Greece is paralysed by another general strike today, affecting the public and private sectors. Unions are protesting against austerity measures adopted on May 9 to cut the deficit by about ten billion euros this year.
On strike are civil servants, most public transport in Athens, rail, local and regional government, public school teachers and academics, customs workers, passenger shipping, pension funds, banks and many private sector workers. Athens International Airport is remaining open, though Olympic Air has unilaterally cancelled some flights.
Tax evasion higher than deficit
The government estimates that it is owed 25 billion euros in tax arrears and fines, says the finance ministry's man in charge of tax collection. Dimitris Georgakopoulos, General Secretary for Tax Revenue and Customs, told an open meeting of Athens and Peiraieus chambers of commerce yesterday that the sum is equal to about 40 percent of budget revenues. The government's austerity measures, in contrast, aim to curb about 10 billion euros in public spending this year.
'Stop making money from Greek misery'
Green Europarliamentarian Daniel Cohn-Bendit has called on European Union states to stop making money from Greece's misery, as he describes it. He told Europarliament that selling European arms to Greece and lending it money at a markup amounts to profiteering. He called on leaders to set up a European Monetary Fund and give Greece time to massage in reform rather than rush it through. The speech was made on May 5, the day three Greek bank employees died in a fire set by anarchists on the sidelines of a protest march.
See the video with Greek or English subtitles.
Thursday, 20 May 2010
Tuesday, 18 May 2010
Deputy minister resigns over tax debts
Deputy Culture Minister Angela Gerekou resigned last night after newsapers revealed that her husband, former singer Tolis Voskopoulos, owes 5.5 million euros in taxes, Greek media report. "Today's news articles refer to my husband's pending legal tax case which stems from long before our personal acquaintance," she said in a brief statement. "I could never allow my husband's case to form a basis for blunt accusations against against the government and premier, especially at this exceptionally difficult time," she said.
Gerekou is the socialist government's first loss after almost eight months in power, and demonstrates a newfound political sensitivity to tax arrears after waves of austerity measures this year. Also remarkable is the fact that the tax arrears were revealed by a nominally pro-socialist newspaper, Eleftherotypia.
Gerekou is the socialist government's first loss after almost eight months in power, and demonstrates a newfound political sensitivity to tax arrears after waves of austerity measures this year. Also remarkable is the fact that the tax arrears were revealed by a nominally pro-socialist newspaper, Eleftherotypia.
Monday, 17 May 2010
Comments
Some recent commentaries on the Greek and broader European crisis worth noting:
Economist: No going back - Ambitious but incomplete, the rescue plan for the euro could change the way Europe is run
Der Spiegel: The Mother of All Bubbles - Huge National Debts Could Push Euro Zone into Bankruptcy
Economist: No going back - Ambitious but incomplete, the rescue plan for the euro could change the way Europe is run
Der Spiegel: The Mother of All Bubbles - Huge National Debts Could Push Euro Zone into Bankruptcy
Friday, 14 May 2010
Turkish PM in Athens
Turkish Prime Minister Recep Tayyip Erdogan is in Athens today to discuss and sign more than a dozen agreements on economic, environmental, cultural and economic co-operation. A press conference is scheduled for the late afternoon.
Best news item yesterday: A hypoglycemic man fainted behind the wheel of his jeep during his morning commute. He crashed into a patisserie.
Best news item yesterday: A hypoglycemic man fainted behind the wheel of his jeep during his morning commute. He crashed into a patisserie.
Thursday, 13 May 2010
Strikes today
Tour guides and guards on the Acropolis are on strike today, Thursday. Also on strike are tug boat operators and pilots in the port of Peiraieus. This caused the cruise ship Musica an alleged three-hour delay in tying at port this morning, delaying a shore excursion to Athens monuments (some of which, as previously mentioned, are inaccessible). A nationwide strike has been declared by public and private sector unions for next Thursday, May 20.
Tuesday, 11 May 2010
Reform around the corner?
Athens is bracing for another rally by private and public sector workers on Wednesday evening, and further strikes may be announced before then. Adding to the ire of unionists and opposition leaders is a social security reform bill announced on Monday, a day after deeply unpopular public expenditure cuts were voted through parliament. The social security bill will reduce pensions for some categories of workers and raise the retirement age for those entering the workforce after 2015.
Opposition parties have called it a dismantling of the social state put in place over the last three decades.
Greece was set to ask for the release of 20 billion euros of an EU-IMF safety net on Wednesday, reports said. 14.5bn would come from the EU, while 5.5bn would come from the IMF.
Transparency
There were preliminary reports from parliamentary correspondents on Tuesday evening that the government is also proposing to stiffen the Audit Committee, which oversees MPs' tax returns. Five MPs currently sit on the committee, and there is allegedly a proposal to replace them. The understanding is that this would remove any collegiate sentiments on the committee towards transgressing MPs.
