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The State and Modes of Regulation in

Greece from the Post-War Period to the
2009 Financial Crisis
Maria Markantonatou
Version of record first published: 07 Nov 2012.

To cite this article: Maria Markantonatou (2012): The State and Modes of Regulation in Greece from
the Post-War Period to the 2009 Financial Crisis, Journal of Balkan and Near Eastern Studies, 14:4,
416-432
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Journal of Balkan and Near Eastern Studies

Vol. 14, No. 4, December 2012, pp. 416432

The State and Modes of Regulation in

Greece from the Post-War Period to
the 2009 Financial Crisis
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Maria Markantonatou

Mainstream views attribute the causes of the recent crisis in Greece to endogenous
factorsfor example, profligacy, corruption and rent-seekingand describe the country
as a special case. In contrast to such approaches, this paper discusses the alternating
modes of regulation in Greece from the post-war period until the recent crisis and argues
that, despite the ruptures, lags and deviations, an alignment with wider international
developments emerges. Four phases are distinguished: a post-Civil War period of growth
under an authoritarian rule; a short Keynesian period of stagnation; a period of growth
and neo-liberalization; and the current crisis. It is also argued that the crisis provided an
opportunity to deepen certain neo-liberalization processes across the European Union
(EU), further denationalize economic policy and impose fiscal discipline at the expense of
the social state, even through constitutionalization. These developments advocate the
view that Greece is rather a test case than a special case.

Introduction
During the recent financial crisis, Greece has been described by Greek and European
leaders as a special case1 and the causes of its fiscal and economic problems have
been considered as mainly endogenous. The Greek economy and society were
considered as rent-seeking2 ones, characterized by misuse of productive resources,
corruption, clientelism and a bureaucracy standing opposed to structural reforms
and modernization. Similar viewpoints were incorporated and prevailed in
the academic discussion.3 Although a number of studies relate the Greek crisis to
the wider downturn of financial capitalism from 2008 onwards4 or with the
architecture of European Monetary Union (EMU) itself,5 mainstream views conceive
Greece as a special case, stressing the Greekness of the current crisis.
Unlike such perspectives based on the special case assumption, this paper
discusses the different modes of economic and social regulation in Greece from the
post-war period until the current financial crisis and illustrates that, despite the lags,
ruptures and peculiarities, the regulatory models adopted in Greece show a gradual
alignment with overall capitalist trends and international developments. Although it
ISSN 1944-8953 (print)/ISSN 1944-8961 (online)/12/040416-17 q 2012 Taylor & Francis
http://dx.doi.org/10.1080/19448953.2012.736225

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The State and Modes of Regulation in Greece

417

has been pointed out that there is a lack of research in terms of studying Greece as a
divergent capitalism,6 in conditions of globalization, capitalist expansion and
financial interdependence, the tendency of national economies to converge as regards
their formneo-liberalization, financialization, entrepreneurial governance, managerialism, flexibilization and precarization of labouris stronger than their
tendency to diverge. In addition, the ongoing processes in the European Union (EU)
after the outburst of the crisis (deepening of a neo-liberal/monetarist governance,
Fiscal Compact, etc.) are of great importance for all European countries. These factors
call for an understanding of the developments in Greece as part of wider trends and
within broader frameworks, rather than conceptualizing it as a special case.
To this purpose, Streecks broader analysis of post-war democratic capitalism in a
number of Western countries provides useful insights regarding the transformations
of different regulation modes employed to respond to previous crises and secure the
reproduction of capitalism. Streeck defines democratic capitalism as
a political economy ruled by two conflicting principles, or regimes, of
resource allocation: one operating according to marginal productivity, or
what is revealed as merit by a free play of market forces, and the other
based on social need or entitlement, as certified by the collective choices of
democratic politics.7
In this paper, democracy and capitalism are considered to constitute potentially
conflicting poles, not as independent subsystems with an essence or nature of their
own, but because of the dialectical, conflictual and materially manifested dynamics of
their interplay. Democratic capitalism, then, can be understood as the crystallization
of a non-static conflictual correlation of social forces, as formed by the contradiction
shaped historically within liberal capitalism between formal/legal equality, on the one
hand, and the free market/class society, on the other.
Streecks analysis uses the fact that with growth deceleration in the 1970s, states
began to rely upon future resources in the form of additional money in order to
satisfy present needs and balance the democracy capitalism tension.8 The different
methods of drawing on future resources provide a starting point for the
periodization of the phases and crises of post-war democratic capitalism: from
Keynesian regulation to the inflation crisis of the 1970s, through the increase in
public debt during the 1980s, to the enhanced private indebtedness of the 1990s, and
finally to the 2008 crisis and the bailout of banks or even national economies.
In particular, according to Streeck, as growth rates started to decline in the 1970s,
governments had to cope with the intensification of the capital labour conflict, up
to then centred on full employment and the Keynesian regulation, by exerting
inflation-tolerant policies. As capitalists reacted to stagnating growth by disinvestment (resulting in rising unemployment), governments turned to policies of
monetary stability, combined with an increasing public debt during the 1980s, which
replaced inflation in its role of bridging the gap between the economic demands of
society and market needs. As dependence on borrowing was increasing, creditors
started to demand more and more fiscal discipline, and neoliberalization was

