minister, Jaime Garcia-Legaz, said his country was intending to follow suit in an attempt to clear his country's vast backlog of unsold homes.
For the European commission, the question of whether to grant residence to non-EU citizens remains entirely a matter for national governments. Conditions for the entry of investors into the EU are currently not harmonised.
But François Godement, head of the China programme for the European council on foreign relations, says: "I can see an issue cooking up here."
"I see intelligent and talented young Chinese whose presence in Europe might be to our benefit who run into problems when they try to stay. Yet there are immigrant businesspeople who don't seem to have any problems [in getting the necessary paperwork]."
But, he adds, "Where it really becomes a problem is where the country granting residence is part of Schengen [the agreement on freedom of movement of people]. That is quite problematic. That is going to raise eyebrows in Brussels and elsewhere. Cyprus is not in Schengen. But Portugal is, and so is Spain."
In the case of Cyprus, members of the buyer's immediate family can also get residence, but a further €30,000 has to be deposited for each one. That is almost as much as a Chinese citizen is allowed to take out of the country in a year. But, clearly, ways have been found to get around the restriction.
In Pafos, at this time of year, holidaymakers are thin on the ground and the developments in which the Chinese have bought their properties are mostly empty and locked. But the few who are staying in the town, contacted by the Guardian through agents, were reluctant to talk. Visa-free travel is not, apparently, the only reason for Chinese to want permanent residence in Cyprus.
"Chinese people tell us they may be allowed to have a second child if the child is born overseas," said Leptos. "And it offers them somewhere to live if things go wrong in their own country."
It has been estimated that around $225bn (£144bn) a year has been pouring out of China since worries spread about slower economic growth and falls in the value of stock and property. Cypriot developers have astutely positioned themselves in the path of this river of cash.
According to the China Daily newspaper, Cypriots were the most prominent foreign exhibitors at last year's Beijing international property autumn expo, taking 32 stands. Vergas says there were several reasons why Pafos had been particularly successful in attracting Chinese buyers. "It's a very quiet place with very little crime, and it's different from Chinese cities because its character has been kept intact. There are nice green areas and mountains nearby," he says.
"The Chinese also believe Pafos has a good future. Over the next 10 years there are plans for a new marina, a new port and a network of new roads around the city. In 2017, it will be the cultural capital of Europe. They believe it's a good investment."
Leptos says the influx of Chinese had enabled the city to buck an island-wide trend. "There was a 15% increase in sales of property in 2012 – the first time they have risen for some years. And I expect that, all things being equal, 2013 will be better than 2012."
Additional reporting by Daniel Parrott in Beijing
Saturday, February 2, 2013
Being on the verge of bankruptcy, one would expect that Greeceʼs politicians would propose some serious reforms aiming at controlling and alleviating the countryʼs huge financial burden. Furthermore, one would also expect from the greek voters to exhibit some sort of determination to press for changes that are indispensible if this country is to be rescued from an unprecedented state of turmoil that is threatening to take place sooner than most people would expect.
Unfortunately, this is not the case. While the majority of the political parties directly or indirectly continue to employ the sterile, preterit and dangerous rhetoric of the past two or three decades by giving unrealistic promises, the people are once again ready to follow them.
Some necessary reforms
The greek economy has always been state controlled even when right-wing governments ruled the country. All private business could not survive unless they had business dealings with the state. The notion of pure entrepreneurship without state interventions never existed in the country of Greece, a country whose economy is basically a byzantine copy. Greece has never managed to escape from the “eastern roman” ways of conducting business as reforms are viewed as something “evil” and have never been welcomed by the great majority of the people.
“In Greece, the real power is the power of resistance, the power of inertia”, said a former politician who received the hostility of the people for daring to suggest some innovations. Greeceʼs main power centers (political parties, professional guilds, public sector unions, business leaders, and the media moguls) have never stopped fighting against every attempt to reform the country because they want to preserve their privileges. They show an extreme determination to block any structural changes that would help the economy be more functional. With corruption being woven into the fabric of the greek state, any reforms seem like “mission impossible”.
The majority of public servants were not appointed through a meritocratic system that evaluated their true credentials and working experience but through a system based on political connections. Millions of votes were given to the politicians who placed people in their civil posts.
Besides being unwilling to work hard and serve the citizens, most public servants “invented” numerous ways of making an extra buck. They directly or indirectly received smaller or larger bribes (depending on the case) to process a civilianʼs request. The practice of “feathering their own beds” has not decreased a bit even now where the whole country is collapsing. In the past, most civil servants were handsomely paid by the state by receiving financial “allowances” that were “tailor made” by the politicians who appointed them just to keep their voters happy. Since most of the money that the country borrows is headed towards the payment of the public servants, it is rather obvious that the only means of rescuing Greece from a complete state of disaster is simply to fire at least half of the public servants.
How can this be done? Will matters get even worse if half of the public servants are fired since they will add up to 1,5 million of people who are already unemployed? Undoubtedly, this wonʼt be an easy task. However, the state could either give them a compensation for a small period of time that would total 1/3 of their salary accompanied by financial incentives to start their own business or even better, encourage them to move to the countryside and be involved in the agricultural sector. One might say that this easier said than done but I donʼt think that this sort of mentality will lead the country anywhere. The country doesnʼt need any more “thinkers”. It is in need of “doers”, people who would undertake the political risk of improving the economy by getting rid of the state-run practices that have led Greece to this chaos.
The state surely needs to be substantially decreased by entering the phase of a healthy privatization process. Many counterproductive and heavily bureaucratic agencies should be sold to the private sector. In addition, numerous public agencies that were formed to house counterproductive public servants and have no actual role to play in terms of serving the public should be immediately abolished. Otherwise, no matter how many loans Greece gets, the end result will be always the same.
Greece is in need of a better, fairer and more effective tax collecting system. It is true that the greek people have always been negative to paying taxes. However, the “art” of tax evasion is deeply rooted in the history of Byzantium and the Ottoman Empire that succeeded it. The church became the tax collector, a role that granted it with tremendous privileges. So, paying taxes has never been viewed as the necessary process that will benefit the citizenry as a whole but as a means of making richer the stateʼs corrupted mandarins.
The countryʼs tax collecting mechanism also needs some heavy reforms. Greece has 286 tax offices a huge per capita figure by OECD standards, created in the past two decades to serve the voting clientele. During the 80ʼs the 90ʼs and right after 2007 many civil servants were transferred to tax collection departments from other parts of the civil service without having the necessary skills or training. Why? Because being in charge of collecting taxes allows every public servant to benefit himself by receiving kickbacks. As long as no reforms take place, the ones who undertake the burden of paying taxes are the pensioners, the low salary earners and the small-medium size businesses many of which are forced to abandon Greece to avoid the heavy tax burden. Big businesses which have strong political connections end up paying very little simply because they finance the political campaigns of the corrupted political parties.
Greeceʼs “heavy industry”
The notion of planning ahead has always been the missing factor regarding the greek state. Many political historians have concluded that matters would have been substantially better if Ioannis Kapodistrias had not been assassinated by the clans that continue to rule the land even these days. Serious attempts to reform the way the state functions have never been popular to the people of this country. Greeceʼs heavy industry is undoubtedly tourism. However, the services offered to the foreign visitors were not only overpriced but also of inferior quality in most cases. Another underestimated factor is the countryʼs small enterprises which could help give economy a substantial boost. The greek shoe and jewellery makers as well as some many other craftsmen and small business owners were never given the proper attention so as to develop their exporting potentials. Moreover, Greece has a great number of scientists who were educated abroad and could significantly contribute to the increase of industrial innovations and applications and thus give the economy a further competitive advantage.
Unfortunately, Greeceʼs private sector is collapsing due to heavy taxation and bureaucracy. The private sector is sacrificed just to rescue the state mandarins. The only surviving private businesses are the ones which had unethically and illegally interlaced with the corrupted public sector.
Dealing with illegal immigrants
When somebody is forced to immigrate, it unquestionably means that he is doing so to seek better employment opportunities and/or to avoid political/religious persecution. The issue of immigration is a very complex and delicate social phenomenon that needs to be tackled with extreme care.
It is true that Greece has transformed itself over the past 30 years. It used to be an immigrant exporting country and now itʼs an immigrant importing one. Although no exact estimates are available regarding the number of illegal aliens that live in the country, itʼs quite obvious that the number of people who have sought refuge here are more than the country can support especially during its financial crisis. Having in mind the high unemployment rate of Greece, the increase of criminality is somewhat expected since most of the illegal immigrants can barely survive and thus, will employ every possible means (including committing crimes) just to feed themselves. Greeceʼs geographical borders are hard to guard and control. In addition, Europeʼs attitude towards Greeceʼs immigration problem is treated as an unimportant issue since Europe considers Greece as its “toilet” in terms of controlling the constant flow of immigrants. Most of the immigrants who have come to Greece, never wished to reside in this country permanently. How could this be remedied?
Instead of forcing those individuals to leave the country, the country of Greece could provide them with all the necessary travelling documents that would enable the immigrants to go to other european countries. That would be perhaps one of the biggest nightmares of Berlin, but it could teach Europe a useful lesson for not implementing a solid based and realistic immigration policy.
The geopolitical environment and the unfriendly neighbors
Greece is a balkan country both geographically and culturally. The balkans once were a part of the Ottoman Empire before their struggles to free themselves and become independent states. That may partially justify the degree of ethnocentricity that exists among those states even today.
Terms like the “Great Albania”, “Great Bulgaria”, “Great Serbia”, “the “Great Macedonia” (one of the most successful historical jokes that started in Titoʼs times by Tito himself) are an inseparable part of the Balkan mentality which has also been infested by theocracy. Instead of getting rid of their corrupted politicians and find a formula of cooperating among themselves so as to improve their economies, the balkan states exhaust themselves in their attempt to be linked to Alexander the Great. Neither Alexander nor his ancient macedonians exist today. Nobody in the Balkans can claim that he is genetically linked to them after so many intermixtures of tribes that took place there. It would be a great joke if somebody truly claimed that he is a direct and pure descendant of Alexander.
On the other hand, the territorial disputes with Turkey, have forced Greece to be involved in a never ending armaments race that has cost both countries a serious misallocation of resources. In general, the only one who benefits out of this race is the armament industry which is neither greek nor turkish. It is really sad to see countries that share borders to exhibit such a high degree of hostility towards each other.
The lack of european leadership
The European Union along with the concept of having a common currency (Euro) was never based on solid foundations. The countries that comprise Europe have tremendous differences regarding their mentality, their economy, their demographics, their culture and their border threats. The Maastricht Treaty never took into account the above mentioned differences and that led to the turmoil that exists today. A german has very few things in common with an Italian not to mention with a greek, a spaniard with an austrian, a belgian with an englishman and so on. When the plan for a united Europe was concocted, all those factors were not taken into account.
The fate of Euro undoubtedly depends heavily on these great cultural differences but Berlin pretends to ignore them because that serves its economic dominance better. Nowadays, Germany is the key player in the european matters. All other states are either German satellites or “small potatoes”. Germany seems to have benefited from the crisis of the european South and that is the main reason why it insists on the implementation of the heavy austerity reforms that it has proposed. However, in the long run, Germany may be forced to pay a heavy price in its attempt to “germanize” Europe. In the meantime, Greece will continue to be Berlinʼs guinea pig in terms of testing the effectiveness of german-made austerity measures that the country is forced to implement.
As a conclusion
It would be unfair to say that Europe and its demands for austerity measures have solely triggered Greeceʼs miserable financial condition. The uniqueness as well as the roots of Greeceʼs financial burden can be found in the socio-cultural roots of the modern Greek state and the way it was formed as well as the mentality of the people who are fond of electing corrupted politicians for a post in the public sector. (Read: The socio-cultural roots of the greek economic crisis). Furthermore, Europe as an entity and euro as a common currency seem to have an expiration date that doesnʼt seem to be far away. What Greece experiences now is extremely serious and may cause even more serious socio-political repercussions that will have a tremendous international impact. What will happen in the years if not months that will follow will eventually darken not only the history of Europe but also the history of humanity as a whole.
The economic crisis in Greece which threatens to act as a locomotive power that will force most of the countries in the european south to exit the Eurozone, has triggered many discussions and predictions concerning the future of Europe as an entity. Numerous analyses find their way to the media on a daily basis, all attempting to explain the repercussions of Greeceʼs inability to reform and lead itself to an economic growth that will eventually free the country from the constantly increasing need of borrowing money to satisfy its basic needs.
However, all those reports and economic analyses have something in common. They fail to deeply examine the socio-cultural roots of the greek crisis. If one does not take into account the idiosyncrasy and the psycho-synthesis of the modern greek people, will just miss the point.
Modern Greece is by no means related either genetically or culturally to the ancient cosmos and the people who once occupied this land. The modern greeks are just an intermixture of balkan tribes (albanians/arvanites, slavs, wlachs) which in the process of time mingled with northern africans, armenians and other tribes of Anatolia, not to mention the francs and the venetians who were also dominantly present in this land.
Those groups were mainly involved in agriculture and animal breeding. A significant number of them had been employed by the ottomans to serve in the army because the local inhabitants were hard natured and warlike.
During the byzantium era, those tribes were christianized while the few remaining descendants of the ancient greeks who refused to convert to christianity were either persecuted and killed by the christian emperors or died of several plague waves that occurred quite frequently back in those days. Another factor that contributed to the reduction of the population was piracy. It is a well known fact that the city of Sparta had been almost abandoned and unoccupied for 400 years while Athens and especially the area around the Acropolis was a place for pasturing sheep.
The attempts to “hellenize” those intermixed tribes were mainly made by european sovereign states which needed a protectorate to promote their interests. The geographic location of Greece is still considered as the connecting doorway between East and West. The european romantics who dreamed of reviving the ancient hellenic cosmos through the mountain savages also bear a degree of responsibility for the false identity that was given to the modern greeks.
The superfluous and simultaneously disastrous decision to name as “hellenes” (greeks) that intermixture of tribes eventually placed a very heavy burden upon them simply because they lacked the proper educational background that would enable them to develop the necessary awareness that would help them identify themselves with the ancient inhabitants of this land.
These mountainous hard natured shepherds were made to believe that they were not only the offsprings of the ancient greeks but also the christian God's blessed people. Everyone can observe that there is no comparison between these people and the ancient greeks. No resemblance whatsoever physically, aesthetically and mentally.
The Eastern Church was forcefully against any kind of education as it wanted its subservient believers not to read anything but the Bible. The role that the Church played during the years of the ottoman presence was catastrophic for the majority of the people because it was the main and the most effective collaborator of the sultan either through collecting taxes or contributing to the suppression of every revolt against the ottoman authority. The Church was surely rewarded by the Divan with a humongous amount of land enough to rank it as the biggest landowner of the country.
The confusing identity of being a hellene and a christian at the same time still haunts most of the people in this land. Most of the people in Greece have been made to believe that they are the pure descendants of Pericles, Socrates, Leonidas and Alexander the Great while they consider it quite natural to be christian orthodox as well. Two completely conflicting worlds co-exist abnormally in the socio-cultural background of modern greeks.
The revolution of 1821 against the ottomans that eventually led to the formation of the modern greek state couldnʼt have been achieved without the contribution of the european superpowers of that era. The seabattle of Navarino that marked the creation of modern Greece reflects the need of the europeans to use this land as their protectorate governed by regimes that were either appointed or imposed by the european financial interests. Modern Greece has always been victimized and exploited by the superpowers while its role in the sociopolitical arena has never been autonomous.