The oversight of parliamentary deputies' tax returns is a the key point of political accountability. Another is the immunity from prosecution enjoyed by MPs. Yet a third is a law limiting the liabilities of cabinet ministers to five years after they leave office, or the end of the second parliamentary session following an election, whichever comes sooner. Political observers and constitutional experts have long decried these as creating a double standard. Following Greece's effective bankruptcy and the financial scandals attendant upon the last government, there is more pressure than ever on the political system to change.
Transparency was a key election promise made by the socialist party last September. It had also been the main plank of a platform that helped elect the conservative party in March 2004.
Calls for change
"The prospect of bankruptcy has not become any more distant," said President of the Hellenic Federation of Enterprises Dimitris Daskalopoulos in an address to the annual general meeting of the private sector's leading body today. "The political system will face a survival test," he added.
In a blunt broadside against the political system, he accused parties and politicians of resisting change because they are lining their pockets with taxpayer money. "They feel that a smaller state... would shrink their power and privileges," he said. "The political system is called upon to surpass itself. If it does not change, it will become obsolete."
Greek parliamentary democracy was restored 36 years ago this July after a seven-year dictatorship. This is a period known as the meta-political period, or metapolitefsi. Daskalopoulos said we are "witnessing the disintegration of the metapolitefsi, which is characterised chiefly by political clientelism, fiscal indiscipline, endemic corruption and the populism to which our parties are wont."
Government isolated
Despite the national nature of the crisis Greece faces, the ruling socialist government is almost completely isolated in the three waves of public cost-cutting it has so far voted through parliament, and in the reforms it proposes.
Conservative opposition leader Antonis Samaras said on Monday he refused to back the latest socialist austerity package, a condition of the EU-IMF support package, because the government would not rescind a law that grants citizenship to the children of legal immigrants, or back down from a plan to reduce local governments by two thirds. Samaras said he also demands more support for the poor and more emphasis on development rather than public cost-cutting.
Opposition parties have called it a dismantling of the social state put in place over the last three decades.
Greece was set to ask for the release of 20 billion euros of an EU-IMF safety net on Wednesday, reports said. 14.5bn would come from the EU, while 5.5bn would come from the IMF.
Transparency
There were preliminary reports from parliamentary correspondents on Tuesday evening that the government is also proposing to stiffen the Audit Committee, which oversees MPs' tax returns. Five MPs currently sit on the committee, and there is allegedly a proposal to replace them. The understanding is that this would remove any collegiate sentiments on the committee towards transgressing MPs.
The oversight of parliamentary deputies' tax returns is a the key point of political accountability. Another is the immunity from prosecution enjoyed by MPs. Yet a third is a law limiting the liabilities of cabinet ministers to five years after they leave office, or the end of the second parliamentary session following an election, whichever comes sooner. Political observers and constitutional experts have long decried these as creating a double standard. Following Greece's effective bankruptcy and the financial scandals attendant upon the last government, there is more pressure than ever on the political system to change.
Transparency was a key election promise made by the socialist party last September. It had also been the main plank of a platform that helped elect the conservative party in March 2004.
Calls for change
"The prospect of bankruptcy has not become any more distant," said President of the Hellenic Federation of Enterprises Dimitris Daskalopoulos in an address to the annual general meeting of the private sector's leading body today. "The political system will face a survival test," he added.
In a blunt broadside against the political system, he accused parties and politicians of resisting change because they are lining their pockets with taxpayer money. "They feel that a smaller state... would shrink their power and privileges," he said. "The political system is called upon to surpass itself. If it does not change, it will become obsolete."
Greek parliamentary democracy was restored 36 years ago this July after a seven-year dictatorship. This is a period known as the meta-political period, or metapolitefsi. Daskalopoulos said we are "witnessing the disintegration of the metapolitefsi, which is characterised chiefly by political clientelism, fiscal indiscipline, endemic corruption and the populism to which our parties are wont."
Government isolated
Despite the national nature of the crisis Greece faces, the ruling socialist government is almost completely isolated in the three waves of public cost-cutting it has so far voted through parliament, and in the reforms it proposes.
Conservative opposition leader Antonis Samaras said on Monday he refused to back the latest socialist austerity package, a condition of the EU-IMF support package, because the government would not rescind a law that grants citizenship to the children of legal immigrants, or back down from a plan to reduce local governments by two thirds. Samaras said he also demands more support for the poor and more emphasis on development rather than public cost-cutting.
Friday, 7 May 2010
The New Athenian on CBS, PBS
Follow The New Athenian's chats over satellite with CBS's Katie Couric and PBS's Judy Woodruff.
Chilling
Thursday, 6 May 2010
Are unionists and politicians giving anarchists the nod?
Eye-witness reports are emerging through the media today about the behaviour of the 'peaceful' marchers outside the torched Marfin Popular Bank building yesterday.