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Maria Markantonatou

deepening. In this context, in the 1990s and 2000s a policy of promotion of private
indebtedness (mortgage loans for groups with low economic status, credit
liberalization) was exerted and this was combined with reduced taxation on
entrepreneurs, in an effort to bridge increasingly contradicting social demands, up to
the outbreak of the 2008 crisis. Finally, the period from 2008 onwards was
characterized by massive reductions of social spending, vulnerable interest rates and
bailouts of banks or national economies, in an effort to convert private or banking
debt to a public one, which citizens are required to fund while tolerating an evershrinking welfare state.9
This analysis serves as a starting point for an overview of the modes of Greek socioeconomic regulation and their integration in the broader transformations of
democratic capitalism. In this frame, four phases of post-war Greek capitalism are
outlined: a post-Civil War period of rapid growth under authoritarian rule followed
by a short Keynesian period of stagnation, through a period of growth and neoliberalization, to the current financial crisis and the bailout and austerity packages.
The Post-Civil War Restructuring and Growth
The almost total destruction of infrastructure and the dismantling of the productive
classes as a result of the Second World War in Greece were followed by the Civil War
(a nodal point of the cold war) and the systems subsequent policies against
anything perceived as a communist threat. While the golden years of democratic
capitalism in many European countries were marked by the nationalization of
industries and the establishment of the legal and institutional framework upon which
the industrial welfare state would rely,10 in Greece the same period was characterized
by the authoritarian rule of a dual society11 that emerged in the aftermath of the Civil
War. The state undertook an active ideological role in the perpetuation of the division
between the losers and the winners of the [Civil] war, by offering jobs and state
subsidies to the latter, repudiating and purging the former, long after the end of the
hostilities.12
A key priority of the state was the incorporation of various social groups
disaffected during the war: the shattered rural social strata and the displaced peasants;
the unemployed of the urban centres; and the literate members of the petty
bourgeoisie. This incorporation policy aimed at restoring the political function and
class role formerly served by those groups to achieve social cohesion and compliance
with the new regime.13 The economic survival of these groups would thus be secured,
whereas the losers of the Civil War would be marginalizeda crucial point, given the
political instability of the immediate post-Civil War period. This strategy of patronizing
selected parts of the population, in order to reconstruct a relatively well-paid middle
class in alliance with the state, would also provide the regime with organic intellectuals
and public administration with loyal personnel.14 On the basis of similar political
criteria, the post-war state also pursued an alliance with a widening class of small
proprietors and medium business owners. This policy reproduced a segmented market
model of private economy and small or familistic firms, characterized by low wages,
uninsured work and absence of social security contributions.15

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419

As elsewhere in Europe, in Greece too, the state was expanded considerably in

1945 55. In the Greek case, expansion was due to the states dominant role as
employer and coordinator of the Marshall Plan funds, and was accompanied by
delayed industrialization16 without any significant developments in the welfare state.
The state focused mainly on investing in infrastructure, protected domestic
production by means of tariffs and provided incentives for foreign capital
investments. Labour relations were determined by a firm control over union activity,
which peaked when the 1967 military dictatorship banned strikes. As a rule, state
nominees were appointed by judicial intervention as heads of the official unions and
rubber-stamp unions were set up, while wages were mainly set by direct or indirect
state intervention: in 1955, a law established that the Minister of Labour had the right
to reject collective agreements that allowed wage increases exceeding the official
norms by 3 per cent, while during the 1945 52 and 1969 74 periods the minimum
wage was directly determined by the government.17
Part of the states efforts towards both political and economic stabilization was the
Association Agreement with the European Economic Community (EEC) in 1962,
which was also related to international conjuncture. Actually, the reasons why the
Association Agreement was voted for by three out of four parties then in Parliament,
and why Greeces application was accepted by the EEC can only be understood in the
context of the Cold War.18 Greeces admission to the EEC was also a way to revitalize
the Greek economy that was experiencing, towards the end of the 1950s, a certain
downturn and was seeking to acquire an export orientation. Successive devaluations
of the national currency, the EEC admission strategy and a gradual stabilization of
capitalism allowed a noticeable growth (with an annual average of 7.9 per cent during
1961 7319). In these golden years of Greek capitalism, the industrial sector started
to play a substantial role as, for instance, the GDP share of manufacturing rose from
16.5 to 20.2 per cent.20 The rise in labour productivity was among the fastest in the
OECD, foreign capital inflows increased and the share of technology-intensive
branches (chemicals, machinery, metallurgy), which contributed significantly to
growth, almost doubled from 1955 to 1970.21 The economy also became more
internationalized, as shown by exports and imports that had more than doubled by
1980 with respect to 1960.22
Despite the growth recorded in the 1960s, a strong wave of internal migration to
urban areas emerged, due to the galloping unemployment and the severely
deteriorated agricultural production of the 1950s. This flow of pauperized farmers
and rural petty bourgeoisie grew faster than the domestic industry so that a
substantial part of the labour force was directed to Western countries. The state
actively favoured emigration through bilateral agreements with host countries.
Between 1955 and 1970, over 10 per cent of the total Greek population emigrated to
Western Europe, Australia and the USA.23 Emigration also served as a means to
restrain latent social conflict with a potential for political consequences or social
unrest, since these groups could not be assimilated.
The process of reconstructing a regime-friendly middle class was complemented by
political oppression of opponents (for example, the Communist Party was outlawed,
there was harsh persecution of members of the Left, rigged elections and so on).

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Some of the main social and political demands during the late 1950s and 1960s
concerned the improvement of lower social classes standard of living and democratic
rights (for example, the mobilization of construction workers, students movement
for free public education, citizens movements opposing violations of the
Constitution and so on). Social and political mobilizations were interrupted by the
1967 military coup detat.
The political basis of the dictatorship remained weak,24 since not only leftist cadres
and activists but also monarchy loyalists, moderate centrist politicians and many
others were indiscriminately persecuted. To this situation was added the
deterioration of the economy related to the international crisis of 1973, with rapidly
rising inflation and resurgent unemployment. The economic crisis, the intensification of the authoritarian governance, the regimes failure regarding the Cyprus issue
and the subsequent widespread discontent paved the way for the change of the
political system in the direction of democratic capitalism, gradually converging with
European developments.
The Short Keynesianism of the Post-Dictatorship Period
The first post-dictatorship government, under the conservative Nea Demokratia
(ND) led by K. Karamanlis, reactivated the Association Agreement that had been
interrupted during the military dictatorship, and requested full membership.
The EECs reply was in favour of Greeces admission on condition of a transitional
period of economic reforms.25 Eventually, an affirmative answer was given in line
with both the liberal aims of the ND administration and European aspirations
towards institutional normalization and the establishment in neighbouring countries
of a modernized democratic capitalism. Given the political situation in post-Franco
Spain, in Portugal after the Carnation Revolution and in Italy under a strong
influence of the Left, the integration of Southern Europe into the EEC was a salient
political target.
Within the framework of preparations for full admission, tariffs and other
protection measures in the goods market were gradually abandoned. At the same
time, nationalizations were carried out and reforms were funded in public transport,
education, culture and so on. Most importantly, given the recent disastrous Cyprus
experience, defence expenditure was tripled and a national weaponry industry
was established. The period 1974 79 was characterized by lower annual growth rates
(3.4 per cent on average) as compared to 1961 73.26 At the same time, the economy
entered a period of high inflation and unemployment, in the context of the
international crisis.
While the oil crises of the 1970s and the inflation problems challenged the
Keynesian regulation and led to a strengthened political Right in northern countries,
socialist parties became significant in the Mediterranean.27 That was the case with
PASOK in Greece, which almost doubled its vote at every national election (1974,
1977 and 1981). During its first term in office (1981 85), PASOK advocated Greeces
self-generating development, as it considered Greece to be a semi-peripheral country
with different interests from those of the core. Despite, however, its pre-electoral

