On March 25, 2021, the Modern Greek State celebrated the 200th anniversary of the War of Independence, which ultimately led to its establishment. It is thus an excellent opportunity to reconsider some of the main events of Greek history over these 200 years and how they shaped the character of modern Greece.
This series of articles on the history of modern Greece started when the country was celebrating the 200th anniversary of the War of Independence. This article starts by looking at what happened after the end of dictatorship, and takes us through the changing 1980s and 1990s. Thomas P. Papageorgiou explains.
You can read part 1 on ‘a bad start’ 1827-1862 here, part 2 on ‘bankruptcy and defeat’ 1863-1897 here, part 3 on ‘glory days’ 1898-1913 here, part 4 on ‘Greeks divided’ 1914-22 here, part 5 on the issues of clientelism here, part 6 on World War2 and a new divide here, and part 7 on the road to dictatorship and retreat here.
Prime Minister Andreas Papandreou with United States President Bill Clinton in April 1994.
The fall of the dictatorship in Greece in 1974 (Papageorgiou, 2024) coincided with the restoration of democracy in the whole of the European south. Salazar’s dictatorship in Portugal, established in 1932-1933, and Franko’s dictatorship in Spain, established in 1939, came to an end with a counter coup in 1974 that led to free elections in 1976, in the first case, and Franco’s death in 1975 in the second. In all three countries the armed forces would now submit to the political establishment, ending a long tradition of involvement in politics. The Church would also lose much of its prestige because of its identification with the military regimes. Their people were influenced from the success of the European west and north that combined financial prosperity with parliamentarism, which was also consolidated in Greece, Portugal and Spain with their entry in the European Economic Community in the 1980s. (Close, 2006, pp. 219-221)
I Part of the European Economic Community
The first free elections after the coup d’etat of 1967 took place in November 1974. Konstantinos Karamanlis, leader of the national unity government formed after the fall of the junta a few months earlier, had meanwhile transformed the former National Radical Union into a new party under the name New Democracy (ND) (Close, 2006, p. 236) representing the biggest part of the conservatives to this day. He won the elections and a few days later he called for a referendum on whether the junta’s decision to abolish constitutional monarchy would be retained or the king would be allowed to return to Greece. 69.2% of the voters decided for a Presidential Republic that also remains to this day. (Wikipedia, 2023)
Apart from parting with the king, Karamanlis found himself in a rather peculiar position also in the economy. The private interests establishment that for many years benefited from state subsidies and protectionism proved inadequate to cope with the consequences of the oils crises of 1973 and 1978. (Karakousis, 2006, p. 29) Thus, in spite of its conservative nature, Karamanlis’ government had to step in and started nationalizing private companies. It also had to renegotiate or even cancel deals signed by junta officials with terms highly unfavourable for the state. (Eleftheratos, 2015, pp. 313-314) (Rizas, 2008, pp. 493-494) (Close, 2006, pp. 248-249) In fact, the demand for more freedom and representation, after the fall of the junta, indicated that renegotiation and, where needed, cancelation of established norms in the public life was also needed at that time, much to the dislike of a conservative government. (Karakousis, 2006, p. 30)
A possible way out of all these seemed to be the assumption of full membership in the European Economic Community (EEC). Karamanlis was pursuing it already from the 1960s (Papageorgiou, 2024) and in 1979 he made it happen. Thus, soon after the fall of the junta, of the four power pillars that defined the post-civil war period, (Papageorgiou, 2024) the army and the palace were completely removed from the political scenery of the country, the role of the Americans had to be redefined after accession to the EEC and only that of parliamentarism remained untouched and in fact reinforced. (Close, 2006, p. 226)
In the following, we will see how the political parties managed the sweeping demand for change from the beginning of 1980s. At that time, Karamanlis assumed the rather ceremonial role of the President of the Republic, (Close, 2006, p. 225) but real power was now in the hands of Andreas Papandreou. His Panhellenic Socialist Movement (PAnelinio SOsialistiko Kinima – PASOK) won the national elections in autumn 1981.