When several violent protesters smashed the bank's windows and hurled in molotov cocktails, a cheer rose from the crowd, say witnesses. Later, as the first fire engines tried to approach, they were met with a hail of stones. Certainly, march leaders were bent on pushing the protest past the burning bank building yesterday even as the fire brigade struggled to rescue trapped people, as though the success of the march were on a par with the lives that were at stake. These circumstances suggest two things: that the violent protesters meant harm to the people inside the bank, and obstructed the timely extinction of the fire; and that the trumpeted divide between legitimate political expression and criminal anarchy is eroding.
To his credit, Prime Minister Yiorgos Papandreou told parliament last night that all parties were responsible for the political climate. Violent expressions provide a basis of legitimacy for violent acts, he said. The conservative opposition has said that it will neither support nor obstruct today's bill instituting the austerity measures tied to the EU-IMF package. In other words, conservative leader Antonis Samaras understands that now is not the time for populism, but he is leaving his options open.
However, it is doubtful whether the prime minister's call for responsibility will have much effect on union leaders and communists. Union leaders in Greece are cut from a populist cloth. As far as they are concerned, labour and capital are natural enemies. The communists, divided between the Communist Part of Greece and the Left Coalition, have spent the last 35 years as plaintiffs for their post-civil war persecution, and are determined to have their day. They know they will never seize power and will allow themselves to speak and act as eternal sophomores. On the basis of just 12 percent of the popular vote in last October's election, they will have a disproportionate effect on the political climate, as they always have done. Papandreou controls parliament, but they largely control the streets.
The rhetoric against banks is directly related to the anti-capitalist sentiments of the left, and so is the persistent violence that takes place against them on the fringes of popular rallies. Yesterday's torching of a bank full of people was the culmination of hundreds of exercises in window smashing, the driving of crowbars through ATM screens and the torching of closed branches over the past few years.
Which way will Greece go? There is no option but to follow through on the IMF-EU package. It offers Greece a top interest rate of 5 percent over the next three years, which is less than half what it would pay on open markets today. But how the government implements the concomitant austerity can, to a large extent, determine the success of the outcome.
When several violent protesters smashed the bank's windows and hurled in molotov cocktails, a cheer rose from the crowd, say witnesses. Later, as the first fire engines tried to approach, they were met with a hail of stones. Certainly, march leaders were bent on pushing the protest past the burning bank building yesterday even as the fire brigade struggled to rescue trapped people, as though the success of the march were on a par with the lives that were at stake. These circumstances suggest two things: that the violent protesters meant harm to the people inside the bank, and obstructed the timely extinction of the fire; and that the trumpeted divide between legitimate political expression and criminal anarchy is eroding.
To his credit, Prime Minister Yiorgos Papandreou told parliament last night that all parties were responsible for the political climate. Violent expressions provide a basis of legitimacy for violent acts, he said. The conservative opposition has said that it will neither support nor obstruct today's bill instituting the austerity measures tied to the EU-IMF package. In other words, conservative leader Antonis Samaras understands that now is not the time for populism, but he is leaving his options open.
However, it is doubtful whether the prime minister's call for responsibility will have much effect on union leaders and communists. Union leaders in Greece are cut from a populist cloth. As far as they are concerned, labour and capital are natural enemies. The communists, divided between the Communist Part of Greece and the Left Coalition, have spent the last 35 years as plaintiffs for their post-civil war persecution, and are determined to have their day. They know they will never seize power and will allow themselves to speak and act as eternal sophomores. On the basis of just 12 percent of the popular vote in last October's election, they will have a disproportionate effect on the political climate, as they always have done. Papandreou controls parliament, but they largely control the streets.
The rhetoric against banks is directly related to the anti-capitalist sentiments of the left, and so is the persistent violence that takes place against them on the fringes of popular rallies. Yesterday's torching of a bank full of people was the culmination of hundreds of exercises in window smashing, the driving of crowbars through ATM screens and the torching of closed branches over the past few years.
Which way will Greece go? There is no option but to follow through on the IMF-EU package. It offers Greece a top interest rate of 5 percent over the next three years, which is less than half what it would pay on open markets today. But how the government implements the concomitant austerity can, to a large extent, determine the success of the outcome.
Wednesday, 5 May 2010
Athens riots claim lives
Two women and a man were killed in a bank in central Athens today after rioters set their building alight on Stadiou, a major avenue leading to parliament. Protesters marched past the building chanting slogans against the government, as smoke billowed out of second storey windows and firemen struggled to lower two women trapped on a balcony, their eyes wide with panic against smoke-blackened faces. “The fire is out, everything’s ok here. Move along,” shouted a communist party functionary employed to shepherd the protest to parliament. The marchers pushed through the one lane left open beside nine fire engines that lined the bank.
A block away, near Athens University, violent protesters ripped the marble facing off buildings, smashed it and hurled the pieces at police, who responded with teargas and stun grenades. The air was made even more acrid by burning plastic rubbish dumpsters and wooden benches.
