Friday, June 25, 2010

What is really happening in Greece and why the propagation of such practices should be prevented

A group of people having lived in Greece and Belgium explains

Diluting Myths


Myth 1: Debt crisis occurred because Greece has a ‘bloated public sector’

The Greek debt crisis is often attributed to the country’s ‘bloated public sector’. To start with, Greek public expenditure as a percentage of GDP is below the Euro zone average, with the corresponding German and Belgian figures being much higher[1]. Between 2002 and 2006 public expenditure shrank, only to start rising during the global recession, with the bank bailouts being the main contributor to this increase.

A large part of the financial press attributed the crisis to ‘excessive’ government wage expenditure as a percentage of GDP. This figure drifted from 11 per cent in 1995 to just above 10 per cent in 2008 in the Euro zone, but rose from 10 per cent to over 11 per cent in Greece[2]. It is obvious that the existing deficit cannot be justified by this mere 1% increase.

Irrational public spending on armaments has always been there, and therefore it cannot be held liable for the deficit crisis; it is however one of the factors that have deteriorated the country’s finances. Some German and other politicians that have complained about the ‘excessive solidarity displayed towards Greece" miss the point that their own countries are at the same time depending on the Greek military spending to support their military industries.

The current deficit is mainly due to the inability of the state to generate tax revenues, rather than due to increased spending[3]. The reduction of corporate tax rates and the illegal tax evasion by big corporations and wealthy individuals has brought the Greek deficit at its present heights: it is estimated that €20 billion are still owed today to the Greek state by no more than 8,000 persons and businesses recorded to have committed tax fraud[4]. This is twice the amount of debt that Greece had to service by May 19. [Trade imbalances have also very severely impacted tax revenues. This is not only due to Greek governments’ policies but also to EU policies.

Structural weaknesses of the Greek economy exposed it to speculative attacks. But who is to blame for these weaknesses? The continuous austerity regimes of the last decades, also linked with the European liberalisation agenda and the country's entry into the Eurozone, have led to a superficial and short-term development rather than a real one. "Development" was supported by sectors with no long term perspectives, like transportation of commodities and selling away public property, to the interest of a small Greek elite. The Greek governments' obscure reporting of Greek public finances is also to blame. But they were not alone on this: the mess has been created in cooperation with global banks like Goldman Sachs, which was hired as a consultant by the Greek Government, and is now under legal inquiry in the US. Eurostat has been quite inefficient in assessing the Greek data and EU governments preferred to ignore serious indications of a falsification, as it was not in their interest to open up this dossier before reaching the edge of disaster[5].

The defiicit crisis took its gigantic dimensions only when speculators chose Greece as an intermediary target to speculate against the Euro. Financial speculation made the cost of credit skyrocket and the deficit unbearable. In fact, the absolute size of the Greek debt is small (compared to the one of Italy for instance) and therefore easy to manipulate. Secondly, the attack against Greece was just a matter of timing. Greek bonds were due before the Portuguese ones. It is also worth noting that speculators included large French and German banks, holders of the biggest part of the Greek debt[6]. Deutsche Bank has continuously published disaster scenarios about the situation of the Greek economy since the beginning of the year and lobbied for the continuation of speculation through Credit Default Swaps[7]. Many EU governments turned a blind eye to such speculation, as they estimated that this could serve their big export businesses. The cost of credit has reduced for Germany because of the Greek debt crisis, and cheaper Euro made its exports rise again giving the German economy a way out of its worst recession in 40 years. Italian prime Minister Silvio Berlusconi has recently stated that he doesn’t worry for the fall of the Euro since ‘it’s good for Italian exports’. The French finance minister has said that the French state will even make profit from the Greek loan[8]; this does not sound as a display of solidarity to a Euro-zone country that has found itself in trouble.

Myth 2: Greeks have been partying, living beyond their means, lying about their figures, and now they are asking other European nations to help them

According to the OECD, Greeks are the most hard-working people in its member countries (with the exception of Koreans). The average Greek worker works 2,120 hours per year - 690 more than a German worker[9].

Average salaries in Greece are about 73% of the average Euro zone salaries and second from the bottom in average wage purchasing power in the EU. Greek average annual net income is €12,800 per year. According to Eurostat, 60% of Greek pensioners receive less than 600 euros a month while the cost of living is similar to that in Belgium. The usual retirement age for most people is 65 years already, despite widespread inaccurate claims.

Do Greek households spend more than they earn by borrowing a lot? Statistical data show that German households owe more money than the Greek ones do, while Greek private consumption per inhabitant is lower than the EU average[10].