II Change
The beginning
So, the political change came. And it brought with it an increase of 35% to salaries, that were further to be automatically adjusted according to the price index. Pension increases and tax exemptions were also established. Karamanlis had already made the Communist Party legal again, (Close, 2006, p. 223) but in the PASOK era political refugees were allowed to return and pensions were handed out to members of the (also Left) resistance during WWII. (Close, 2006, p. 224) A national healthcare system was set up. (Close, 2006, pp. 250, 251-252) Nationalization of private companies continued and more than a 100 once dominant enterprises active, among others, in mining metallurgy, shipbuilding and petrochemicals came under the Business Restructuring Organization. These and the public sector were utilized so that thousands of people could find a job. Indeed, large sections of the population literally switched their status in those early years of PASOK, rapidly climbing the ladder of social stratification and gaining income, power, and authority. (Karakousis, 2006, pp. 32 - 35)
Too much, too quickly and with no real plan. The spirit of clientelism, ever present in the political and social life of modern Greece, made sure that hiring was based on personal or political relations without evaluation. (Close, 2006, p. 242) This immobilized the Administration, destroyed any concept of hierarchy, eroded values such as those of duty and productivity, made the state apparatus synonymous to that of the political party and favoured to the maximum degree tendencies of graft and corruption. (Karakousis, 2006, p. 35) (Close, 2006, p. 250)
Furthermore, all the above policies were based on borrowed money and EEC resources. (Close, 2006, pp. 260, 269)They contributed to the deindustrialization of the country (Close, 2006, pp. 264, 265, 273-275) and as the agricultural subsidies also, instead of being used for the modernization of agriculture, were turned into apartments in the urban centres and luxury vehicles, (Close, 2006, p. 266) Brussels had already started to feel uncomfortable and characterize Greece as a bad example of a new member state. The Americans were also prejudiced against Papandreou because of his opening to the Arab world, his participation in the Non-Aligned Movement and his anti-American rhetoric with references to the removal of the American bases from Greece, which he never implemented, but with which he constantly exercised pressure to the superpower. (Karakousis, 2006, p. 44)
For the Americans another issue was terrorism. During the early years after the fall of the junta, the discussions of armed struggle were revived mainly among members of left-wing organizations and groups. The infamous terrorist organization ‘17th of November’ (17N) was formed during this time and intensified its activity in the mid-1980s hitting American and western targets, businessmen, right-wing politicians, judges, policemen and publishers of traditional conservative newspapers that were now intensifying the criticism against PASOK. (Karakousis, 2006, p. 44) (Close, 2006, pp. 234-235)
The Security Services and the Americans were thus prone to investigate conspiracy theories that linked terrorism with PASOK as well as the official and extra-parliamentary Left. For those who spent time at the University those years, however, there was the certainty that the faces of terrorism, those who carried out the bloody acts, could only have come out of the student movement. There was the certainty that these were common, ordinary people. (Karakousis, 2006, p. 24) This partly explains also the longevity of groups like 17N. Another reason was that after the fall of the junta governments relied less to the police and the security forces and more to material benefits for their longevity. (Close, 2006, p. 229) The Greek police after 1974 were paralyzed by a lack of resources, an absence of professionalism and a low level of competence. In the prevailing anti-authoritarian atmosphere, it did not even have the public support that it needed. (Close, 2006, p. 235)
The turn
For the common people though, what mattered most were the benefits they enjoyed under Papandreou’s government. Thus, the latter won triumphally the elections of June 1985. Nevertheless, during that summer the country’s foreign exchange reserves had already fallen unbelievably low, deficits and public debt had ballooned, inflation was high and persistent, the loss of competitiveness great and the inadequacy of productive investments evident. EEC officials were also expressing their displeasure for the course of the Greek economy. The time for major revisions had come. (Karakousis, 2006, pp. 52-53)
The turn was to be carried out by Costas Simitis (Wikipedia, 2024), who assumed the position of Minister of National Economy. Along with a group of technocratic advisors, Simitis presented a three-year stabilization program, which included a devaluation of the drachma, a wage freeze in the public and private sectors, hiring, borrowing, spending and price controls, restructuring of public enterprises, and, most importantly, initiatives and measures to free the economy and markets from government intervention, combined with the liberalization of the financial sector and the capital market. The implementation of the program was bound by a European emergency loan, which designated the European Commission as an auditor of the Greek economic course. (Karakousis, 2006, pp. 55-57) (Close, 2006, p. 244)
The program shocked PASOK supporters and brought great turmoil within it, as it meant a complete revision of the until then physiognomy of the populist movement. (Close, 2006, p. 245) It run with difficulties for a couple of years starting the opening to the market economy, (Karakousis, 2006, p. 63) laying the foundations for the rebirth of the stock market and promoting plans to restructure the whole public sector (Karakousis, 2006, p. 65), but Andreas Papandreou eventually denounced it from the parliament floor on 25 November 1987. Simitis resigned the next day. (Karakousis, 2006, p. 74)
Lifestyle, shadow economy and scandals
Indeed, the formerly unprivileged who in the early years of PASOK gained space and incomes were not willing to return to their previous situation. They were getting used to a new way of life, influenced also by lifestyle magazines, (Karakousis, 2006, pp. 59-60) based on a pattern, which required owning a house, a country house, cars, travel, vacations and a lot of expenses for the children. (Karakousis, 2006, p. 104) As money in the public sector, where as described above the clientelist state accommodated many of its supporters, were not enough, they turned to multiple employment to support it. The bank clerk and the tax official were employed in the afternoon as accountants in the private sector, the schoolteacher gave private lessons and so on. This did not only have implications on the integrity of the public servants regarding the balance of interests between their dual occupations. (Karakousis, 2006, p. 106) The extra salaries were not declared anywhere.
