At the April 2015 meeting, ERIS discussed the question: The Greek Election – What Does it Mean For the Future of Europe?
The economic problems in Greece are a touchstone for a much wider situation in Europe and highlight long standing issues: around the democratic deficit at the heart of the European Union; the democratic will of the Greek people versus institutional power of the ‘troika’; and the ideological battle around austerity politics and alternatives to the economic crisis.
The situation however remains perilous for the Greek people and the government seemingly survive on a day-by-day basis. Indeed, at the time of writing the Government is again struggling to make a €4.8 billion debt interest repayment to the IMF and is moving closer to a worst case scenario – ‘Grexit’ – Greek exit from the Eurozone and the ensuing fallout and chaos that will follow.
Situation in Greece:
Greece has had a turbulent recent history. Following occupation in WWII it faced a bitter civil war and from 1967 to 1974 was ruled by a military dictatorship (the Generals). Despite high growth and improving living standards in the 1980s and 90s, one of the main distortions in the Greek economy is its low tax base, widespread tax evasion and a large structural deficit. In 2008, Greece went into recession.
In October 2009, amid much anger towards the previous government over corruption and spending, a socialist government headed by George Papandreou, won a snap general election. Upon opening the government books they discovered
that government debt was significantly higher than published and by the end of 2009 Greece’s credit rating had been downgraded shutting Greece out of the global financial markets and triggering a severe economic crisis.
In early 2010, against mounting pressure (threat of exit) from the ECB and EU, Greece passed the first of seven austerity packages. The first round came with the signing of the Memorandum with the International Monetary Fund (IMF) and the European Central Bank (ECB) concerning a loan of €80 billion. The package was implemented on 9 February 2010 and included a freeze in the salaries of all government employees, a 10% cut in bonuses, as well as cuts in overtime workers, public employees and work-related travels.
Austerity Plus:
Austerity is the policy of reducing government budget deficits. Austerity policies may include spending cuts, tax increases, or a mixture of both. Austerity may be undertaken to demonstrate the government’s fiscal discipline to their creditors and credit rating agencies by bringing revenues closer to expenditures. Austerity may also be politically driven or imposed by external agencies.
In Greece, austerity was largely imposed under terms set by external agencies. With the country nearly bankrupt Greece was forced to implement austerity policies under terms agreed with the ‘troika’ – the name for the three external agencies overseeing the EU’s bailout fund – the IMF, European Commission and European Central Bank.
In March 2010, amid new fears of bankruptcy, the Greek parliament passed the Economy Protection Bill, which aimed to save €4.8 billion of government expenditure. Measures included cuts in public sector pay, leave and bonuses, VAT rises, fuel increases and import duties. However, to continue to have the funds to pay government salaries and running costs the government was forced to borrow an additional €110 billion from the bailout fund. The Troika agreed but insisted on further cuts in public sector pay, terms and conditions, VAT rises, pension changes and many more.
Troika officials were effectively taking control of Greek government policy and in 2011, amid public upheaval a fourth round of austerity was passed with state sell- offs and privatisations. Greek Prime Minister George Papandreou got parliament to back the plan but Papandreou spooked the markets by calling a referendum on the package. Following French and German intervention the referendum was cancelled, Papandreou resigned and a new government formed with a new, unelected, technocratic PM.
Lucas Papademos was the former governor of the Greek bank and instructed the new government to implement the full austerity measures agreed under the terms of the bail-out. However, by 2012, Greece was again on the edge of default and another round of measures was implemented. This included a massive sell-off of state assets with China primed to buy chunks of Greek infrastructure including gas and port facilities.
In October 2012, against a backdrop of fraught political debate, public protest, a general strike, street demonstrations and intense pressure on Greek public services a sixth round of austerity was implemented on Troika conditions of structural reform – including major Labour market reforms. The government narrowly approved the package – with the finance minister claiming it was definitely the last round but in July 2013, a seventh round saw more borrowing linked to further austerity measures including a cut of 15,000 public sector jobs.
Despite these measures Greek government debt is growing and is in effect borrowing money to pay the interest on previous borrowing. The deficit currently stands at €320 billion (177% country’s debt-to-GDP ratio), of which €56 billion is owed to Germany. It has borrowed €240 billion from the European bailout fund and by the end of June has to find nearly €9 billion to fund government salaries, state pensions and service the interest payments on its loans.
New Government:
Austerity has had a major social and economic impact on Greek society. It is comparable to the American Great Depression and there are fewer Greek people employed than there have been at any time in the past 33 years. The EU’s Statistics on Income and Living Conditions survey reports a real 40% cut in healthcare spending with a huge cut in services directly linked to a massive rise in infant mortality, suicide and serious public health conditions including the first reported cases of malaria in forty years.
Inevitably, more and more people rallied to the anti-austerity message of the new political party Syriza. Established in 2004, as coalition of the radical left with broad anti-capitalist, globalisation and soft Eurosceptic beliefs the party grew in popularity and in 2012 gained 27% of the vote. It also decided to break from its pluralist coalition base and become a single party.