Peaceful marchers approaching parliament were turned back by bursts of teargas, and dived into public fountains to relieve the sting. Hotels and retail businesses rolled down steel shutters to protect themselves from damage. Those who didn’t suffered. Ianos, a large bookstore, had its plate glass windows smashed with crowbars.
The protests embellished a one-day strike by the country's biggest unions against a new wave of austerity measures announced by the government on Sunday. Those measures vastly reduce seasonal bonuses from the salaries of civil servants and pensioners, and raise consumer taxes. They are the third wave of spending cuts announced this year and were a condition of a 110 billion euro bailout of the Greek public sector by the Eurogroup and the International Monetary Fund.
The government has pledged to trim spending by 30 billion euros over three years, and reduce a 2009 deficit of 13.6 percent of GDP to 3 percent by 2014 - two years later than it originally planned. Just over 10 billion euros’ worth of those cuts are planned for this year. In theory, Greece must be creditworthy enough to borrow from financial markets again sometime in 2012, when the bailout money will run out.
But the government is treading a tightrope between social unrest and bankruptcy. It cannot spend the bailout money without economising, or it will not have time to reform and revive an uncompetitive economy. Spending cuts, on the other hand, help drive the Greek recession. Contraction was 2 percent last year and is forecast to double this year.
The pain of austerity is being unfairly passed on to workers, say the unions. They marched to parliament today with slogans like "Get out IMF" and "No to the dictatorship of the markets" - the last a reference to Greece's inability to affordably refinance debt in financial markets because of the precipitous fall in its creditworthiness.
"Every citizen has the right to protest, but no one has the right to violence - particularly the violence that leads to the murder of our fellow men," said Prime Minister Yiorgos Papandreou in an address to parliament late on Wednesday. He pledged to track down the perpetrators.
While he did not blame unions and the communist party for the deaths, he did blame them for creating an inflammable environment. "You know well that the statements made in the last few days did not help - that the country is under a dictatorship or that the constitution is somehow in doubt. You know how much these words legitimise violence."
The communist party said the killings were deliberate acts of provocation aimed at framing it and marginalising it politically.
The three victims were identified as Paraskevi Zoulia, 34, Angeliki Papathanasopoulou, 32, and Epameinondas Tsakalis, 38.
The strike largely brought Athens to a standstill. Its international airport has ceased all flights and ships are tied at harbour. Central and local government are closed, as are hospitals, schools and universities. Even privileged private sector professions such as lawyers and journalists went on strike, though the journalists’ union lifted its broadcast ban following the three deaths. Public transport worked a 6-hour day, largely to ferry protesters to and from the centre.
The strike began on Tuesday before broadening today. Civil servants were off the job. Contract teachers besieged the education ministry in protest at the expected reduction in hiring this September. A separate group was protesting outside the Athens University downtown campus with banners and loud music. Representatives of PAME, the Commuist Party of Greece union arm, unfurled two giant banners from the walls of the Acropolis reading “Peoples of Europe Rise up”.
“What people are angry about is that employees with low salaries are being made to pay for the mishandling of the country’s finances over so many years,” says Mirka Dimitriadis, a retired journalist. “Not one politician has been put in the dock to answer for what happened.”
The General Confederation of Labour, the country’s largest private sector union group, calls the 5 percent interest rate charged to Greece by the Eurogroup “usury”, despite the fact that Greece would today borrow at more than twice that rate from money markets.
See this article in the Irish Times.
See the live report on the PBS News Hour.
World reactions to the riots
The Guardian's Larry Elliott:
while demand is going to be sucked out of the Greek economy through a three-year pay and pension freeze, together with a big jump in VAT, there is unlikely to be a pick-up in exports to compensate. Instead, the slump will deepen. Greece, without the benefit of stronger growth, will be unable to meet its ambitious targets for reducing the deficit, which in turn will lead to demands for even deeper budgetary cuts, which will weaken demand still further. That is not a recovery plan. It is an economic death spiral.
The FT's Kerin Hope:
Greek prime minister George Papandreou has vowed to push through draconian economic measures demanded as part of a €110bn rescue package for his debt-burdened country despite the death of three people during demonstration.
Bloomberg:
“The Greece issues are raising concerns about the health of the financial system globally and slowing down the flow of money in markets,” said Ayako Sera, a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages $300 billion.
A block away, near Athens University, violent protesters ripped the marble facing off buildings, smashed it and hurled the pieces at police, who responded with teargas and stun grenades. The air was made even more acrid by burning plastic rubbish dumpsters and wooden benches.
Peaceful marchers approaching parliament were turned back by bursts of teargas, and dived into public fountains to relieve the sting. Hotels and retail businesses rolled down steel shutters to protect themselves from damage. Those who didn’t suffered. Ianos, a large bookstore, had its plate glass windows smashed with crowbars.