Thus, the new way of life was not supported by borrowed state money only. The private sector followed suit and calculations during the implementation of the Value Added Tax (VAT) in 1987 recorded that the shadow (black) economy amounted to 40% of GDP. A rate extremely large and able to distort any economic policy effort, as a large part of economic activities remained out of control, operated by their own rules and formed their own levels of profitability and incomes, which, to a certain extent, explain the inexhaustible endurance of the citizens of the country, despite the continuous pressure with economic measures and regulations to this day. (Karakousis, 2006, p. 70) (Close, 2006, p. 259)
PASOK also sought to continue the tradition of intertwining business interests with state power. (Papageorgiou, 2024)Micro-entrepreneurs, like the Kouris brothers, offered services and support already from the early years of PASOK in power through publications such as the populist newspaper Avriani, (Karakousis, 2006, pp. 36-37) but the most famous case was that of George Koskotas. With many university degrees, later proven to be fake, he started his carrier as accountant at the Bank of Crete. He will progress, become a chief accountant, and one morning he will appear to the owner of the bank with a takeover proposal. The trick was that he used the bank’s own money for the takeover, without anyone noticing. Koskotas moved energetically after that and wanted to play the role of PASOK’s banker. As phenomena of arrogance and corruption had already made their appearance from the first years of the government (see above), Koskotas found fertile ground for his activities. (Karakousis, 2006, pp. 60-61)
Nevertheless, Koskotas’ aggressive policies, including attempts to expand in the banking and media sectors as well as in football, where he bought the country’s probably most popular team, Olympiakos Piraeus, (Karakousis, 2006, pp. 79-80)eventually attracted the attention of The Bank of Greece’s legal counsel regarding the origin of the money and the overall management of the Bank of Crete. (Karakousis, 2006, p. 83) It was finally revealed in February 1989 that the government’s vice president Menios Koutsogiorgas attempted to hinder the investigation by law, after a bribe of 2 million dollars. (Karakousis, 2006, p. 100) (Close, 2006, p. 245)
The situation for PASOK continued to worsen as during this period the press published evidence for additional scandals in the procurement of military equipment as well as for the surveillance of the telephones of Leftist officials as well as that of Konstantinos Karamanlis, (Karakousis, 2006, p. 81) (Close, 2006, pp. 245-246) who in the meantime Papandreou had ensured that he was replaced in the Presidency of the Republic by judge Christos Sargetakis. (Karakousis, 2006, p. 52)The newspaper reports caused the intervention of the judiciary while the opposition also hardened its stance. Significant strongholds of the opposition action at that time were the three largest municipalities of the country, Athens, Piraeus, and Thessaloniki, that New Democracy had won in the municipal elections of October 1986. A basic instrument was the free radio that the three conservative mayors, M. Evert, A. Andrianopoulos and S.Kouvelas launched in May 1987 against the state monopoly until then. (Karakousis, 2006, pp. 71-72)
The fall
Papandreou was at a very tough spot. Physically, he was ill and was rushed to London in August 1988 where he remained for almost two months and underwent heart surgery. Personally, he found himself in a turmoil as his affair with a former stewardess of Olympic Airways, Dimitra Liani, became publicly known. (Karakousis, 2006, p. 84) Politically, the scandals led many PASOK officials to resign or distance themselves from the party and triggered scenarios of succession in its leadership. (Karakousis, 2006, pp. 92-96) (Close, 2006, p. 246) Furthermore, during the judicial investigations into the scandals, 17N escalated its action against judges, which rekindled the rumours about PASOK’s ties to terrorism. (Karakousis, 2006, pp. 98-99)
