After the tear gas cleared up in Athens, the Greek headed again to his favourite taverna and polished off his plate by taking a piece of bread, soaking up any leftover olive oil, and popping the delicious morsel into his mouth. Despite the protests, life will continue more or less normally in Greece in spite of austerity measures in the wake of Greece’s “near death” financial experience. Facing a mountain of debt that has become unsustainable, the Greek government has introduced a plan to regain control of a situation Prime Minister George Papandreou has called a threat to national sovereignty. “We are determined to do whatever is necessary to check the huge deficit, to restore stability in public finances. It is the only way to ensure that Greece does not lose its sovereign rights,” he said in Athens back in December. “Either we eradicate the debt, or the debt will eliminate the country.”
Athens owes 300-billion Euros to the world, with tens of billions in debt coming due in April and May 2010, which creates an imminent need for refinancing. Moreover, the government’s budget deficit is worth 12.5% of the national economy. In the Eurozone, it should be 3%. Naturally, the precariousness of that situation has forced up interest rates on bonds to finance the national debt. This state of affairs has been made all the worse by the involvement of speculators who prey on states with weak finances. Commentator Al Lewis gives a most lucid description to Dow Jones Newswires. He suggests that big American bank Goldman Sachs played the Trojan Horse in 2001, by helping the Greek government shift debt off its books (legally, though unethically) then turning around and getting investors to bet against mounting Greek debt.
Greece’s debt began to mount at its fastest pace in the 1980s under the socialist government of Andreas Papandreou, the father of the current prime minister. The welfare state gradually expanded to a size that is much too bloated for such a small country to sustain. The public sector in Greece now employs 850,000 people. That’s 17% of the national labour force. Yet, the overspending of government is not limited to the number of civil servants Greece has. The size of the civil service is an indication of just how active the government is in the national economy, chock full for state enterprises, commissions, agencies, boards, and various government ministries that not only cost money to run, but spend funds as well to subsidize business and perform various state functions.
Of course, conditions in Greece have become worse over the decades. The socialist PASOK party that got the ball rolling on massive state expansion has been in power for most of the last 30 years. Greece’s other main political party (centre-right New Democracy) has had brief spells in power during those three decades, but has also proven unwilling or unable to steer the ship of state away from the shoals of big spending. Take it from Kyriakos Mitsotakis, who is both the son of a former ND prime minister and a parliamentary deputy himself. “We did make a considerable effort at reducing the deficit, but that proved not to be enough and we were rather timid as far as implementing those structural changes that would make the economy basically more competitive,” he admits. While never too close to outright power, the entrenched labour unions of Greece have been able to make enough noise to convince even the most determined government that reforms would be politically too costly.
While Greece has a spending problem, it is also beset with a revenue generation handicap. Too many individuals and companies don’t pay taxes and conduct business under the table. As much as a quarter of the national economy happens out of the reach of the tax man through cash transactions without receipts. George Papandreou has even publicly admitted that fewer than 5,000 people in the country have declared an annual income of 100,000 Euros or more. Some may argue that with taxes as high as they are (a value-added tax that’s now up to 21%) it’s only natural citizens would try to avoid taxes. Be that as it may, it deprives the state of income.
As for corruption, unfortunately, it is now de rigeur in many public services (including hospitals) to pay a bribe to ensure faster or even proper service. Naturally, that is not reported as income. There is also rot in the construction of infrastructure projects. The recent scandal involving Siemens and allegations of kick-backs to politicians in exchange for lucrative contracts is but one example. One anonymous businessman told The Irish Times on 13 March, the day after a general strike, “Everything is built around connections. There’s no meritocracy.”
But why should Greece be the first in the Eurozone to encounter this financial crisis? Portugal, Italy, Spain, and Ireland all face similar debt problems and have cultures of corruption and social breakdown. Greece’s private sector GSEE union offers a likely explanation. “Today Greece is the guinea pig for EU stability,” says union leader Yiannis Panagopoulos, “tomorrow it will be Spain, Portugal, and Italy.” Therein lies the final spark for Greece’s crisis. Any goodwill that might have existed to help get Greece’s budget deficit down to the goal of 3% of GDP disappeared when the opportunity presented itself to let a newly installed government in Athens (which has the luxury of time before another election) face a crisis that would force action. So, while Greece is forced into action, other European nations with mounting debts start to undertake their own austerity measures in hopes of not “becoming another Greece.” Indeed, Reuters reports that Ireland has proposed civil service pay cuts, Portugal has begun its own austerity program, and Spain has moved to raise its retirement age and implement at 50-billion Euro austerity plan.
This brings us back to today. Among the steps Papandreou has proposed for getting Greek finances in order are a freeze in pay for state employees, an increase in the VAT, higher sin taxes, and big cuts to traditional holiday bonuses. Many in European capitals and other places around the world worry about whether the strikes will continue long enough to get the Greek government to give up its plan. They need not worry. The protests in Greece have been largely peaceful and are not aimed at opposition to austerity in general, simply at the targets of the cutbacks. What is more, whatever violence there has been was not part of any strike. Instead, it was perpetrated by the same anarchist hoodlums who, in the aftermath of the fatal shooting of a teenager by a police officer in 2008, took advantage of the situation by rioting. Popular support for such violent actions is negligible. Furthermore, Greeks appear generally resigned that change is coming and that the government gravy train has made its final stop.
The age-old habits of daily life in Greece will remain, even as the country is on the cusp of change. The Irish Times reports that bars, restaurants, and theatres are still busy late into the night in Greece, “but Greeks remain furious about their broken economy, clannish politics, and corrupt society.” In short, Greeks will not alter their lifestyles much, but they may change how they run their country. Besides, no true Greek would trade his ouzo and olives for a Molotov cocktail.
Daniel Proussalidis is a journalist and broadcaster in Ottawa, Canada.