The protests embellished a one-day strike by the country's biggest unions against a new wave of austerity measures announced by the government on Sunday. Those measures vastly reduce seasonal bonuses from the salaries of civil servants and pensioners, and raise consumer taxes. They are the third wave of spending cuts announced this year and were a condition of a 110 billion euro bailout of the Greek public sector by the Eurogroup and the International Monetary Fund.
The government has pledged to trim spending by 30 billion euros over three years, and reduce a 2009 deficit of 13.6 percent of GDP to 3 percent by 2014 - two years later than it originally planned. Just over 10 billion euros’ worth of those cuts are planned for this year. In theory, Greece must be creditworthy enough to borrow from financial markets again sometime in 2012, when the bailout money will run out.
But the government is treading a tightrope between social unrest and bankruptcy. It cannot spend the bailout money without economising, or it will not have time to reform and revive an uncompetitive economy. Spending cuts, on the other hand, help drive the Greek recession. Contraction was 2 percent last year and is forecast to double this year.
The pain of austerity is being unfairly passed on to workers, say the unions. They marched to parliament today with slogans like "Get out IMF" and "No to the dictatorship of the markets" - the last a reference to Greece's inability to affordably refinance debt in financial markets because of the precipitous fall in its creditworthiness.
"Every citizen has the right to protest, but no one has the right to violence - particularly the violence that leads to the murder of our fellow men," said Prime Minister Yiorgos Papandreou in an address to parliament late on Wednesday. He pledged to track down the perpetrators.
While he did not blame unions and the communist party for the deaths, he did blame them for creating an inflammable environment. "You know well that the statements made in the last few days did not help - that the country is under a dictatorship or that the constitution is somehow in doubt. You know how much these words legitimise violence."
The communist party said the killings were deliberate acts of provocation aimed at framing it and marginalising it politically.
The three victims were identified as Paraskevi Zoulia, 34, Angeliki Papathanasopoulou, 32, and Epameinondas Tsakalis, 38.
The strike largely brought Athens to a standstill. Its international airport has ceased all flights and ships are tied at harbour. Central and local government are closed, as are hospitals, schools and universities. Even privileged private sector professions such as lawyers and journalists went on strike, though the journalists’ union lifted its broadcast ban following the three deaths. Public transport worked a 6-hour day, largely to ferry protesters to and from the centre.
The strike began on Tuesday before broadening today. Civil servants were off the job. Contract teachers besieged the education ministry in protest at the expected reduction in hiring this September. A separate group was protesting outside the Athens University downtown campus with banners and loud music. Representatives of PAME, the Commuist Party of Greece union arm, unfurled two giant banners from the walls of the Acropolis reading “Peoples of Europe Rise up”.
“What people are angry about is that employees with low salaries are being made to pay for the mishandling of the country’s finances over so many years,” says Mirka Dimitriadis, a retired journalist. “Not one politician has been put in the dock to answer for what happened.”
The General Confederation of Labour, the country’s largest private sector union group, calls the 5 percent interest rate charged to Greece by the Eurogroup “usury”, despite the fact that Greece would today borrow at more than twice that rate from money markets.
See this article in the Irish Times.
See the live report on the PBS News Hour.
World reactions to the riots
The Guardian's Larry Elliott:
while demand is going to be sucked out of the Greek economy through a three-year pay and pension freeze, together with a big jump in VAT, there is unlikely to be a pick-up in exports to compensate. Instead, the slump will deepen. Greece, without the benefit of stronger growth, will be unable to meet its ambitious targets for reducing the deficit, which in turn will lead to demands for even deeper budgetary cuts, which will weaken demand still further. That is not a recovery plan. It is an economic death spiral.
The FT's Kerin Hope:
Greek prime minister George Papandreou has vowed to push through draconian economic measures demanded as part of a €110bn rescue package for his debt-burdened country despite the death of three people during demonstration.
Bloomberg:
“The Greece issues are raising concerns about the health of the financial system globally and slowing down the flow of money in markets,” said Ayako Sera, a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages $300 billion.
Can Greek reform succeed? Doubts persist
The FT's Martin Wolf:
It is hard to believe that Greece can avoid debt restructuring. First, assume, for the moment, that all goes to plan. Assume, too, that Greece’s average interest on long-term debt turns out to be as low as 5 per cent. The country must then run a primary surplus of 4.5 per cent of GDP, with revenue equal to 7.5 per cent of GDP devoted to interest payments. Will the Greek public bear that burden year after weary year? Second, even the IMF’s new forecasts look optimistic to me. Given the huge fiscal retrenchment now planned and the absence of exchange rate or monetary policy offsets, Greece is likely to find itself in a prolonged slump. Would structural reform do the trick? Not unless it delivers a huge fall in nominal unit labour costs, since Greece will need a prolonged surge in net exports to offset the fiscal tightening. The alternative would be a huge expansion in the financial deficit of the Greek private sector. That seems inconceivable. Moreover, if nominal wages did fall, the debt burden would become worse than forecast.