Despite all this, Papandreou fought hard to turn the tide against him. Before the elections of June 1989 he used the standard trick, we have often seen in this series, of changing the electoral law to make it difficult for the Right to come to power. Moreover, in an outburst of populism during a pre-election rally in Athens, he will openly urge Finance Minister D. Tsovolas to ‘give everything’, meaning benefits to the electorate to vote for PASOK. (Karakousis, 2006, p. 107) (Close, 2006, p. 246) And he succeeded. New Democracy won, but its 44,25% of the votes was not enough to give its leader Konstantinos Mitsotakis the absolute majority in the parliament, but only 145 of the 300 seats. (Karakousis, 2006, p. 113)
III Co-government of Right and Left
It was obvious that Mitsotakis had to deal harder blows against PASOK to seize power. At the same time the leadership of the Left saw in PASOK’s destruction the opportunity to expand its electorate audience. Thus, the memories of the civil war and the junta were put aside and the unthinkable happened: a co-government supported by the Right and the Left. (Close, 2006, p. 247) Mitsotakis’ son-in-law, Pavlos Bakoyiannis, played a catalytic role as mediator, using the connections he developed with many Leftist officials during the junta years in Germany, where all had taken refuge. At the head of the government, formed in July 1989, was Tzanis Tzanetakis, o former officer of the Navy, and its goal was ‘Katharsis’. (Karakousis, 2006, pp. 115-116)
Indeed, by September, Andreas Papandreou and other PASOK officials, including the former ministers Koutsogiorgas and Tsovolas, were refereed by the Parliament to the Special Court for the Koskotas scandal and the wiretapping (see above). Another former minister, Nikos Athanasopoulos, was send to court for the ‘Corn Scandal’, accused of misleading EEC officials by presenting Yugoslavian corn as Greek to collect higher subsidies. (Karakousis, 2006, pp. 120-121, 130)(Close, 2006, p. 246)
Nevertheless, the ordinary voters of the Left were once again not reconciled to the games of their leadership (Karakousis, 2006, p. 116) In fact, the youth of the Communist Party openly expressed its disagreement with the Tzanetakis’ government. (Karakousis, 2006, p. 128) To make things worse, Papandreou’s new admission to the hospital with respiratory problems at the beginning of the summer had created a wave of sympathy that reinforced the dilemmas of the Left. (Karakousis, 2006, p. 114) Thus, New Democracy’s proposal for yet another commission of inquiry to look into possible scandals in the procurement of weapons systems was not accepted by the coalition of Left parties. (Karakousis, 2006, p. 131) At the same time though, 17N reappeared and murdered Pavlos Bakoyiannis on the way to his office the day before the Parliament decided to send Papandreou to the Special Court for the Koskotas scandal. This reignited the conspiracy theories regarding PASOK’s connection to terrorism. (Karakousis, 2006, pp. 128, 130)
Coexistence of Right and Left in the Tzanetakis’ government was thus becoming uncomfortable. Nevertheless, the latter seemed to have achieved its main political objective, ‘Katharsis’, by sending PASOK officials to court. It did not do much else, except for allowing the establishment of private television stations breaking another state monopoly, after that of radio broadcast (see above). The new development brought with it kitsch, subculture, the keyhole screen, a spectacle of second-rate, intellectual poverty and degradation of everything. (Karakousis, 2006, pp. 122-127) Furthermore, the different perspectives of Right and Left combined with benefits generously handed out by the Finance Minister Antonis Samaras (Right) and the Minister of the Interior Nikos Konstantopoulos (Left), to the delight of the electorate, worsened public finances and brought the country to the brink of yet another fiscal crisis. (Karakousis, 2006, pp. 118-119) It was time for another round of elections.
