Patrick Cockburn: Greece has an overgrown and expensive state machine

Greece is like an Arab oil state without oil. It has an overgrown and expensive state machine hard wired with webs of patronage and corruption. In the Middle East this is a crude, unfair but partially effective way of distributing oil wealth and binding recipients to the state through jobs and favours.

In Greece borrowing took the place of oil. Membership of the eurozone gave the country the same triple AAA credit rating as Germany, enabling it to borrow what it wanted at cheap rates. Euro membership, like oil wealth elsewhere, was a disincentive to political, economic and social change because the money was there to pay off friends and foes.

Greece is very much a divided society and the divisions are different from the rest of Europe. From the civil war in 1946 to the fall of the colonels in 1974, the country was dominated by the right which looked after its own, from ship owners to small businessmen who paid few taxes. From the eighties on, the centre left Pasok party was in the ascendant and expanded the state, giving jobs and social welfare to its supporters. Everybody was happy until the money ran out.

And the money really has gone. While the Troika (EU, IMF and European Central Bank) devise elaborate schemes for reform, the government is often simply not paying its employees or paying them very late. There is, in any case, something absurd about expecting a dysfunctional state machine to reform itself at a fast pace under foreign supervision.

There is a second more specific parallel with the Middle East in recent history. Sitting here in central Athens in recent weeks, I was reminded of the beginning of the US occupation of Baghdad in 2003. The Americans thought they were in control and they were not, but they were going to be held responsible by Iraqis and the rest of the world for anything that went wrong.

The political ice in Athens is even thinner than eurozone leaders imagine. For the moment, they appear to have all the cards in their hands. The main Greek parties have signed up to the new austerity deal in order to get the €130 billion loan and the €100 billion write off by private bond holders. Greece is effectively going to have a managed and limited default except that it is not going to be called that to avoid triggering the insurance element in credit default swaps.

There is no chance that Greece can be rendered sufficiently competitive by the new austerity measures that it will be able to pay its debts. The country lacks natural resources, manufacturing industry or an international service industry; wind mills and fish farms will not be enough.

But the future of Greece may not be as bad as it looks. The mammoth efforts made by European leaders to prevent a total default underline the fact that, for all their protestations to the contrary, they dare not let Greece go publicly broke. The profound impact of the recent financial negotiations on everything from the price of oil to shares on New York stock exchange, show that Greece can still blackmail the rest of the eurozone by threatening to totally renege on its debts.

There is a second possible benefit for Greece if the myth is maintained that it is doing what the eurozone wants and this is likely to work. The international hysteria surrounding the dire state of the Greek economy is self-fulfilling. It has frightened people into withdrawing their bank deposits and refusing to invest. The Troika’s plans will almost certainly not work, but a period of calm might at least end the present economic paralysis.