The crises now unfolding confirm the wisdom of those who saw the euro as a highly risky venture. These shocks are not that surprising. On the contrary, they could have been expected. The fear that yoking together such diverse countries would increase tension, rather than reduce it, also appears vindicated: look at the surge of anti-European sentiment inside Germany. Yet, now that the eurozone has been created, it must work. The attempted rescue of Greece is just the beginning of the story. Much more still needs to be done, in responding to the immediate crisis and in reforming the eurozone itself, in the not too distant future.
The NYT's Paul Krugman:
Consider what Greece would get if it simply stopped paying any interest or principal on its debt. All it would have to do then is run a zero primary deficit — taking in as much in taxes as it spends on things other than interest on its debt. But here’s the thing: Greece is currently running a huge primary deficit — 8.5 percent of GDP in 2009. So even a complete debt default wouldn’t save Greece from the necessity of savage fiscal austerity.
It follows, then, that a debt restructuring wouldn’t help all that much — not unless you believe that getting forgiveness on much of Greece’s existing debt would make it possible to take on substantial new debt, which doesn’t seem very likely.
The point is that the only way to seriously reduce Greek pain would be to find a way to limit the costs of fiscal austerity to the Greek economy. And debt restructuring wouldn’t do that.
It is hard to believe that Greece can avoid debt restructuring. First, assume, for the moment, that all goes to plan. Assume, too, that Greece’s average interest on long-term debt turns out to be as low as 5 per cent. The country must then run a primary surplus of 4.5 per cent of GDP, with revenue equal to 7.5 per cent of GDP devoted to interest payments. Will the Greek public bear that burden year after weary year? Second, even the IMF’s new forecasts look optimistic to me. Given the huge fiscal retrenchment now planned and the absence of exchange rate or monetary policy offsets, Greece is likely to find itself in a prolonged slump. Would structural reform do the trick? Not unless it delivers a huge fall in nominal unit labour costs, since Greece will need a prolonged surge in net exports to offset the fiscal tightening. The alternative would be a huge expansion in the financial deficit of the Greek private sector. That seems inconceivable. Moreover, if nominal wages did fall, the debt burden would become worse than forecast.
The crises now unfolding confirm the wisdom of those who saw the euro as a highly risky venture. These shocks are not that surprising. On the contrary, they could have been expected. The fear that yoking together such diverse countries would increase tension, rather than reduce it, also appears vindicated: look at the surge of anti-European sentiment inside Germany. Yet, now that the eurozone has been created, it must work. The attempted rescue of Greece is just the beginning of the story. Much more still needs to be done, in responding to the immediate crisis and in reforming the eurozone itself, in the not too distant future.
The NYT's Paul Krugman:
Consider what Greece would get if it simply stopped paying any interest or principal on its debt. All it would have to do then is run a zero primary deficit — taking in as much in taxes as it spends on things other than interest on its debt. But here’s the thing: Greece is currently running a huge primary deficit — 8.5 percent of GDP in 2009. So even a complete debt default wouldn’t save Greece from the necessity of savage fiscal austerity.
It follows, then, that a debt restructuring wouldn’t help all that much — not unless you believe that getting forgiveness on much of Greece’s existing debt would make it possible to take on substantial new debt, which doesn’t seem very likely.
The point is that the only way to seriously reduce Greek pain would be to find a way to limit the costs of fiscal austerity to the Greek economy. And debt restructuring wouldn’t do that.
Tuesday, 4 May 2010
Politicians knew the problem
Bank of Greece Governor Yiorgos Provopoulos tells Skai television that Greece's political leaders knew the extent of the deficit since before the 2009 election; that leaving the eurozone would be sheer folly for Greece; and that since Greece entered the euro in 2001, not once did it achieve the required three percent deficit threshold. Government expenditure climbed seven points between 2001 and 2007, Provopoulos revealed, but governments did nothing to forestall high deficits because the economy was growing sufficiently quickly to overshadow the problem.
http://www.skai.gr/articles/news/finance/Κυβέρνησηκαιαντιπολίτευσηγνώριζαν/
Siege today, Strike tomorrow
Contract teachers were besieging the education ministry this morning in protest at the expected reduction in hiring this September, against the social security cuts and against the austerity measures announced by the finance minister on Sunday. A separate group was protesting outside the Athens University downtown campus with banners and loud music. Representatives of PAME, the Commuist Party of Greece union arm, unfurled two giant banners from the walls of the Acropolis reading "Peoples of Europe Rise up. Civil servants are on strike today and tomorrow.