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421

anti-European campaign, PASOKs criticism of Greeces admission to the EEC was to

be abandoned. With the partys victorious re-election in 1985, a loan was agreed
within the framework of the Mediterranean Integrated Programmes. By the time of
the Delors Package and the resources granted through the Community Support
Framework in 1988, PASOKs attitude had become pro-European.28
The main reasons for this change were economic, as the Greek economy had
entered the 1980s in a state of recession. Despite the optimism prevailing among the
working classes in 1981, the interlude was brief .29 Greek and foreign investments in
industry were decreasing and a number of bankruptcies took place in manufacturing,
food processing and the metal industry. The GDP share of industry peaked in 1974
76 and then started to decline; the share of technology-intensive sectors remained
static and the share of imported foreign industrial goods in the domestic market rose
from 23 per cent at the end of the 1970s to 35 per cent by the mid-1980s.30 Recession
and disinvestment had the effect that labour productivity, rising since the 1950s,
started to fall slightly during the 1970s and only regained a small part of its
momentum in the 1980s.31 Overall, an average annual growth rate of just 0.8 per cent
marked 1981 89.32
The plan, drafted in 1983, to restructure and nationalize loss-making industries
was characteristic of the Greek version of a Keynesian-like interventionism. In this
period of PASOKs greatest electoral success (1981 85), several rhetorics were set in
motion, ranging from the socialization of strategic enterprises to the improvement
of the working classes living conditions, the social state and even the road to
socialism. However, a series of blockades reflecting a fragile, corporatist balance of
power among industrialists, trade unions and the state had the result that the ailing
firms were neither privatized nor restructured, with the main consequence being that
the economic cost of their debt continued to mount.33 As a result of the deteriorating
economic conditions, socialist rhetoric weakened.
In the face of economic stagnation and high inflation, the state financed a
democratic capitalist settlement basically not through taxationas was the case in
Western Europe and Scandinaviabut through domestic and external borrowing.34
Apart from the burden of ailing firms, public debt almost doubled35 within the
framework of efforts to cope with underinvestment, but also to preserve the social
alliance with the new middle classes, parts of the working class and the familistic petty
bourgeois strata that constituted PASOKs electorate. This social alliance, formed
under PASOKs popular motto of Change, faded from 1985 onwards, with the
introduction of an austerity programme, as a guarantee to creditors and a response to
economic stagnation. In 1985, wage cuts were imposed and in 1986, economic
liberalization measures were announced. Falls in real wages caused a vicious circle of
recession, further austerity and unemployment, presaging the end of the Greek
version of Keynesian regulation.
The policies adopted by the state up until 1985 can be understood within the
historical political framework of the post-dictatorship period. Public indebtedness
and social spending were inscribed in post-1974 policies partly to cope with the
increased demands of working-class and lower-middle-class groups. This brief Greek
Keynesianism, which was implemented after it already had a long history in other

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Maria Markantonatou

countries, attempted to promote a form of social compromise aimed at both

capitalist development and democratic stabilization. The upper class did not stay out
of this compromise to the extent that its privileged position could remain
unchallenged. Because of rising unemployment and stagnation, the state attempted
to integrate lower social strata in the new democratic capitalism, without, however,
radically challenging the class formation of the previous period.

EMU, Growth and Neo-liberalization

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As Colin Crouch has described, although

southern governments did have considerable achievements in expanding
the previous minimal welfare states of their countries [ . . . ], social
democracy never became deeply embedded. The working class did not
acquire the kind of strength that had been possible elsewhere during the
high tide of industrialism.36
In this not deeply embedded social democracy, Greece, like other countries of
Southern Europe, attempted after the fall of the dictatorship to establish a welfare
state (in order to catch up with the North) almost at the same time as undertaking
neo-liberal policies.37 Indeed, wage cuts in the period from 1985 to 1987 presaged a
gradual neo-liberalization process. The 1990s began with a series of new social
clashes as the proto-neoliberal Nea Demokratia administration under K. Mitsotakis
(199093) implemented policies resembling anything but a mild adjustment.
A Thatcherite policy of head-on clash with the unions was adopted, and the response
was a series of strikes and intense protests. Banks, ailing firms and publicly owned
enterprises were privatized and there was downsizing of the public sector, dismissals
and wage cuts.
From the mid-1990s, admission to the EMU became a strategic goal of the state.
The left-wing faction of PASOK that resumed power in 1993 was sidelined by the
supporters of what came to be known as modernization and gained ground under
Prime Minister K. Simitis. The social state rhetorics were replaced by the motto of
powerful Greece and the economic directions of the EMU Convergence
Programme.38 Preparations to join the EMU included restrictions on fiscal policy
and exchange rates, and reduced interest rates. Lower inflation and a reduced deficit
were achieved, while the level of public debt was near to GDP.39
While the GDP share of agriculture and manufacturing was declining, high capital
mobility was observed, as Greek enterprises found investment opportunities in the
Balkans region, based on cheap labour and flexible conditions.40 Greek investments
in metal extraction and processing, construction materials, as well as investment
ventures, banking and financial activities partly explained Greeces support for
Bulgarias and Romanias EU membership in 2005. A few years after the Yugoslavia
war, the European integration of the Balkans was also an EU priority, in which a
European Greece would, as the EU hoped in 2001, play a stabilizing role.41

