This article is a joint publication of TheNation.com and Foreign Policy In Focus.
Myths are dangerous because they rely more on cultural memory and prejudice than facts.
And behind the current crisis between Greece and the European Union (EU) lies a fable that bears little relationship to why Athens and a number of other countries in the twenty-eight-member organization find themselves in deep distress.
The tale is a variation of Aesop’s allegory of the industrious ant and the lazy, fun-loving grasshopper. The “northern countries”—especially Germany, the Netherlands, Britain and Finland—play the role of the ant, and Greece, Spain, Portugal and Ireland the part of the grasshopper.
The ants are sober and virtuous, while the grasshoppers are spendthrift, corrupt lay-abouts who have spent themselves into trouble and now must pay the piper.
The problem is that this myth bears almost no relationship to the actual roots of the crisis or what the solutions might be. And it perpetuates a fable that the debt is the fault of individual countries rather than a serious crisis at the very heart of the EU.
First, a little myth busting.
The European debt crisis goes back to the end of the roaring ’90s, when the banks were flush with money and looking for ways to raise their bottom lines. One major strategy was to pour money into real estate, which had the effect of creating bubbles, particularly in Spain and Ireland.
From 1999 to 2007, bank loans for Irish real estate jumped 1,730 percent, from 5 million euros to 96.2 million—more than half the country’s GDP. Housing prices increased 500 percent. “It was not the public sector but the private sector that went haywire in Ireland,” concludes Financial Times analyst Martin Wolf.
Spain, which had a budget surplus and a low debt ratio, went through much the same process, and saw an identical jump in housing prices: 500 percent.
In both countries there was corruption, but it wasn’t the penny ante variety of tax evasion or profit skimming. Instead, politicians—eager for a piece of the action and generous “donations”—waived zoning rules, sidestepped environmental regulations and cut sweetheart tax deals. Hundreds of thousands of housing projects went up, many of them never to be occupied.