The civil servants' union will be joined by the General Confederation of labour tomorrow, leading to a standstill for a number of services including ministries, banks, lawyers, journalists, local government, Athens International Airport, pension funds, hospitals and schools. Public transport will operate from 10am to 4pm.
http://www.skai.gr/articles/news/finance/Κυβέρνησηκαιαντιπολίτευσηγνώριζαν/
Siege today, Strike tomorrow
Contract teachers were besieging the education ministry this morning in protest at the expected reduction in hiring this September, against the social security cuts and against the austerity measures announced by the finance minister on Sunday. A separate group was protesting outside the Athens University downtown campus with banners and loud music. Representatives of PAME, the Commuist Party of Greece union arm, unfurled two giant banners from the walls of the Acropolis reading "Peoples of Europe Rise up. Civil servants are on strike today and tomorrow.
The civil servants' union will be joined by the General Confederation of labour tomorrow, leading to a standstill for a number of services including ministries, banks, lawyers, journalists, local government, Athens International Airport, pension funds, hospitals and schools. Public transport will operate from 10am to 4pm.
Sunday, 2 May 2010
Greek bailout comes with painful measures
The Greek government has announced that it is undertaking a new round of painful cost-cutting and restructuring measures in response to a three-year bailout jointly sponsored by the European Union and International Monetary Fund.
The prime minister and finance minister made the announcement on Sunday morning after securing a three-year financial safety net amounting to 110 billion euros.
They are billing the joint EU-IMF bailout as the biggest in history, and in response have launched what Finance Minister Yiorgos Papakonstantinou called the most ambitious fiscal adjustment ever undertaken by a European country. The gambit is to eradicate a 30bn euro deficit over the next three years – no small feat for an economy like Greece’s, now over 300 billion euros in debt.
The government will raise consumer taxes and reduce public sector salaries for the second time this year. Easter, summer and Christmas bonuses, normally amounting to two extra salaries, are being reduced to flat payments totalling 1,000 euros. Above salary benefits, already cut by 10 percent, are being slashed a further eight percent. In a social security bill to be announced separately, Easter, summer and Christmas pension bonuses will also become flat sums and the retirement age raised.
On the positive side, the transport and energy markets are to be liberalised in order to create new growth. Both liberalisations have been mandated by the European Union and are years overdue. The finance ministry is also promising to simplify procedures for setting up a business.
The government says it will not back down in the face of protests against these measures, but will ignore their political cost, because the choice Greece faces is between salvation and annihilation.
See the Financial Times article.
See the Bloomberg article.
Comment
The FT's Walter Munchau:
Angela Merkel and her inexperienced economic advisers have no idea about the dynamics of sovereign crises. They never bothered to look at the experience of other countries, notably Argentina. Waiting until the moment a country is about to fail – which is how the German chancellor interpreted the political agreement she accepted in February – constitutes an abrogation of leadership that is bound to end in financial ruin. It means that everybody, Germany especially, has to pay billions of euros more than would have been the case if the EU had sealed this in February...
...Three things are required if the eurozone is to survive in the medium term: a crisis resolution system, better fiscal policy co-ordination, and policies to reduce intra-eurozone imbalances. But this is only the minimum necessary to get through the next few years. Beyond that, the eurozone will almost certainly need both an embryonic fiscal union and a single European bond.
I used to think that such constructions would be desirable, albeit politically unrealistic. Now I believe they are without alternative, as the experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice between integration and disintegration.
The NYT's Paul Krugman:
The Greek fiscal problem has been turning into a death spiral, in which fear of default is driving up borrowing costs, making default even more likely. The EU has now, in effect, given up on trying to restore market confidence; instead, it’s going to break the death spiral by main force, providing Greece with all or almost all the financing it needs directly, at an interest rate much lower than the market was demanding.
The BBC's Gavin Hewitt:
This is a day of humiliation. It was never envisaged that a eurozone country would need bailing out. Today the EU had to launch one of the biggest financial rescues ever attempted. What the plan does do is to buy time and to shelter Greece from the fierce winds of the markets. What it doesn't do is to answer the questions of whether economies so fundamentally different as Greece and say Germany can be part of the same monetary union.
The Economist (before Sunday's bailout announcement):
If Portugal comes under intense pressure, contagion might then spread to Ireland, Italy or Spain, the other euro-area countries with some mixture of big budget deficits, poor growth prospects and high debts. Only swift and decisive action by the leaders of Europe's big economies is likely to head off the current crisis. Default by a smaller member such as Greece would be a body blow to the euro's standing but it need not spell the end of the currency. However, that might not be the case if the problems spread further afield.
The prime minister and finance minister made the announcement on Sunday morning after securing a three-year financial safety net amounting to 110 billion euros.
They are billing the joint EU-IMF bailout as the biggest in history, and in response have launched what Finance Minister Yiorgos Papakonstantinou called the most ambitious fiscal adjustment ever undertaken by a European country. The gambit is to eradicate a 30bn euro deficit over the next three years – no small feat for an economy like Greece’s, now over 300 billion euros in debt.
