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Thursday, July 24, 2014
- Fears are growing that in the coming months Greece will face increasing difficulty in responding to its debt obligations, despite the ambitious structural adjustment package that was introduced last year.
Fearing a total economic collapse from being hit hard by the global financial crisis last autumn, the country has accepted a loan of 110 billion euros from European member states and the International Monetary Fund (IMF) to help it repay expiring debts.
The loan has effectively disconnected the country from international financial markets until 2014. In the meantime, the structural adjustment plan, which is supervised by the IMF, the European Central Bank and the European Commission (the Troika), is aimed at helping the country open its market to competition.
Since last May, the government has put in place massive legislative changes: cutting wages in the public sector, heavily deregulating the labour market, restructuring unprofitable state assets, and reforming the pension system.
Moreover, the government informally stopped payments on VAT tax returns, postponed pensioners’ lump sums, and cut public sector money for secondary social services in order to reduce spending. The government also implemented new taxes and supported aggressive legislation against tax evasion in hope that the economy would recover. The plan has not worked.
While reduction of spending has helped to reduce the deficit by 6 percent, the government falls largely behind the Troika’s demands. Meanwhile, the measures have dried up the market, kicking official measurements of the recession up to 4.5 percent. IPS sources within the Greek National Bank have admitted that, in the past six months, the actual number is somewhere around seven percent.
Debt has also exploded, reaching levels that are 149 percent higher than the budget allows.
In addition, the research labour institute of GSEE, the biggest trade union in the country, has predicted that unemployment could rise as high as 22 percent by the end of 2011. Savvas Robolis, head of research at the labour institute and professor of economics of social policy at Panteio University of Athens, says that incomes will not recover, despite governmental efforts.
“Indirect VAT income is reduced while public sector wage cuts, stopping of payments, and disappearance of cheap credit plunk consumption,” Robolis told IPS.
“Direct taxes will not solve the problem since there is a systemic drawback on the country’s taxation policy… The state has always borrowed to cover the consequent deficit,” he added.
Despite growing concern that the deregulation policy is ineffective, the Minister of Finance, George Papakostadinou, presented an updated plan for chopping another 22 billion by 2015, two-thirds of which will come from reduced spending, and the rest from tax and privatisation incomes.
Greece’s expiring debt obligations in 2013 and 2014 could be as high as 150 billion euros, unless Germany extends the repayment deadline of Troika’s funds — a proposal that many advocate in Brussels.
The current situation is heightening fears that Europe will be unable to avoid a new debt crisis. The controversy has polarised major European member states, making the upcoming March 25 European summit, where the debt crisis and Greece will be discussed, of key importance.
Inside Greece, concerns over the crisis are causing political turbulence. Greek Prime Minister Georgios Papandreou is losing the narrow consensus he has tapped to push ahead with reforms. On February 23, the tenth general strike in 13 months was accompanied by violent riots.
A major challenge now comes from within the party. Minister of Labour Nora Katseli has defended collective contracts as “the best possible redistribution mechanism, able to secure competitiveness in the market” despite enormous pressure from the Troika for their deregulation and promotion of individual contracts. Sofia Sakorafa was one of the two MPs from the government party that denied voting in favour of the IMF euro zone bailout. Consequently, she was ousted from the party.
“The bailout has been a way to save the interest of the economic financial oligarchy that blackmails this country,” she claimed.
Sakorafa believes that creating a Public Accounts Committee tasked with reviewing and reforming Greek debt is the best path towards resolving the complicated issue.
The purpose of the committee, Sakorafa explained, would be “to construct an institutional tool that brings together international experts that will examine the central government debt and check how much of this amount is created by irregular proceedings, illegal deals, and clientelistic relations.”
“This so-called ‘odious debt’ is an amount that Greek people have the political right to deny as an obligation to international financial markets,” she added.
Robolis says that the political struggle over Greece’s economic policy stands at the heart of European economic politics, affecting not only the future of the country’s relationship with Europe but also the future character of the Union as a whole. “There is only one way to drag countries out of recession and the debt crisis: to reconstruct their industrial base on a long-term development plan,” said Robolis.
“There are no such elements in the Troika’s plan for Greece. These people are financial fundamentalists playing with numbers, without the dimension of social issues in their analysis,” he said. “The general direction of member state economies will be considered on a European level. We now need something like what Obama does – public investment projects and jobs creation.
“Still, European elites and bankers that hold power are the most extreme version of neo liberals…like the U.S. Federal Bank in 1929, they let the crisis expand and they are sinking Europe into its own Great Depression,” he warned.