In the 2014, it came first in the European elections and in September 2014 presented its Thessaloniki Programme – a manifesto presented by party leader Alexis Tsipras at the Thessaloniki International Trade Fair , proposing a set of policies oriented towards reversing austerity measures while maintaining a balanced budget.
Tsipras stated that the programme as ‘not negotiable’ and in December 2014 Syriza, came first in the general election. Tsipras brokered a coalition with the right- wing anti-austerity Independent Greeks with the shared goal of immediate realisation of the (Thessaloniki) programme.
The programme is based on four pillars: Confronting the humanitarian crisis; Restarting the economy and promoting tax justice; National plan to regain employment; and Transforming the political system to deepen democracy.
The programme sets out a National Reconstruction Plan based on the rebuilding and extending of the welfare state financed through revenues raised by combatting tax evasion and appropriating European funds from bodies such as the Structural Funds and Cohesion Fund.
At the European level, the programme demands a European New Deal of large- scale public investment by the European Investment Bank, extended quantitative easing by the European Central Bank, and significantly a conference for the reduction of Greek and southern European debt modelled on the London Debt Agreement of 1953 – an international agreement that re-packaged various German debts owed to the Allies from before and after the Second World War into a fifty year repayment deal that enabled the German economy to recover and grow in the post-war period.
Syriza’s challenge to the troika and proponents of the austerity ‘cure’ has raised tensions between Greece, the EU and international finance community. The Greek Finance Minister Yanis Varoufaki’s abrasive style is not well received in Brussels but they were elected on a public wave of anti-austerity feeling and it would untenable for them to implement further austerity measures and survive as the government.
Europe’s Choice:
As outlined austerity is not just a purely political calculation and there are many economists that support Syriza’s anti-austerity stance.
Indeed, the American Nobel Prize winning Economist Paul Krugman, argues that austerity measures tend to be counterproductive when applied to the populations and programs they are usually applied to. The new found popular rise in austerity, he argues, is linked to a flawed piece of economic research adopted by right-wing Republicans in America. ‘Growth in a Time of Debt’ has become a neoliberal best- seller based on the assertion that economies retract once government debt exceeds 90% of GDP. Krugman sates that there is no evidence to support this case and that policy makers ‘abandoned the unemployed and turned to austerity because they want to.’
The British economist Robert Skidelsky states that the Greek austerity plan will continue to flop and that realistically most of the Greek government’s external debt will never be repaid.
‘It would be best if Europe’s leaders openly acknowledged this and stopped trying to “pretend and extend”. They should convene a European debt relief conference, as Syriza has suggested. This would agree to cancel a percentage of the external debt of all heavily indebted Eurozone countries ( Italy, Spain, Portugal and possibly Ireland would qualify) For Greece, a debt write-off of about 50 per cent, leaving it with a debt/GDP ratio of close to 90 per cent, would give a real chance of a fresh start.’
He adds: ‘Morality and politics aside, there is a compelling economic argument for debt forgiveness. The huge external debts of countries such as Greece menace the recovery of the Eurozone from the Great Recession. They can only be repaid by transferring resources from the debtor to the creditor countries. To do this, the heavily indebted countries will have to run export surpluses of up to 10 per cent or more over several years. (Greece’s current account surplus is under 1 per cent.) No one supposes that they will achieve productivity gains sufficient to make this possible. This means that further large cuts in their living standards will be required to generate the necessary exports. I agree with Syriza: the way back to prosperity and solvency is not debt collection and austerity but debt relief and public investment. This is Europe’s choice.’
Meanwhile, the European TUC rejects austerity as the wrong direction of travel for Europe and sets out its policy alternatives in a European Investment Plan that seeks to:
‘Set Europe on that new course by giving priority to a robust and ambitious multi- annual European investment plan, by trading in the agenda of structural deregulation for an agenda that promotes quality jobs, and by recognizing the role of wages as an engine for demand, investment and jobs.’
This can only be achieved by: ‘The promotion of employment, improved living and working conditions, proper social protection, dialogue between management and labour and the development of human resources with a view to lasting high employment and the combating of exclusion.’
ERIS Comment:
The Greek people have paid a high social and economic price and shown that austerity is not the answer to improve the macro-economic conditions in Greece, or any of the other European countries exposed in the fallout from the economic crisis in 2008. This is not just the democratic view of the Greek people who elected Syriza with an anti-austerity mandate but supported by international economists and shown in evidence by the European TUC. If the European Union continues to impose this policy the future of Europe will remain uncertain.
To find out more about ERIS visit:
www.eris-tradeunion.eu
ERIS is not a pro-European Union organisation and strongly believes in a Europe for working people, working together with other trade unions to secure employment, improved living and working conditions, social dialogue and partnership.
Links:
ETUC – http://www.etuc.org/
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