The government will raise consumer taxes and reduce public sector salaries for the second time this year. Easter, summer and Christmas bonuses, normally amounting to two extra salaries, are being reduced to flat payments totalling 1,000 euros. Above salary benefits, already cut by 10 percent, are being slashed a further eight percent. In a social security bill to be announced separately, Easter, summer and Christmas pension bonuses will also become flat sums and the retirement age raised.
On the positive side, the transport and energy markets are to be liberalised in order to create new growth. Both liberalisations have been mandated by the European Union and are years overdue. The finance ministry is also promising to simplify procedures for setting up a business.
The government says it will not back down in the face of protests against these measures, but will ignore their political cost, because the choice Greece faces is between salvation and annihilation.
See the Financial Times article.
See the Bloomberg article.
Comment
The FT's Walter Munchau:
Angela Merkel and her inexperienced economic advisers have no idea about the dynamics of sovereign crises. They never bothered to look at the experience of other countries, notably Argentina. Waiting until the moment a country is about to fail – which is how the German chancellor interpreted the political agreement she accepted in February – constitutes an abrogation of leadership that is bound to end in financial ruin. It means that everybody, Germany especially, has to pay billions of euros more than would have been the case if the EU had sealed this in February...
...Three things are required if the eurozone is to survive in the medium term: a crisis resolution system, better fiscal policy co-ordination, and policies to reduce intra-eurozone imbalances. But this is only the minimum necessary to get through the next few years. Beyond that, the eurozone will almost certainly need both an embryonic fiscal union and a single European bond.
I used to think that such constructions would be desirable, albeit politically unrealistic. Now I believe they are without alternative, as the experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice between integration and disintegration.
The NYT's Paul Krugman:
The Greek fiscal problem has been turning into a death spiral, in which fear of default is driving up borrowing costs, making default even more likely. The EU has now, in effect, given up on trying to restore market confidence; instead, it’s going to break the death spiral by main force, providing Greece with all or almost all the financing it needs directly, at an interest rate much lower than the market was demanding.
The BBC's Gavin Hewitt:
This is a day of humiliation. It was never envisaged that a eurozone country would need bailing out. Today the EU had to launch one of the biggest financial rescues ever attempted. What the plan does do is to buy time and to shelter Greece from the fierce winds of the markets. What it doesn't do is to answer the questions of whether economies so fundamentally different as Greece and say Germany can be part of the same monetary union.
The Economist (before Sunday's bailout announcement):
If Portugal comes under intense pressure, contagion might then spread to Ireland, Italy or Spain, the other euro-area countries with some mixture of big budget deficits, poor growth prospects and high debts. Only swift and decisive action by the leaders of Europe's big economies is likely to head off the current crisis. Default by a smaller member such as Greece would be a body blow to the euro's standing but it need not spell the end of the currency. However, that might not be the case if the problems spread further afield.
Greeks brace for a painful bailout
Greek unions are planning more strikes and protests in reaction to a new austerity package widely expected to be announced today. It is thought that a package of austerity measures would be a condition for the activation of the 100+ billion euro financial aid package lined up by the Eurogroup and the International Monetary Fund. Representatives of the IMF and EU left Athens on Tuesday after a few days of consultations with the government.
Local media have reported a series of Drakonian measures said to be included in the package. Among them is the complete severance of Easter, summer and Christmas bonuses in the public sector, amounting to two extra salaries a year. The government already trimmed these by 30 percent in the last austerity package, announced in early March. Their complete removal would be a historic irony, as they, along with much of the welfare state, were introduced in the early 1980s by then prime minister Andreas Papandreou, father of current Prime Minister Yiorgos Papandreou.
There could be more public sector pain in a further reduction in above-salary benefits. These are awarded for rank, length of service, educational level and children, among other things, and can as much as double nominal salary. The government already trimmed benefits by 10 percent this year, giving rise to four one-day strikes in the civil service.
Also allegedly planned is the abolition of Easter, summer and Christmas pension bonuses in both the public and the private sectors, since the state underwrites pension funds in both.
A further hike in VAT could be on the cards, despite a 1-2 point rise earlier in the year that has now begun to come through in retail prices and utility bills. Indirect taxes, though unfair on the poor, are an attractive option for the government because Greeks are notorious evaders of direct taxation. Greek governments raise only about 2.5 billion euros a year through direct taxation on individual income, compared to tens of billions from VAT.
Labour reaction has been mixed. Union leaders, who discussed the measures with Papandreou today, described them in the darkest terms. “This is the most savage, unprovoked and unjust assault,” said civil servants’ union leader Spyros Papaspyros last week, adding that the measures would “render salaried employees, pensioners and the unemployed wretched.”
The head of the largest private sector union group, the General Confederation of Labour (GSEE), said its answer would be delivered “on the streets”.
But the head of the Greek Economic and Social Committee, a former head of GSEE, said the measures were tough but would have to be fought through.
Organised labour is polarizing opinion through what some see as its excesses. