By Theodora Oikonomides
The austerity measures adopted by the Greek government are meant to prevent it from defaulting on its national debt. Instead, they are bringing the middle class to its knees even as the poor become increasingly desperate. With approximately 20 percent of the population unemployed, a loss of faith in democracy and rapidly increasing social violence, the situation in contemporary Greece is reminiscent of Weimar Berlin. And we all know how that turned out…
Much has been said in the international media about the financial crisis in the Eurozone and the risk of a default by Greece on its sovereign debt since the beginning of 2010. The jargon of finance has gone mainstream, with terms such as “GDP contraction”, “bond yields”, “spreads”, “CDS”, “credit event”, “domino effect” and “bailout.” But all this talk of a “bailout” to “help” the Greek economy “get back on its feet” is a sham.
First , the term “bailout” is misleading. A bailout would mean that Greece is simply given some extra money to pay off its debt. The truth is that Greece has been given another package of expensive loans that it cannot repay: the €110M “bailout” agreed upon in May 2010 bears an average interest rate of 5%. As Greek economist Yanis Varoufakis put it, “Greece was not bailed out, it was given an expensive credit card to pay back its loans, having lost its job.”
Second, these so-called bailout funds never really make it to Greece. Most of them actually go straight back to the creditors to service the interests of the debt. The debt kept growing both in absolute numbers (from €299Bn in 2009 to €327Bn in 2010) and as a percentage of GDP (from 127% to 143%). Meanwhile, the Greek people are being subjected to an unprecedented regime of austerity in order to enable the government to meet its expenditures, such as paying salaries and pensions.
Since 2010, in order to secure “bailout” loans, the government of Greece agreed to a set of targets with the European Union, the European Central Bank and the International Monetary Fund – the so-called “troika” – to get its finances in order, with a goal to balance the national budget by 2014. To achieve this, it put on the table three broad categories of austerity measures: the reduction of state expenditures through cutbacks to salaries, pensions and public services; the increase of revenue through tax hikes and privatizations; and structural reform of the economy.
Much of what is said about the dysfunctions of the Greek economy is true. Greece has a very high number of civil servants relative to total population, and a significant number of them were recruited not on the basis of need, but as a gesture of political favouritism. It is a fact that the bureaucracy is slow, inefficient and wasteful. Tax evasion is rampant at all levels of society, but more shockingly so among the rich and very rich. Corruption is endemic. Business-related legislation is so arcane that it is an obstacle to entrepreneurship. Statistics provided by the Greek government to the European Union are notoriously poor, and in some cases, such as the government budget deficit figures, outright lies. All these are realities that the Greek people are fully aware of and wish to change. When the very first batch of austerity measures was announced in the beginning of 2010, many Greeks not only accepted them, but even supported them, because they agreed that sacrifices had to be made to correct the worst dysfunctions of the state.
But reality is that austerity measures are enforced selectively. For example, the government announced with great fanfare in 2009 that it would crack down on tax evasion among the rich, yet no results of significance were ever seen. Similarly, corruption has not decreased since the 2009 elections – as a matter of fact, the Comptroller-General’s 2010 report on corruption in state-run institutions says that corruption has increased, and increased considerably. The “structural reforms” announced by the government have yet to come through in a way that promotes economic and social development. Instead, the measures being enforced are pushing an ever-greater proportion of the Greek people into poverty. Meanwhile, state institutions are as dysfunctional as ever, depriving the Greek people of public services at the very moment when income cutbacks make it difficult, if not impossible, to seek those same services in the private sector. One of the most galling examples of the failure of the state is the fact that, due to a combination of lack of funding and mismanagement by the Ministry of Education, schools started operating last month without textbooks.
Since 2010, the 758,000 civil servants of Greece have taken multiple pay cuts. Pensioners have also taken substantial cuts. Tax exemptions have been revoked even for the poor, and VAT has been increased to 23% on pretty much everything. The minimum taxable income has been brought down to €8,000 per year, and income tax rates have been increased. The knock-on effect for businesses has been disastrous, with 1 in 3 businesses shutting down since 2009. As of June 2011, the official unemployment rate in Greece stood at above 16%. Greece’s largest labour union, GSEE, estimates actual unemployment at 20-22% of the working-age population.