The modern greek citizens who had never experienced the gifts of Renaissance, Enlightment and Industrialization remain culturally underdeveloped even today. Greece has been governed by the offsprings of the family clans that ruled the land right after the collapse of the byzantine empire and although it is true that democracy was born in this part of the world, it is not true that the ancestors of modern greeks are the ones who first created it.
The Church continues to dominate the politics in this land. Greece is the last theocratic state in Europe. If someone wishes to have a career in politics, he had better "bow" to the local Church bosses first.
In the 50ʼs and 60ʼs thousands of modern greeks were forced to abandon their villages and either migrate abroad or seek employment in the big city centers where factories were built and needed cheap labor. The countryside was abandoned and the cities experienced an unprecedented overpopulation that led to severe demographic and environmental problems since there was no urban planning (there isnʼt one even today).
The rural depopulation, however, created another great problem that few politicians have dared to tackle: The disease of urbanism. The constant flow of villagers showed that the motives to abandon their villages were not only based on their need for employment but also on their desire to experience the “urban style” of living with a sense of hedonistic lust. Contrary to the US southerners who take pride in their heritage and their land, the greek villagers preferred to come to big city centers and work as industrial workers or clerks instead of remaining in their land and cultivating it. They believed that “easy living” can only be found in the big cities.
The military junta in 1967 encouraged the “love for urbanism” of the villagers even more.
Two main political parties emerged after the fall of the military junta. The “New Democracy” party and the “Panhellenic Socialist Party” also known as “PASOK”. The first one had a conservative approach and the second one a supposedly socialist one. Both of them, however, had one thing in common: They made sure that everything should be directly or indirectly controlled by the state. In order to achieve their goal which was no other than to remain in power as long as possible, they found a destructive way of doing that. Thus, the state was transformed into an enormous employment agency.
Those two political parties hired thousands of unqualified individuals to work in the public sector. The regimes borrowed money from the European Union to finance the fat salaries and the special privileges of their public servant armies. Prosperity in the private sector came only if it interweaved with the public one. No matter what somebody did, no matter what public service he wished to have, he simply couldnʼt have it unless he bribed. Bureaucracy and corruption have always been interwoven.
The degree of corruption in modern Greece is by far higher than the one in many Asian, South American and African countries. The country stopped producing anything since ¼ of its workforce was employed by the state. Finding a job in the public sector became every young personʼs dream. It was no longer important what academic credentials one had. What mattered was what kind of political connections he had so as to be placed somewhere in the public sector where he would be handsomely paid without doing anything! The populist rhetoric applied by both those political parties created a new kind of roman-like ethics among the people. Undoubtedly, this grotesque political system is a unique modern greek invention. Having conservative (right wing, anti-communist) regimes with a stalinistic approach of implementing the authority of the state is something that can only be found in the country of Greece.
The modern greeks are noted for having mastered the art of creating conspiracy theories. The whole world is supposedly plotting against them because of their racial "superiority".
John Maynard Keynesʼ suggestion of “first stabilize and then reform” cannot find any application here because the greek economy can never be stabilized as it overflows with useless and counterproductive public servants.
All the above mentioned facts may sound a bit surprising to someone from another western state. Well, nothing should be surprising, nothing at all.
It is impossible for the descendants of chicken and sheep thieves, who lived on top of mountains and inside caves, rarely took a shower, kidnapped their hick wives from their parents and robbed villages, to understand how civilized nations function not to mention to feel europeans. It is also impossible for a nation that never experienced the gifts of Enlightment, Democracy and the Industrial Revolution to be able to adapt to the constantly evolving international economy.
If someone wonders why the rest European Union countries are so stiff against Greece, it is perhaps because they are ignorant of the real situation here. They lack the necessary knowledge to fully comprehend the socio-cultural roots of the modern greek state.
Greece will never be a purely european country. It canʼt be. It doesnʼt want to be.