[Viewpoint] Learning from the Greek crisis

While it is often attributed to Socrates, “know thyself” is an ancient Greek aphorism inscribed in the Temple of Apollo at Delphi. Whenever Greece faced an important matter, Greek leaders visited the temple on the cliff and sought the divine message. Another famous phrase, “meden agan,” was also found at the sacred temple. It means “nothing in excess.”

In present-day, though, Greece seems to have lost track of the ancient advice. It is only a matter of time until the country declares default. By the end of the month, it needs to pay back loans worth 4.1 billion euros ($5.6 billion), including 2 billion euros on Sept. 23.

The sixth rescue package from the European Union, worth 8 billion euros, may help avoid catastrophe, but patience with the country is running thin. Greece has been barely surviving by relying on rescue financing, but as its debt continues mounting this year, further assistance may not continue. Germany, which has been most helpful, is reluctant to provide additional assistance.

Greece’s debt crisis is complicated. Its rash entry into the euro zone ignited the problem, but excessive government welfare and insufficient tax revenue underlie it. Andreas Papandreou, the father of current Prime Minister George Papandreou, served as prime minister for 11 years and was known for offering extremely generous - perhaps excessive - welfare benefits.

In Greece, the average tax collected per person is 8,300 euros, but each citizen gets 10,600 euros worth of benefits, so the nation’s coffers are unable to afford the welfare spending. Tax evasion limits the revenue that is collected and has become a common practice in Greece since the rule of the Ottoman Turks.

Take, for instance, the pool tax. Owners of houses with outdoor pools in northern Athens must pay heavy taxes. While only 324 homeowners reported to the tax authorities that they had swimming pools, a satellite photo of the area showed 16,974 houses with outdoor pools.

Prime Minister George Papandreou has denied the legacy of his father and tried to turn the page on Greece’s finances. He made drastic reforms to the welfare system. Consumer tax was raised, and a special real estate tax was introduced. There were hard, yet necessary, choices. However, Greek citizens resisted the much-needed changes and staged seven all-out strikes.

Now, the economy is in virtual default. The yield for the one-year Greek Treasury bond rose to 110 percent. This development is very serious. During Korea’s financial crisis, the three-month CD interest rate rose to just 25 percent.

To get attention, and perhaps more assistance, Greece is playing brinkmanship, arguing that, if the country goes bankrupt, all of Europe would follow suit.

However, no one pays attention to Greece’s claim. Around the world, European banks have been cashing out in the last year and a half. They sold 35 trillion won ($31.4 billion) worth of stock in the Seoul securities market alone, which is considered the ATM of the financial market. Now that banks have gained the confidence to deal with Greece’s bankruptcy, Germany has a high hand, demanding “orderly default.”

Greece also better give up the hope that China can come to the rescue, as China suggested that it will buy Italian treasuries. And in the past, China made promises to Spain and Hungary that it would buy treasuries with its foreign currency reserve, but Chinese Premier Wen Jiabao backed out after two days, saying: “The developed nations need to correct their own problems first.”

Greece has now turned into the playground of hedge funds. Tragedy has come upon the Greeks because they ignored “meden agan.” Korea should learn from Greece’s mistakes.

The wisdom of our Korean ancestors is just as wise as the words of Ancient Greeks. They have said: “Too much is as bad as too little” and “Even when you drink, you should not be greedy.” However, our country’s household debt has blown up, and it has become a possible fuse for an economic crisis. And now, politicians are exploiting welfare populism excessively.

Our financial crisis was obviously a mistake. It would be a true disgrace to get caught by the same obstacle and collapse again. If we do not want to follow the tragic path of Greece, Korea must remember “meden agan.”

*The writer is an editorial writer of the JoongAng Ilbo.

By Lee Chul-ho