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The period 1995 2008 was one of high growth (3.7 per cent on average, one of the
highest rates in the EU). This period was characterized by credit liberalization,
investments in public infrastructure (highways, bridges and construction work), a
rising stock market and a finance-led economy, a booming real estate market,
tourism, services and shipping, contracting-out of public services to private firms and
privatizations of banks and public companies.42 This high growth was based on two
factors that contributed in parallel. First, an increase in labour productivity, which
rose between 1995 and 2004 by 30 per cent, one of the highest rates among the 18
more advanced EU countries.43 This rise was related to extended investments in
imported, innovative technologies and mechanical equipment, especially during the
period preceding the 2004 Olympic Games.44 Second, low interest rates that allowed
extended borrowing and gave impetus to a finance-led economy reflected by an everexpanding banking sector, the establishment of new domestic, European and
international banks in a short time as well as bloated activity on the stock market.45
These two factorshigh labour productivity and increased borrowingboosted
domestic demand, which in turn increased the import of equipment used in
production and consumer goods. As a result, the external balance of goods and
services deteriorated, a process that was further aggravated due to a limited ability to
compete in export markets.46 This was not irrelevant to the inelastic behaviour on the
part of Greek firms as regards their significantly high profit margins that were passed
on to the consumers via increased market prices: the average profit margin in Greece
remained steadily the highest in the EU, namely, 40 per cent, when in other countries
it ranged between 10 and 35 per cent (mostly below 30 per cent),47 as for instance in
Spain and the Netherlands.48
On the other hand, wages increased at lower rates than labour productivity, and
any effect of this kind on competitiveness was mainly due to the euros appreciation.49
Unit labour costs had been practically invariant in terms of the national currency
during 1995 2008, as compared to those of Greeces 35 most important
industrialized trading partners.50 In addition, despite gradual convergence of wages
in Greece with the EU average (from 75 per cent in the 1990s to 86 per cent in 2008),
in the ranking of EU countries according to income per employee, Greece was near
the lowest end of the scale throughout the whole period of growth (1996 2008).51
For instance, the median annual net income was 11,496 euros in 2009 for Greece,
18,586 euros for Germany and 17,212 euros for the EU-15.52
At the same time, throughout the 1990s and 2000s, the state promoted a number of
labour flexibilization policies and legislations: extension of part-time employment,
wages connected to productivity and flexibilization of working hours in 1990;
Territorial Employment Pacts in 1998; individual contracts in the private sector;
reduction of employers social security contributions in 2000; increase in maximum
dismissals of employees per month; licensing of temporary work agencies to rent
employees in 2001; extension of part-time employment in the public sector in 2003
and 2004, and flexicurity projects.53 The emergence of the so-called 700 euro
generation, an increasing disproportionality between wages and hours actually
worked,54 the expansion of illegal flexibility and uninsured labour,55 and
ever-shrinking social and legal protection of employees, are typical of the 2000s.

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These factors reveal the other side of what has been described by national and
international media as a period of prosperity that was, however, characterized by a
dynamic of increasing social exclusion of large parts of society and insecurity.
The enterprise-friendly state policies, to the detriment of labour, were also reflected
in unprecedented levels of inequality between labour income taxation and profit
income taxation. A consistent policy of reducing profit taxation rates between 1996
and 2008 resulted in an increasing shortfall in taxation revenues. For instance, public
revenues decreased from 43 per cent of GDP in 2000 to 37.3 per cent in 2007.56
Tax avoidance and evasion had an additional deteriorating effect, together with other
tax privileges for banks, maritime capital, the Church of Greece and high incomes
since 2000, thus contributing substantially to the countrys high indebtedness.
Indeed, public debt as a percentage of GDP followed an upward path (from 97 per
cent in 1995 to 107.4 per cent in 2007), although at a slower pace with respect to the
1980s, and the public deficit was constantly increasing since the EMU admission.57
However, contrary to the widespread conviction that public expenditures in Greece
were unreasonably high, they in fact fluctuated around levels near or somewhat lower
than the European average.58 As an exception, the defence sector contributed
consistently to increased public spending with an average of 3.2 per cent during
2000 2009, double the EU average of 1.6 per cent. Also, the recapitalization of banks
in response to the 2008 crisis added to public spending: in November 2008, 28 billion
euros were injected, out of approximately 150 billion that were received in the next
two years and additional amounts transferred since the outbreak of the crisis.
Economic factors (high labour productivity up until 2004 along with a practically
invariable real unit labour cost, large profit margins passed on to market prices,
deteriorating competitiveness, financialization and taxation inequality), political
factors (weakening of social democratic rhetoric succeeded by modernization
policies, managerialism, corruption scandals such as the Siemens affair or real estate
scandals involving the Church of Greece, overruns on public work projects, misuse of
EU funding) and social factors (a largely fragmented labour market characterized by
inequalities regarding wages, provisions and social security, labour precarization,
marginalization and exclusion of broad societal groups, weakening of welfare
functions) determined the circumstances in Greece, when the 2008 international
financial crisis broke out.
Crisis, Internal Devaluation and Recession
With PASOKs electoral victory on October 2009, new Prime Minister G. Papandreou
announced that the public deficit would reach 12.7 per cent, contrary to the preelectoral prediction of 6 per cent. From late 2009 onwards, Greek bond yields
skyrocketed and investors rushed to dump Greek assets, marking the beginning of the
Greek crisis. Since then, the country has suffered a series of downgradings by various
rating agencies, while bond spreads have kept rising to the degree that the country
would soon be unable to borrow from the international markets. In May 2010, the
European Financial Stability Facility (EFSF) was established and the so-called Troika,
a committee representing the European Community (EC), the European Central

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Bank (ECB) and the International Monetary Fund (IMF), would supervise
implementation of the austerity measures and economic reforms accompanying a
loan of 80 billion euros from the EU and 30 billion from the IMF.59 During 2010 12,
three major agreements were concluded between Greece and the Troika,60
Memorandum I,61 the Mid-Term Fiscal Strategy62 and Memorandum II,63
accompanied by the debt restructuring agreement.
Memorandum I consisted of measures of internal devaluation based on a
cumulative process of wage reductions in the public sector and a downsizing of
local government, health and education. The Mid-Term Fiscal Strategy (MTFS)
2012 2015 was aimed, among other things, at generating 50 billion euros by
privatizing public assets and implementing the March 2011 decision to prolong loan
payments. Further wage and pension cuts and additional personnel reductions in the
public sector led to the rapid reduction of domestic demand. This, in turn, led to
reduced production so that unemployment more than doubled within the first three
years of the Memorandum policy implementation.64
The recession, as evidenced by a fall in GDP of 26.9 per cent in 2011, the worst of
the whole post-war period,65 was aggravated by a series of VAT and other indirect and
emergency taxes. A policy of divide and conquer directed towards public and private
sector employees prevailed during the second phase of the crisis (from Memorandum
I to the MTFS). Both the government and the main media attempted to promote a
rhetoric of a two-tier labour force: public employees were supposed to be the main
culprits of the crisis, whereas people working in the private sector would be left a little
longer (until Memorandum II) in the hands of the free market.
In the run-up to the Eurogroup meeting in October 2011, the Greek Parliament
was required to pass another bill of measures: more expenditure cuts, Labour
Reserve (a kind of quasi-redundancy until further notice for tens of thousands of
public servants), deregulation of collective labour bargainingin particular,
flexibility of dismissals and reduced compensation, individualized employment
contracts, non-arbitration and other means to improve competitiveness. In the
Eurogroup meeting of 26 October 2011 in Brussels, a debt haircut of 50 per cent was
proposed, to bring Greek debt down to 120 per cent of GDP by 2020, with the
participation of private holders of Greek bonds. The agreement would be
accompanied by a new loan, on condition of more austerity measures, adjustments
and expenditure cuts.
Back in Greece, the political crisis escalated as the social impact of the
unprecedented measures and the Troikas intense pressure resulted in a weakened and
socially delegitimized government. The political tension peaked during the G20
Summit at Cannes when the media, domestically and abroad, showed scenes of the
Greek Prime Minister and the Minister of Finance standing outside a conference hall,
awaiting the Eurozone leaders decisions concerning Greeces fate to be announced to
them. The sudden announcement by Prime Minister Papandreou of a referendum on
the 26 October agreement followed on 30 October 2011. The announcement was met
by harsh criticisms, both abroad and at home. Chancellor Merkel and President
Sarkozy reacted immediately by freezing aid to Greece and by blocking the agreed sixth
loan tranche. The developments led to the resignation of Papandreous government.

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The formation, soon after the dramatic tensions of those weeks, of a non-elected
government under L. Papadimos, with the participation of PASOK, ND and the farright LAOS, was promoted as the sole option to calm the markets and provide
suitable partners for negotiations with the EU. The aim of the new government of
technocrats and new ministers from the three parties was the implementation of
the October agreements regarding debt restructuring and accompanying reforms.
On condition of committing to the implementation of all austerity measures,
downsizing and dismissals, privatizations and so on, the Eurozones ministers of
finance approved, on February 2012, the second bailout plan for Greece. The debt
restructuring was approved and, if everything went as planned, the next tranche of
the EU IMF loan would be released, whereas the bailout conditions about the Private
and Official Sector Involvement (OSI) would be embodied in Memorandum II.
A set of prior actions had to precede the first tranche of the new loan: fiscal
measures to compensate for unmet 2011 budgetary targets, additional wage
flexibility, further public sector downsizing, supplementary pensions cut by 1520
per cent, merger of insurance funds, full liberalization of closed professions,
reduction of medical spending, regulations in favour of entrepreneurship and
recapitalization of the domestic banking system. Besides cutting all sorts of
allowances, one of the most important prior actions was the reduction of the
national minimum wage by 22 per cent in general, and by 32 per cent for employees
aged under 25. Labour costs were to be adjusted by setting a maximum duration of
three years for Collective Agreements,66 so that collectively bargained wage and nonwage conditions could adapt to entrepreneurial needs for more flexibility.
Having expressed a readiness to implement the new measures and prior actions,
the Greek government was warmly congratulated by the European partners, the first
approbation it had received for a long time.67 While the Task Force for Greece and
other European officials were continuing their supervision of various ministries, the
Troika and the government concluded that the deregulation of labour protection
meant that the country was at last on the right track to get out of the crisis. What is
more, by signing Memorandum II on February 2012, Greece would have the right to
hold parliamentary elections.
Final Remarks
The post-war tension between democracy and capitalism, reflected in the efforts to
adapt society to the necessities of capitalism, but also the state to the demands of the
electorate, as described by Streeck,68 is present, often in an acute form, in the Greek
case. This tension has its own dynamics, peculiarities, discontinuities and deviations,
but it does follow the general trend, as determined by the gradual shift from welfarist
Keynesian regulation to monetarist strategies, neo-liberalism and financialization.
As in other countries, the alternating modes of regulation in post-war Greece sought
to reproduce capitalism by responding to its previous crises, although in a non-linear
way and mainly in a conflictual relationship with demands for social justice.
The course of democratic capitalism in Greece has been considered peculiar due
to such factors as the political anomalies up to 1974 and the lack of social democratic

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corporatism during that same period. For instance, the fact that authoritarian
policies were implemented within a framework which, at least until the military
dictatorship of 1967 74, was formally democratic, has been described as an
institutional peculiarity.69
However, the golden years of Western countries do not constitute the ideal type of
broader historical capitalism. The Keynesian regulation framed by corporatist
relations between industrialists, unions and the state operated successfully for a given
time as a way of moderating the tensions between democracy and capitalism. This is
why this period has often been idealizedespecially by neo-Keynesian analystsand
its regulation mode tacitly assumed to be a sustainable strategy of balancing
democracy with capitalism. However, although the battle around the welfare state
and social rights is, of course, of major political importance, the history of capitalism
reveals that Keynesian-type regulation is not, in fact, the fundamental condition of
capitalism. Quite the contrary, this condition involves violence, ruptures and social
turbulence; it is, in the final analysis, a condition ruled by an endemic conflict
between capitalist markets and democratic politics.70 In other words, if democracy
and capitalism are intertwined in a conflictual manner, Greeces post-war
institutional peculiarity illustrates how, the more the capitalist goal was pressing,
the more democracy had to be compressed.
If post-Civil War capitalist restructuring was combined with social repression at
the expense of democracy, in a similar way, the current neo-liberal financial
capitalism suppressesmutatis mutandisnot only labour rights, but democracy
itself. It forces people to obey the needs of the global markets, for instance, by
imposing governments of technocrats within a post-democratic framework in which
the needs and the anxieties of the markets are top political priorities of national
parliaments and European institutions. When the stabilization of capitalism, whether
industrial or neo-liberal financial, is at stake, policies of a state of emergency,
violence and a weakening of democracy are brought to the foreground, as shown by
the recent developments in the Eurozone and the intensification of social repression
in Greece, Spain and elsewhere.
The bailout project of the Greek economy resulted in a vicious circle of recession,
further indebtedness, rapidly rising unemployment, pauperization and destructive
economic and social deregulation, while theunclearly defined anywaygrowth
did not take place. Despite the failure of the programme, the same method of coping
with the crisis was perpetuated, merely resulting in a succession of updated
Memoranda of Understanding. Besides, given the form of the last phase of
capitalism, in which not even the markets are willing to put their money on the
supply-side mantra according to which growth is stimulated by cuts in public
spending,71 it is no wonder that, in the Greek case, contradictory assessments of the
Memoranda austerity project by special analysts, rating agencies and evaluators were
provided.72
The distinction between rescuer countriesGermanyand those rescued (for
example, Greece), is vague, as it is unclear who exactly is being rescued. Any country
seeking to survive within the international systemwhether the strongest or weakest
Eurozone economy (Germany or Greece); others like Slovenia that initially would not

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fund a richer country like Greece but was soon convinced to do so; Portugal and
Ireland, themselves in the process of bailout; or countries that lend to Greece at lower
rates than they borrow from the marketsis required to fund banks and national
economies. States have to act as rescuers of the complex (due to interdependence and
interpenetration) and increasingly impermeable (due to its transnational and
interregional character) nexus of the international marketseven though it was due
to these very same markets, strengthened, in turn, by the states permissiveness and
deregulatory policies that the crisis emerged and spread.
Greek governments since 2009 have demonstrated a dual attitude. During
negotiations, they have been willing to align with the most prominent member states
that were interested in preventing contagion of the crisisa matter suddenly
dependent on such issues as the number of pharmacies in Athens, what ways one
could acquire a taxi licence or the schools and hospitals that ought to merge. On the
other hand, those same governments treated lower social strata and the working
classes in a harshly repressive fashion. A TINA (There Is No Alternative) type policy
was launched as the only way to stay in the Euro area, embodying the priorities set
by Greek industrialists and bankers, who, again, were the agents most likely to access
the Troika, participate in negotiations and possibly exert influence for their own
benefit. The upper classes that have the means to evade taxes or transfer wealth abroad
have been barely affected. The argument in favour of such treatment was that capitalist
activity in Greece had shrunk and further taxation would harm entrepreneurship or
that, for instance, over-taxation would push maritime and shipping capital elsewhere, in
pursuit of more enterprise-friendly environments.
The Eurozones response to the crisis consisted of efforts to inscribe a series of neoliberalization processes in a legislative and even constitutional framework. The EEC
started as a customs union in an era of state protectionism, evolved into a free trade
zone and then, through EMU, to a zone of free capital movement and a common
market, introducing during its latest phase arrangements to remove any national
barriers to competition.73 The Eurozone crisis resulted in the deepening of this
process and gave impetus to a form of economic governance in the direction of a
Wirtschaftsregierung. States, especially over-indebted ones, will be required to balance
their budgets according to criteria set by the Commission and to implement
structural reforms, namely, cut wages and social expenditure, in order to secure, if
need arises, assistance from the European Financial Stability Facility (EFSF) or the
European Stability Mechanism (ESM). Automatic correction mechanisms will be
triggered in cases of countries breaching the rules defined by the Fiscal Compact. In
the frame of the new economic governance, the European Commission is to take on
extended functions and an auditing role regarding national budgets.
The fact that this strategy of the new European framework is not only doomed to
fail in the future, but has already failed,74 as the Greek case with its dramatic
consequences illustrates, does not restrain the course towards constitutional neoliberalization and a form of post-democratic governance capable of operating above,
but also through democracy. As the crisis opened up the possibility of instrumentalizing
a (still national) democracy in favour of an (already global) capitalism, it emerges that
Greece is not a special case, but a test case.

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Notes
[1] For example, see Angela Merkel casts doubt on saving Greece from financial meltdown,
Guardian, 25 January 2012, ,http://www.guardian.co.uk/world/2012/jan/25/angela-merkelgreece-financial-meltdown. (accessed 27 May 2012). In addition, since the World Economic
Forum at Davos in 2010, Prime Minister at the time, G. Papandreou had described Greece as a
country dominated by corruption, clientelism and bureaucracy, in an attempt to justify the
subsequent austerity policies: The problem we have is home-made: We Greeks are responsible
for putting our own house in order, he stated in a discussion on the future of the Eurozone.
See No EU bailout for Greece as PM promises to put house in order, Guardian, 28 January
2010, , http://www.guardian.co.uk/business/2010/jan/28/greece-papandreou-eurozone.
(accessed 20 May 2012).
[2] Rent-seeking theorizations of the crisis have been formulated in Greece as well as in Germany.
Rent-seeking approaches in Greece conceive the Memorandum as an incomplete, yet
modernizing plan and the crisis exit strategy as lying in weakening the rent-seeking society:
Despite the reservations concerning particular measures, the wide and ambitious reform
program implies, in its entirety, the transition from a rent-seeking society with extended microcorruption to a society wherein diametrically opposite values are restored. See Panos Kazakos,
After the Memorandum: Economic Policy in Greece under International Control [in Greek],
Papazisis, Athens, 2011, p. 248. The German counterparts of these theorizations consider that
the loans to Greece perpetuate the countrys role as a rent-seeker and the reasons that led to the
crisis, including a high public debt, an inefficient public sector and corruption. See Konrad
Ott, Solidaritat in Europa und der Fall Griechenland: Ein Argument fur einen okologischen
Marshallplan, Vorgange, 4, 2011, p. 40. According to Ott, Greeces bailout reproduces such a
situation. Therefore, solidarity to Greece implies exactly the opposite: to refuse the financial
transfers that boost rent grabbing.
[3] Fouskas and Dimoulas criticize the two most widespread explanations of the Greek crisis.
The first one, identified as the mainstream view, considers an inefficient oversized public
sector which is replenished through clientelistic corporatist practices, patronage, cronyism
and nepotism as the main factor that led to the crisis. In its liberal variant, it promotes
privatizations and cuts in real wages and pensions as a cure, whereas its social democratic
version suggests rebuilding the welfare state and imposing progressive taxation. On the
opposite side lies an argumentation which attributes indebtedness to external imbalances
that become more acute in the framework of EMU, as well as to international speculators.
A debtor-led exit from the euro is the solution, according to this view. In their further analysis,
Fouskas and Dimoulas argue that both viewpoints are weak as they place an emphasis on either
internal or external factors, thus failing to recognize their interaction. See Vassilis Fouskas and
Constantine Dimoulas, The Greek workshop of debt and the failure of the European project,
Journal of Balkan and Near Eastern Studies, 14(1), March 2012, pp. 5 7.
[4] For instance, David MacNally, Global Slump: The Economics and Politics of Crisis and
Resistance, PM Press, Oakland, CA, 2011; Hugo Radice, Confronting the crisis: a class analysis,
Socialist Register, 47, 2011, pp. 2143; Alex Demirovic and Thomas Sablowski, Finanzdominierte
Akkumulation und die Krise in Europa, PROKLA 166, 42(1), 2011, pp. 77106.
[5] For instance, Fritz Scharpf, Monetary union, fiscal crisis and the preemption of democracy,
Discussion Paper 11/11, 2011, Max Planck Institut fur Gesellschaftsforschung; Reiner Willi
Maurer, The Eurozone debt crisisa simple theory, some not so pleasant empirical calculations
and an unconventional approach, Discussion Paper, Hochschule Pforzheim University, June 2010;
Andreas Fisahn, Europa Braucht einen Neuen Gesellschaftsvertrag, Vorgange, 4, 2011, pp. 4860.
[6] See Bjorn Egner and Georgios Terizakis (eds), Das Politische System Griechenlands: Strukturen,
Akteure, Politikfelder, Nomos Verlagsgesellschaft, Baden-Baden, 2009 and Ott, op. cit., pp. 3447.
[7] Wolfgang Streeck, The crises of democratic capitalism, New Left Review, 71, 2011, p. 7.
[8] Ibid., p. 12.
[9] Ibid.

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[10] Martin Van Creveld, The Rise and Decline of the State, Cambridge University Press, Cambridge,
1999, p. 356.
[11] George Katrougalos, The South European welfare model: the Greek welfare state in search of
an identity, Journal of European Social Policy, 6(39), 1996, p. 48.
[12] Ibid.
[13] Constantine Tsoukalas, State, Society, Labour in Post-War Greece [in Greek], Themelio,
Athens, 2005, p. 24.
[14] Ibid.
[15] Maria Karamessini, From a state-led familistic to a liberal, partly de-familialized capitalism:
the difficult transition of the Greek model, in Gerhard Bosch, Steffen Lehndorff and Jill Rubery
(eds), European Employment Models in Flux, Palgrave Macmillan, London, 2009, p. 224.
[16] Indicatively, it took until 1950 for Greek industrial production to reach the levels of 1939,
whereas by 1949 industrial production in France and Britain was 123% of the production
levels for 1939, and Italy 104%, see John Milios and Elias Ioakimoglou, Capital accumulation
and profitability in Greece (1964 2004), Proceedings of the INEK-2005 Conference on
Sustainable Development, Nicosia, 2005.
[17] Ibid., p. 227.
[18] Susannah Verney, An exceptional case? Party and popular Euroscepticism in Greece:
1959 2009, Southern European Society and Politics, 16(1), 2011, p. 53.
[19] World Bank, World Development Indicators, Washington, DC, 24 April 2012.
[20] Helen Louri and Ioanna Pepelasis-Minoglou, A hesitant evolution: industrialization and
deindustrialization in Greece over the long run, Journal of European Economic Studies, 31(2),
2002, p. 335.
[21] Ibid.
[22] Ibid.
[23] Neovi M. Karakatsanis and Jonathan Swarts, Migrant women, domestic work and the sex
trade in Greecea snapshot of migrant policy in the making, The Greek Review of Social
Research, 110, 2003, p. 240.
[24] Gustav Auernheimer, Politische Kultur: Modernisierung und Europaisierung einerseits,
Tradition und Identitat des Griechentums andererseits, in Bjorn Egner and Georgios Terizakis
(eds), Das Politische System Griechenlands: Strukturen, Akteure, Politikfelder, Nomos
Verlagsgesellschaft, Baden-Baden, 2009, p. 91.
[25] The Commission recommends that a clear affirmative reply be given to the Greek request and
that negotiations for Greek accession should accordingly be opened. [ . . . ] [T]he Commission
considers that in view of the size of the structural changes in the Greek economy that will be
required, it would seem desirable to envisage a period of time before the obligations of
membership, even subject to transitional arrangements, are undertaken. Commission Opinion
on the Greek Request for Membership, Memo P-10/76, EU Commission, Brussels, January 1976,
available at: Archive for European Integration, ,http://aei.pitt.edu/30408/. (accessed 7 June 2012).
[26] World Bank, op. cit.
[27] Colin Crouch, Postdemocracy, Polity Press, Cambridge, 2004, p. 9.
[28] Robert Bideleux, The Southern enlargement of the EC: Greece, Portugal and Spain, in Robert
Bideleux and Richard Taylor (eds), European Integration and Disintegration from East to West,
Routledge, London, 1996.
[29] Crouch, op. cit.
[30] Louri and Pepelasis-Minoglou, op. cit., pp. 337 340.
[31] Ibid.
[32] World Bank, op. cit.
[33] Euclid Tsakalotos, The political economy of social democratic economic policies: the PASOK
experiment in Greece, Oxford Review of Economic Policy, 14(1), 1998, p. 117.
[34] Vassilis Fouskas, Insight Greece: the origins of the present crisis, Insight Turkey, 14(2), 2012, p. 32.
[35] C. M. Reinhart and K. S. Rogoff, From financial crash to debt crisis, American Economic
Review, 101(5), August 2011, pp. 1676 1706.

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[36] Crouch, op. cit.