IV The Right Comes to Power
The elections took place on the 5th of November 1989 and New Democracy increased its percentage of the votes to 46.2%. Nevertheless, this was again not enough to bring Mitsotakis to power. New Democracy elected only 148 out of 300 parliament members. PASOK was once again proved very resilient increasing its power to 40,7% of the votes, while the Left coalition lost 2% receiving 11% of the votes. Obviously, its plan to substitute PASOK through the participation to Tzanetakis’ government did not work well. (Karakousis, 2006, p. 136) (Close, 2006, pp. 247-248)
In view of the critical condition of the economy the solution of an ecumenical government finally prevailed under the leadership of the then 90 years old former Governor of the Bank of Greece Xenophon Zolotas. The period of indifference was over, and the political establishment, at that juncture, understood that it could not play with the economy. It was convinced that the crisis conditions had to be controlled at any cost. (Karakousis, 2006, p. 140) It was also centrally agreed that the only way forward for Greece was Europe: Greece should claim its inclusion in the new system of the single currency, which was then being planned, but it was clear that it would be the European answer to the new form that the world would take after the collapse of the Soviet Union. (Karakousis, 2006, p. 144) (Close, 2006, pp. 287-288)
Nevertheless, Mitsotakis was becoming impatient. After all, his party found itself in an ecumenical government together with PASOK, whose leaders were prosecuted from Right and Left just a few days before. Indeed, Papandreou was recovering quickly politically, also with interventions like that of France’s president François Mitterrand, who invited him to Paris already before the November elections and thus took him out of the Greek isolation showing that he maintained an international base and was not finished as many would like him to be. (Karakousis, 2006, p. 133) As Zolotas’ freedom for action was limited by the need to reconcile the Right, Center and Left elements of the ecumenical government and he had to resort to desperate measures, like borrowing with an interest rate greater than 27%, in order to meet the cash needs of the state, (Karakousis, 2006, pp. 139-140) Mitsotakis stressed the need for absolute majority in the Parliament and a one party government to meet the country’s needs. Another international intervention helped him to this end. It was a letter from the President of the European Commission Jacques Delors that was publicized by Mitsotakis and conveyed to the Greek society the need to obtain a decisive government, capable of handling the economic affairs in a clear manner. Thus, another round of elections was scheduled for the 9th of April 1990. (Karakousis, 2006, pp. 157-158)(Close, 2006, p. 361)
New Democracy’s 46.88% of the votes gave 150 seats in the parliament, again one less of the minimum needed for it to rule. The missing vote came with the defection to New Democracy of the only representative elected with Democratic Renewal (Dimokratiki Ananeosi – DIANA). The latter was a party founded by Konstantinos Stefanopoulos, a former New Democracy member and then internal party rival of Mitsotakis. (Karakousis, 2006, p. 161)
New Democracy’s accent to power at the beginning of the 1990s coincided with the long retreat of the interventionist state from the commanding heights of the economy accelerated in the previous decade with a conservative counterattack spearheaded by Ronald Reagan in the US and Margaret Thatcher in the UK. (Allawi, 2024, p. 131) The collapse of the Soviet Union was considered the most striking verification of this process. Thus, privatizations were at the core of the Right’s liberal agenda. Nevertheless, the clientelist state was ever present (Karakousis, 2006, p. 173) and privatizations were not viewed by the government as a development tool for the economy, but as a mechanism of wealth and state assets distribution to friends and acquaintances. (Karakousis, 2006, pp. 182-183)
Furthermore, privatizations were faced with strong opposition from the employees of the enterprises involved. The same was true for the pension, (Karakousis, 2006, pp. 167-168) tax (Karakousis, 2006, p. 166) and education reforms (Karakousis, 2006, pp. 175-177) that the government tried to introduce. By 1992 the treaty of Maastricht with the Euro convergence criteria (Wikipedia, 2024), following Greece’s decision to be part of the European Union and the common currency zone (see above), hardened the position of the government (Karakousis, 2006, pp. 212-215). This brought it into conflict with the society (Karakousis, 2006, pp. 219-221) that was not going to easily give up the privileges obtained during the PASOK years described previously. In fact, the overall climate was very tense and involved extreme incidents like the murder of the high school teacher Nikos Temponeras during clashes at a school in Patras (Karakousis, 2006, pp. 176-177) and the death of former minister Koutsogiorgas that suffered a stroke during the trial for the Koskotas scandal. (Karakousis, 2006, pp. 185-187) 17N also reappeared attempting unsuccessfully to kill the businessman Vardis Vardinogiannis (Karakousis, 2006, pp. 177-178) and the finance minister Giannis Palaiokrassas. In the second case though, a civilian, the young Thanos Axarlian, who happened to be passing by the area of the attack was killed. (Karakousis, 2006, pp. 221-222) (Close, 2006, pp. 362-363)