Because the fiscal targets agreed between Greece and the troika were unrealistic from the start, because the government failed to crack down on tax evasion and corruption, because a grand privatization programme to generate revenue never materialized, because the recession is not only huge, but deepening every day, the same scenario plays out every time a new tranche of the “bailout” loans to Greece is to be disbursed. Troika inspectors come to Athens to check the accounts of the state and find that little or no progress has been made. They demand that the government speed up the pace of reforms and implement further austerity measures to fill the gaps in the budget. The government meekly agrees and announces more austerity. A vote takes place in parliament, with thousands of people demonstrating outside and getting beaten and tear-gassed ever more violently by the riot police. The measures are voted upon, the easy ones – pays cuts, tax hikes – are implemented, the difficult ones go to the dustbin of history, Greece receives the loan tranche, and the same story repeats itself a few months later.
The problem now is that so many austerity measures have already been voted that the government is resorting to desperate moves in the hope of further cutting expenditures and generating revenue. On 27 September, parliament approved an additional tax on homeowners ranging from €3 to €20 per square meter of property, regardless of income and ability to pay, with very few exceptions. Furthermore, this tax will be collected through the electricity bill, with the explicit threat that power will be cut off to those who don’t pay. In my neighbourhood of Athens, this means an extra €396 tax for 60 sq meters in a 15-year-old building, even for the unemployed on monthly benefits of €461.50.
Further upcoming measures include yet another cutback to salaries and pensions, lowering the minimum taxable income to €5,000 per year (do the math for unemployment benefits), a twenty-fold increase of the tax on heating fuel, and putting 30,000 civil servants on furlough by the end of 2011. “Furlough” means being put on a staff reserve with 60% pay, and being sacked after a year if no suitable position in the public sector can be identified. Given the parlous state of the job market, this means adding another 30,000 unemployed to the existing 810,000 within a year. Worse, the numbers being floated about for furlough targets by 2015 go up to 200,000.
To anyone who lives in Athens, it is obvious that austerity is not “helping the Greek economy get back on its feet.” Vagrancy is on the rise, dumpster-diving for food is becoming a common sight, and drug addiction, depression and suicides are increasing dramatically. The insistence of creditor countries that the Greek sovereign debt be paid back in full – the “haircut” agreed on 21 July turned out to be another sham for anyone who looked at the small print – means that Greece is caught in a debt trap with the ensuing deflation and recession. The people of Greece feel that they are being sacrificed on the altar of the euro to save other Eurozone economies from the domino effect. But the social and political cost is huge, with common people losing faith in the values of parliamentary democracy, and increasingly frequent incidents of social violence, particularly against marginalised groups such as immigrants and Roma people. In short, Greece in 2011 is a repeat of Weimar Germany after the Great Depression. We all know how that specific bit of history turned out.
A vast majority of economists of various backgrounds and ideological leanings, from Nouriel Roubini to Paul Krugman, now agree that a Greek default is inevitable. The question is only when and how. European and IMF leaders seek to postpone that moment as much as possible, with the hope of shielding other countries and their banks from the knock-on effect. This procrastination has already caused untold suffering to the Greek people and is bound to cause even more. But all the negotiations, summits and agreements of world leaders fail to take in consideration one simple parameter: the Greek people cannot pay anymore, not because they do not want to pay, but because they are running out of money.
In September this year, Greeks were called upon to pay not only their regular income taxes but also an emergency tax decided as part of an earlier austerity package, in addition to various contributions for health insurance and pensions for some professional groups. Many could not afford the emergency tax, and people demonstrated in front of banks on 30 September, the official deadline to pay it. The new property tax will come with the October and December electricity bills, and there again it is likely that many Greeks will not be able to pay. It is not clear exactly when the new cuts to salaries and pensions will be enforced, but some are expected as early as the end of October. Those Greeks who cannot evade taxes cannot pay. It is that simple. Therefore, a Greek default will happen sooner rather than later. What the consequences will be for Greece and for Europe is anyone’s guess.
Theodora Oikonomides is a Greek citizen and political activist. She has worked with various humanitarian organisations in the field of education in emergencies and chronic crises in the Middle East and Sub-Saharan Africa from 1998 to 2009, and was an advisor to the Special Secretary for Intercultural Education in the Greek Ministry of Education in 2009-2010.”
Ms. Oikonomides is a graduate of the Ecole Normale Supérieure (Paris, France) in philosophy; fluent in Greek, English, French and Arabic; contributor to various Greek journals; author of “Bienvenue à Ramallah” (Flammarion, Paris, 2003)