It may be difficult for anyone much younger than 35 to remember the Soviet Union. That was the last time that the world watched an economic collapse of what had been assumed to be a first world economy play out on T.V. For those too young to really remember, the Soviet Union and its allies in Eastern Europe were a first world military power, and most people (along with many analysts) assumed that it was a first world economic power too. Unfortunately, before the internet, not a lot of people understood what was happening economically behind the ‘Iron Curtain’ as it was then called.
Then, in 1985, Mikhail Gorbachev came to power and began opening up the Soviet Union to the outside world. For the first time, the world saw that the Soviet Union, far from being a competitor to the United States, was actually a 3rd world country that happened to have nuclear weapons. We saw long lines simply to obtain basic necessities. We saw empty stores with nothing to sell. It was hard to process what we were seeing because our institutions and our institutional assumptions were geared for a “fight to the death” with an opponent we assumed to be every bit as powerful as we were. But what we were seeing on our television screens was an economic collapse of a first rate political power.
When Gorbachev launched his economic reforms, he assumed that some “tweaks” of the system would be enough to put the Soviet Union (and Eastern Europe) on a sustainable economic path. He was wrong. The entire system basically had to be scrapped. The institutions, the assumptions, the political alliances, the public welfare system, all had to be done away with. During the 80’s, the Soviet Union had been kept economically afloat with loans from the West, but now it was no longer enough. The institutions that had tried to stave off economic collapse were not flexible enough and had failed.
Today, like the Soviet Union then, the Greek economy has been kept afloat in its current condition by loans from outsiders. It is these loans that have enabled the Greeks to continue to enjoy an unsustainable situation. But now the outsiders are beginning to realize that the Greek system, as it is currently constructed, will never be able to repay the loans, and that they are looking at a situation where the bailouts will be a permanent fact of life. This is not politically sustainable. Consequently, whether this bailout, or the next time Greece needs one, or the next time after that, the other E.U. countries will stop lending (i.e. giving) money to Greece.
Like the Soviet Union then, Greek society today is one whose institutions, assumptions, etc., can no longer sustain the society in a manner to which it has become accustomed. The types of reforms that are necessary to make it economically competitive again are of the sort that would require a complete restructuring of society which would be extremely painful.
Another difference of note is that while the Soviet system was imposed from above, the system that the Greeks have is one that they have chosen over the years. As such, the Greek system is more an expression of Greek culture than was the Soviet system. In other words, economic reforms won’t be enough. Greek cultural assumptions will have to change as well. Culture is an extremely stubborn opponent. It can decades, or even centuries, to change, and the process is always extremely messy.
The parallels between the Soviet experience and the Greek experience are that they show the limits of a certain type of economic structure. Today it is hard to imagine, but the from about the 1920’s/30’s until the collapse of the Soviet Union, many (especially in academia) argued that a centrally-planned economy was a superior method of economic organization that would produce more wealth and better outcomes than a free-market economy. The Soviet Union showed the end result of such a system, and it wasn’t pretty. Since the 1930’s, others have argued for a “social-market” market economy. Europe has largely organized itself along this model, and many in the U.S., especially in academia and the political left, have long argued that the U.S. should adopt this model as well. Greece shows the end result of this model (or at least where this model, if taken far enough, can lead). The results won’t be pretty in this case either.