Greeks are not a homogeneous mass. Greece is one of the most unequal societies in the Euro zone[11]. If someone has been partying, then this is an elite minority composed of the big business community and some parts of the upper middle class. Those are folks who have large Swiss bank accounts, island villas and Porsche Cayennes. [d1] [Y2]

Myth 3: The IMF-Euro zone loan is helping the country and its people

First of all, the IMF/EU program (particularly the EU portion) is no “aid” or “rescue”, or even “bailout”, as the IMF, the EU and various commentators claim. It consists of a series of loans, with draconian conditionality and the standard interest rate which is charged by the IMF in all cases. As for the EU portion of the loan, it has been given at the extra-high 5-6% interest rate, when the country’s GDP growth is -4% p.a. It is therefore evident that the country’s debt problem will perpetuate. In three years' time, when the loan expires, Greece will end up with a bigger debt that the one at present.

Secondly, this loan was not offered to help the “Greek people”. It was offered to guarantee that French, German and Greek bankers won’t lose their money, that the Euro is saved, and to ensure that the crisis does not spread to other economies, as it is clearly stated elsewhere in the relevant IMF document[12].

Here is the impact of the IMF - Euro zone ‘rescue plan’ on Greek people:

1) Abolition of holiday and leave compensations (‘13th and 14th salaries’) to the employees of the public sectors and the pensioners of both the public and the private sector

2) All salaries remain frozen while VAT has increased by four per cent

3) Minimum salary for the first entrants in the labour market is reduced from 700 Euros to almost 500 Euros

4) The limit for group dismissals has been increased from 2% to 5% and the corresponding compensation reduced by 50%

5) Collective labour agreements can be breached if the employer considers it ‘indespensible’

6) A large number of public services, including the railway and water supplies, will be privatised

7) Health and education budget cuts

8) Retirement age for women increases from five to seventeen years under the argument of gender equality

Economists estimate that this measures will result in an overall 25% decrease in living standards. Additional measures are expected to be taken, like expanding explicit [M3] [Y4] and nominal salary cuts in the private sectors and introducing a basic pension of 360 Euros.

Myth 4: Other EU Member States don’t risk facing similar situations

Austerity measures are already being imposed in: Italy (capping salaries and hiring in the public sector, reducing the budget of local authorities), Britain (500.000 jobs will be cut off in the public sector, Spain and Portugal (salary reductions for public servants).

Herman Van Rompuy, the President of the European Council said that Euro zone reached the edge of being dissolved but it was saved by France’s and Germany’s decision to move on to austerity plans and the liberalisation of the labour market[13]. This will mean a massive degradation of living standards all over Europe.

Belgian debt is growing by 45 million Euros a day[14]. The word ‘austerity’ was a bit of a taboo during the elections campaign. Nevertheless, in recent history (1993), deficit crisis have been resolved with a general increase of the VAT. Belgians should be vigilant to prevent the expansion of this pan-European anti-social wave in their country and defend their living standards.

Myth 5: Demonstrators in Greece are extremists

Hundreds of thousands of people have been demonstrating peacefully in Greece twice per month since April and millions have gone on strike. The media always focuses on the few isolated violent incidents and cover up the unprovoked attacks by the police on peaceful demonstrators. It should be understood that this is a struggle of dignity for the Greek people. Fighting back these measures is the only way to have ensure a sustainable future. Debt was originally generated by the elite. Why should working men and women be called to pay for it? Greek people and their living standards should not be given, once again, prey to the appetite of banks.

The debt of most EU Member States will sooner or later have to be restructured because it is unsustainable. The question is in what terms this will be done. Will we prioritise saving the private banks with public money or defending the Europeans’ social rights and well-being?

Brussels solidarity initiative to resisting Greece - http://solidarity-greece.blogspot.com

[3] ETUI: Open letter to European policymakers: The Greek crisis is a European crisis and needs European solutions

[4] http://www.enet.gr/?i=news.el.article&id=163313

[7]http://www.dbresearch.com/servlet/reweb2.ReWEB?addmenu=false&document=PROD0000000000255842&rdLeftMargin=10&rdShowArchivedDocus=true&rwdspl=0&rwnode=DBR_INTERNET_EN-PROD$NAVIGATION&rwobj=ReDisplay.Start.class&rwsite=DBR_INTERNET_EN-PROD&rwdspl=0

[11]TARKI EUROPEAN SOCIAL REPORT – Income distribution in European countries: first reflections on the basis of EU-SILC 2005

[14] http://www.ft.com/cms/s/0/a37cfa18-71ca-11df-8eec-00144feabdc0.html


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