As if these were not enough, ‘Katharsis’ was also turning into a fiasco for Mitsotakis. Although some former PASOK ministers, like the above-mentioned Athanasopoulos, served prison sentences, (Karakousis, 2006, pp. 183-185) its leader Andreas Papandreou was declared not guilty (with 6 votes against 5). (Karakousis, 2006, p. 197) The old Konstantinos Karamanlis, who was again elected President of the Republic, after Mitsotakis’ ascend to power, (Karakousis, 2006, p. 163) had warned that one ‘does not send a prime minister to court, but simply home’. Mitsotakis ignored him and the court verdict came to reinforce Papandreou’s (and PASOK’s) feeling that he could dominate again. (Close, 2006, p. 350)
New Democracy’s fall came from the field of foreign affairs though. Although, after the fall of the Soviet Union the major international incident of the time was the first Iraq war – in the coverage of which the dominance of television over all other media became obvious for the first time- (Karakousis, 2006, p. 172) Germany’s recognition of the independence of Croatia and Slovenia in late 1991 triggered the process of Yugoslavia’s disintegration. One of the emerging states in former Yugoslavia’s south, bordering to Greece, then claimed for itself the name ‘Macedonia’ touching upon the national feelings of the Greek people, who were not willing to give up the heritage of Alexander the Great, ruler of ancient Macedonia, to the Slavs without a fight. Mitsotakis’ government was literally caught sleeping. It had made no preparation to deal with the possibility of recognition of a Macedonian state on Greece’s northern borders and the disturbance that such a thing would cause inside the country. (Karakousis, 2006, pp. 190 - 191) (Close, 2006, pp. 405-406)
Indeed, demonstrations, mostly in Thessaloniki with more than one million participants, hampered efforts to find a compromise solution by using a composite name prepared by the European Union (Karakousis, 2006, p. 196) (Close, 2006, p. 406) while there were internal party reactions as well that led to the dismissal of the at that time Minister of Foreign Affairs Antonis Samaras from the government. The reason was his differentiation from the views of Mitsotakis and Karamanlis at a meeting of the political parties’ leaders under the President, in April 1992, to discuss national policy on the name issue. By autumn 1993 Samaras had formed his own party (Political Spring – Politiki Anixi) and several of new Democracy’s members of Parliament followed him bringing down Mitsotakis’ government. (Karakousis, 2006, p. 237) (Close, 2006, p. 408)
V Andreas Papandreou Returns to Power
Parliamentary elections were held on 10th of October 1993 and PASOK took 46% of the votes corresponding to 170 seats in the parliament. But Papandreou now knew that he could not continue the policy of benefits to the people he exercised in the past. The economy had to meet the Maastricht convergence criteria, if Greece was to remain part of the European Union including the adoption of the common currency (Euro). (Close, 2006, p. 363) This was not easy at all with inflation at 15%, double digit interest rates, public deficits reaching 15% of the GDP, the widespread shadow economy and the corresponding tax evasion. (Karakousis, 2006, p. 263)
Thus, brave policies were necessary and, in view of the intense pressure from the society for financial aid of any type, conflicts with numerous groups of citizens. Nevertheless, the latter were at the same time convinced that PASOK would do the job at the lowest possible cost, without the atrocities of Mitsotakis and the heavy feeling of social analgesia the accompanied him. (Karakousis, 2006, p. 248) (Close, 2006, p. 364) Furthermore, the element of external imposition made things easier politically as it allowed the government officials to invoke Brussels and through this invocation to legitimize measures and policies that were in conflict with society. (Karakousis, 2006, p. 263) (Close, 2006, p. 364) At the same time though, Andreas Papandreou knew that the acceptance of the convergence process with Europe would be accompanied by a significant package of European Union funds. (Karakousis, 2006, p. 247) The idea was simple. The European funds would be directed to large scale public works and through them any development and income deficit caused be the fiscal adjustment would be covered. (Karakousis, 2006, p. 249) (Close, 2006, p. 283)
Thus, as prescribed in the treaty of Maastricht, at the beginning of 1994 already, the Greek state had to give up the so called ‘monetary financing’ and come out competitively to the market to raise financial resources. Indeed, before 1994, several mechanisms constituted this so called ‘monetary financing’ that allowed the state to raise funds with small or at least controllable cost. For example, at the beginning of each year, the Bank of Greece provided an advance payment of 10% on the increase of the state budget expenditure with a symbolic interest rate of 1.5%. Furthermore, it obliged banks to place 40% of their deposits on interest-bearing Treasury bills, whereas in times of crisis the central bank bought government securities, often to a large extent. (Karakousis, 2006, pp. 254-255)
