On the same day that the prime minister, George Papandreou, astonished Europe and reportedly his own finance minister with his referendum announcement, the opposition reacted with fury as Greece's defence minister replaced the four most senior figures in the national defence force. Whether a mere coincidence or not, this was interpreted as a bid to assert the state's control over the military amid rumours that a coup might be imminent as the state's credibility crumbles. Posters of generals have begun to appear on the streets of Athens a sign that some Greeks have had enough and see military rule as the only way of preventing mass disorder and social breakdown.
Why are people so angry?
It's worse than anger it's despair. Between May 2008 and May 2011, youth unemployment surged from 18.6% to 40.1%. People in work have seen their incomes collapse as have pension rights and social benefits. The country has been crippled by strikes and riots; even tax inspectors have joined in and urged non-payment of the new universal one-off tax that is to be enforced by cutting off the electricity of non-payers. Violent crime in Greece including homicides and thefts nearly doubled between 2007 and 2009, the last year for which figures are available. Perhaps most depressingly of all, the number of suicides has surged, according to figures cited recently by The Lancet. Suicides rose 17% in the year to 2008, and by 25% in the year to 2010 and the trend is gathering pace. The latest figures from the Greek health ministry show a 40% rise in the first half of 2011 compared with a year before.
Does austerity breed unrest?
In August, the Centre for Economic Policy Research published an intriguing paper by two academics at Barcelona's Pompeu Fabra University, which considered just this question. In the study (Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009), Jacopo Ponticelli and Hans-Joachim Voth analyse episodes of unrest in 28 European countries over the course of 100 years. The pair construct a definition and measure of "unrest" using five indicators: riots, anti-government demonstrations, general strikes, political assassinations, and attempted revolutions. In a companion paper, Voth examines the history of 11 Latin American countries since 1937. In both continents, the same pattern emerges: what the authors call a "clear and positive statistical association between expenditure cuts and the level of unrest".
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As defined by the authors, there are about 1.5 incidents of "chaotic" unrest per country per year on average. The more governments cut expenditure, the higher the number of incidents. When expenditure is cut by 1% of GDP, the average number of incidents rises to two a 33% increase, in other words. As cuts intensify, the frequency of incidents grows steadily; by the time austerity measures involve expenditure reductions of 5% or more, the average number of incidents has doubled. Moreover, the relationship holds true for both democracies and autocratic states. The authors find that when it comes to fiscal retrenchments, it is very much cuts in spending rather than tax rises that are associated with instability. "While [tax rises] are associated with greater instability, the effect is small and the link weak."
What does this mean for Europe's politicians?
It suggests that, if they want to retrench, but are worried about social stability, they should prioritise tax increases over spending cuts the exact opposite of the route adopted by Britain's Conservative chancellor and (to a mildly different degree) his Labour predecessor. The biggest worry is that the current economic crisis gripping Greece and Europe will end in riots, coups d'etat, or worse. The experience of recent years is that people will riot because their favourite ice hockey team has lost a crucial match or because they think they can steal a pair of pricey trainers and get away with it. If they decide that their livelihoods and futures are being throttled to death by the invisible hand of market capitalism, it would be a surprise if we are not in for much bigger social upheavals, including violent ones.
Nassim Nicholas Taleb, the Lebanese-American philosopher who coined the term Black Swan' (for a sudden big event that is unforeseen and can only be explained afterwards), was asked by Newsnight's Jeremy Paxman in the summer whether the riots in Athens were just such an epochal shock. No, he said, rather the real Black Swan event is that more people are not rioting elsewhere yet.
Other factors that forment dissent
A 1994 paper by Alesina and Perotti, cited recently by The Economist, studied 71 countries between 1960 and 1985 and found a high correlation between income inequality and social instability. They argued that unrest often erupts when a wealthy middle-class is weakened and rapidly rising expectations are crushed. Variations on this theme have been used to help explain everything from the French Revolution to the ousting of Hosni Mubarak. More recently, a 2011 International Monetary Fund study of 120 countries between 1970 and 2007 found a 10% increase in food prices doubles the number of anti-government protests. In China, the steady rise in "mass disturbances" since 1993 has occurred despite phenomenal economic growth, and is often linked to mass internal migrations and rapid urbanisation.
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Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.
Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.
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