[37] Bob Jessop, The Future of the Capitalist State, Polity Press, Cambridge, 2002, p. 145.
[38] The IMF welcomed the measures announced a month earlier in the direction of
privatizations, public administration reforms, fulfilment of the EMU convergence criteria,
rationalization and improved management of publicly owned enterprises. International
Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30,
1997, Washington, DC, 1997, pp. 55 56.
[39] Reinhart and Rogoff, op. cit.
[40] Trajko Slaveski and Pece Nedanovski, Foreign direct investment in the Balkans: the case of
Albania, FYROM, and Bulgaria, Eastern European Economics, 40(4), 2002, pp. 83 99.
[41] Karl Heinz Roth, Griechenland und die Eurokrise, Sozial.Geschichte Online, 6, 2011, p. 159.
[42] Theodore Pelagidis, The Greek paradox of falling competitiveness and weak institutions in a
high GDP growth rate context (1995 2008), Paper No. 38, Hellenic Observatory Papers on
Greece and Southeast Europe, London School of Economics, 2010, pp. 3 4.
[43] Elias Ioakimoglou, Labour Costs, Profit Margins and Competitiveness in Greece 1995 2009
[in Greek], Institute of Labour of the General Confederation of Greek Workers, Athens,
2011, p. 13.
[44] Milios and Ioakimoglou, op. cit.
[45] Fouskas and Dimoulas, op. cit., p. 12.
[46] Milios and Ioakimoglou, op. cit.
[47] Ioakimoglou, op. cit., p. 17.
[48] A comparison of real exchange rates based on aggregate output indices (based on the GDP
deflator) with those based on unit labour costs reveals different pricing strategies pursued by
domestic firms. Among countries with unfavorable labour cost developments, Greek and,
especially, Italian firms have been passing on the increase in unit costs to prices, mainly in the
manufacturing sector, thus maintaining their profit margin but at the expense of a drop in
their export shares. In contrast, in countries such as the Netherlands, Portugal and Spain,
export prices after 1998 declined or grew less than unit labour costs, an indication that
exporters squeezed their profit margins to keep their market shares in the remaining euroarea countries. See European Commission, Directorate-General for Economic and Financial
Affairs, The EU economy: 2006 review, adjustment dynamics in the euro areaexperiences
and challenges, European Economy, No. 6, 2006, p. 107.
[49] Ioakimoglou, op. cit.
[50] During this period, the increase in the average gross annual wage, as compared to Greeces 35
main trade partners, amounted to 12.5 per cent (in national currency, not taking exchange
rate fluctuations into account) or 30 per cent (in dollars). Comparison of wages based on
national currencies shows, as Ioakimoglou (Ibid.) points out, the extent to which
competitiveness was affected by the demands of wage laborers, and hence, by the increase in
wages. It aims at avoiding misinterpretations of the euro appreciation effect as a result of
allegedly unreasonable demands by working people and notes that wage earners demands
increased at about the same rate as the average in competitor countries. As for unit labour
costs, their increase measured in dollars (approximately 20 per cent) was mainly due to the
euros appreciation and to changes in the geographical composition of Greeces external trade.
[51] Ibid., p. 15.
[52] European Commission, Eurostat, Income distribution statisticsStatistics Explained,
September 2011, , http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Income_
distribution_statistics#Database. (accessed 28 March 2012).
[53] Yiannis Kouzis, Neoliberal deregulation and the alibi of the crisis, in The Crisis Map: The End
of Illusions [in Greek], Topos, Athens, 2010, pp. 200 202.
[54] OECD, Labour Force Statistics 2010, OECD, Paris, 2010.
[55] Hellenic Republic, Government, Statistics on activity of Corps of Labour Inspectors on
undeclared work for the year 2010 [in Greek], 19 January 2011, , http://government.gov.gr/
2011/01/19/6195. (accessed 3 May 2012).

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[56] Maria Karamessini, Sovereign debt crisis: an opportunity to complete the neoliberal project
and dismantle the Greek employment model, in Steffen Lehndorff (ed.), A Triumph of Failed
Ideas European Models of Capitalism in the Crisis, European Trade Union Institute, Brussels,
2012, p. 164.
[57] European Commission, Eurostat, Government finance statisticsStatistics Explained, 2012,
, http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Government_finance_
statistics#Database. (accessed 15 June 2012).
[58] For example, from 2001 to 2009, health expenditure equalled 5.1 per cent of GDP (compared
to an EU average of 6.7 per cent), education expenditure was a mere 3.8 per cent, substantially
lower than the EU average of 5.3 per cent, whereas social protection spending amounted to
16.8 per cent (EU average 18.6 per cent) (Ibid.).
[59] Council of the European Union, Statement by the heads of state and government of the euro
area, Brussels, 25 March 2010, , http://www.consilium.europa.eu/uedocs/cms_data/docs/
pressdata/en/ec/113563.pdf. (accessed 10 October 2011).
[60] These were not merely three agreements, however. They were actually accompanied by a long
series of updated Memoranda, much legislation and multifarious regulations.
[61] Memorandum of Fiscal and Economic Policies and Memorandum of Understanding on
Specific Economic Policy Conditionality, incorporated in Law 3845, 6 May 2010.
[62] Mid-Term Fiscal Strategy, incorporated in Law 4024, 27 October 2011.
[63] Memorandum of Understanding on Specific Economic Policy Conditionality, incorporated
in Law 4046, 14 February 2012.
[64] Institute of Labour of the General Confederation of Greek Workers, The Greek Economy and
Labour: Annual Report, Athens, 2011, p. 59.
[65] World Bank, op. cit.
[66] Platon Monokroussos and Paraskevi Petropoulou, Eurogroup endorses second bailout
package for Greece. Key parameters and conditionality, Eurobank Research, 21 February 2012,
pp. 23, ,http://www.eurobank.gr/Uploads/pdf/FOCUS-%20February%2021%202012.pdf.
(accessed 3 March 2012).
[67] Council of the European Union, Statement, euro area heads of state or government, Brussels,
2 March 2012, , http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/
128521.pdf. (accessed 15 June 2012).
[68] Streeck, op. cit.
[69] Tsoukalas, op. cit., p. 17.
[70] Ibid.
[71] Streeck, op. cit., p. 25.
[72] For instance, while Morgan Stanley in 2010 predicted a very probable fiscal stabilization on
the basis of the Greek governments political will to impose the measures at any price, City
Group on the other hand distrusted whether reforms were feasible, speaking of consolidation
fatigue which would derail the adjustment process. For an overview of different assessments,
see Leon Wansleben, Wie wird bewertbar, ob ein Staat zu viele Schulden hat? Finanzexperten
und ihr Bewertungswissen in der griechischen Schuldenkrise, Berliner Journal fur Soziologie,
21(4), December 2011, pp. 495 519.
[73] Fisahn, op. cit., p. 49.
[74] Ibid., p. 57.

Maria Markantonatou is currently a visiting researcher at the Max Planck Institute

for the Study of Societies, Cologne and is a lecturer in Political Sociology at the
Department of Sociology, University of the Aegean, Greece.
Address for correspondence: Department of Sociology, School of Social Sciences,
University Hill, 81 100 Mytilene, Lesvos, Greece. Email: mmarkant@soc.aegean.gr