If this was not enough, the government could always turn to the so-called bondholder class offering two to three-year government bonds with high interest rates exceeding 20% per year (see also the previous section). This way, a mood of laziness and idleness was transmitted to society, as an available savings capital was sufficient to offer high profits and large incomes. (Karakousis, 2006, p. 245)
In the three years 1994-96 all this will change. The state will acquire a reliable Treasury service and gradually be freed from its dependence on the bondholder class. Interest rates will fall, and the banking system will find itself with freed up resources and new opportunities to grow and develop new financial tools. (Karakousis, 2006, p. 256)
In 1994, a new law also attempted to limit the political parties’ power for appointments in the public sector. It introduced the rule of one recruitment for every five departures and mandated both the establishment of the Supreme Personnel Selection Board as an independent body responsible for recruitment and the establishment of rules and procedures so that these are invariable. (Karakousis, 2006, p. 269)
In 1995, a new tax law tried to address the issue of tax evasion. The so called ‘objective criteria’ for the taxation of small and medium enterprises and freelancers were established. (Karakousis, 2006, p. 267) (Close, 2006, p. 354) Parameters like the kind of activity, area of operation, operational costs and others were used to define a minimum level of tax for the legal or physical entity in question. When the entity declared an income corresponding to a tax level lower than this minimum, then either the minimum had to be paid, or the entity would be subject to extensive tax scrutiny. In fact, measures to enhance tax revenues were put in place from the very first days of this new term of PASOK increasing indirect taxes on cigarettes and alcohol, taking measures to crack down on smuggling and putting pressure on traders to return the value added tax, incorporated by PASOK already back in 1987 following directives of the EEC. (Karakousis, 2006, pp. 70, 246)
Nevertheless, these attempts do not mean that clientelism was suddenly over and that the political parties were over their fear of the political cost. For example, construction and the public works mentioned earlier as expression of hope, as a mechanism of development and progress will become hotbeds of corruption, scandals and money waste, dragging politics with them. (Karakousis, 2006, p. 254)
In fact, Papandreou’s government acrobated between the old habits and the need for modernization. Things got worse as the latter’s health deteriorated once more in the summer of 1995 leaving plenty of space for a group of people close to his former mistress and by this time wife and secretary, Dimitra Liani, to run the game. A typical example of this period is the former Olympic Airways stewardess’ resistance to the consolidation of the company, which had accumulated debts of 600 billion drachmas, because of the political cost. (Karakousis, 2006, p. 265) Other of Liani’s doings included the purchase of a villa in Ekali, the most prestigious neighbourhood of Athens, under economically uncertain conditions and an entourage of astrologists and priests, who brought miraculous talismans with them in the hope that the patient Papandreou would regain his health. This was a third world government structure that infuriated PASOK’s executives that were now discussing openly Papandreou’s succession. (Karakousis, 2006, pp. 259, 261)
This eventually came in January 1996, when Papandreou resigned from office. The inter party elections named Costas Simitis as the new president of PASOK and prime minister, who will make Modernization his flag. (Karakousis, 2006, p. 277) Papandreou died in June.
VI Conclusions
In this series of articles on the history of modern Greece reference has been made to the work of Acemoglu and Robinson (Acemoglu & Robinson, 2013) and it has been pointed out that the country is suffering from non-inclusive political and economic institutions. Within this framework, some additional characteristics, obvious in the present part of the series, should not go unnoticed: 1) An over-sized public sector and bureaucracy, as seen in the clientelism approach of serving the political parties’ clients/voters with jobs. 2) Economic statism, as seen in the handling of nationalized/state owned companies and attempts to boost the economy through public works. 3) Corruption, as seen in the political/economic scandals described above.
Special reference should also be made to: 4) tax evasion, as seen in the size of the shadow economy, resulting in 5) over taxation, as seen in the establishment of the ‘objective criteria’.
And finally, 6) populism, as seen in Papandreou’s ‘give everything’ cry, before the elections of June 1989.
Dimitrios Lakasas proposes that the Greek economy today in undermined by three elephants (bureaucracy, statism and corruption), five tigers (tax evasion, over taxation, high insurance contributions for employees and businesses, high cost of money and unserviced loans) and a lioness (populism) . (Lakasas, 2021, p. 289) The three elephants, two of the tigers and the lioness are clearly seen already in the period studied in this article.
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