Greek crisis: lessons for India

The Greek referendum, that resulted in a ‘No’ vote to the European Union’s bailout proposals, has drawn many mirthful parallels to the past. Perhaps the most striking of these was the oxi (the Greek word for ‘no’) response given by Greek dictator Ioannis Metaxas to Italian leader Benito Mussolini in 1940. That ‘no’, delivered on October 28, 1940, — a Sunday, like this July 5 — saw people come out into the streets in support of a man reviled for his megalomaniacal nationalism; Hungarian-British author and journalist Arthur Koestler had described Metaxas as “both stupid and vicious”.

It also saw the Germans crush the Greeks in a bitter and bloody campaign, with Metaxas dying in a few months and his successor Prime Minister committing suicide by shooting himself in the head.  That German invasion saw the Axis powers pour across all the continental borders that Greece had, save Turkey, and the legacy of this invasion is intrinsically linked to one of the major contributors to the crisis today, as we shall see.

Since then, Greece has had bad relations with every single one of its neighbours — especially the larger ones; the smaller ones were bullied. Macedonia started out being perfectly friendly to Greece, but Greek nationalism saw the very name, ‘Macedonia’, as proof of irredentist claims on Greek-Macedonia. Greek proceeded to blockade the country till it formally changed its name to the ridiculous sounding FYROM — Former Yugoslav Republic of Macedonia. The Greek dispute with Turkey is also well-known. It is safe to say that the pattern of Greek foreign policy is that it is surrounded by hostile states in various degrees — be they real or imagined.

This has contributed to a Greece that spends more on defence than any other country in the North Atlantic Treaty Organisation, as a percentage of its GDP, save the US and UK. At 2.4 per cent of GDP, this defence spending has been a crippling burden on the Greek Government, and yet the expense actually increased by 0.1 per cent  last year, at the height of the economic crisis. Close to 75 per cent of the Greek defence budget is actually personnel expenditure — necessitated by an unusually large Army for a country with limited territory and even more limited means and an acute persecution complex. In fact, Greece has the highest military to civilian ratio in the EU, with close to three per cent Greeks being employed in the defence sector.

As any good economist will tell you, in times of recession one should spend more in order to keep the funds flowing and resuscitate the economy — much as the investments in the French defence sector have seen a spectacular turnaround, at least of that portion of the industry. But Greece is a different ball game. The overwhelming personnel expenditures mean that very little is left to invest in the domestic armaments industry, in order to produce a stimulus package. 

Perhaps, more importantly, Greece’s major creditors — France and Germany — have forced it to retain defence spending, as a full 15 per cent of German and 10 per cent of French exports are to Greece. In effect, when the French and Germans lent money to Greece, they were insisting on kickbacks that would be ploughed into their respective national industries, since Greece itself does not produce much of what it has to seek. 

The most obvious parallel that Indians will draw here is to Pakistan — a state so consumed by its military and by its much larger neighbour that it cannot look at the economic catastrophe that stares it in the face. But sadly the parallels also hit much closer to home. India’s defence budget too spends far too much on personnel expenditure as opposed to operations, equipment, training and stores. Unlike First World militaries, where much of the expenditure is dedicated to significant value additions in the education of their personnel, India’s money goes into the basics of maintaining an oversized Army and the consequent pensions of that Army, much like Greece. With the introduction of the new mountain divisions (and in spite of the scale back of these plans), this situation is likely to exacerbate, with even less funds being available for the critical training required to bring our soldiers into 21st century warfare. 

This also an equally sobering lesson on why the Make in India campaign must not lose focus by sacrificing indigenisation to job-creation. If and when push comes to shove, the fact remains that almost of our defence budget will effectively be futile expenditure in employments, pensions and social security schemes as well as an investment in the economic revival and human resource development of another country (through defence imports). If Greece is being forced to make hard choices with its back to the wall, and India wants to avoid this, the latter needs to make more gradual and manageable changes, when the going is good. 

At the same time, as India obsesses with Greece, it seems like most of the world has ignored the financial trouble brewing in China. While it is hard to tell if this is a blip or the beginning of a trend, the implications for India are enormous, especially in defence. Since June 12, the Chinese stock market has seen a crash that has wiped out nearly $2.7 trillion, which as pointed out by The New York Times is six times Greece’s foreign debt, and equals its economic output for 11 years. China’s foreign reserves stand at $3.8 trillion, which means that in just three weeks, China lost a sum that equalled 71 per cent of its foreign reserves and two times the GDP of India.

The reasons for this particular crash are hard to determine given the opacity of the Chinese economy, though the bad debt rate of China, according to Western estimates, remains untenably high. But if this can happen in one of the two powerhouses of the global economy, a country that is heavily industrialised, almost entirely dependent on its domestic industry for its needs and spends a minuscule amount on defence, compared to its resources, then we need to think hard before profligate spending ourselves. 

The net result of the last three weeks, be it in China or Greece, is that we need to put our house in order today, post haste, curb our spending and focus on Make in India and the National Skilling Mission. 

The writer is Programme Coordinator of the National Security Programme at the Observer Research Foundation, Delhi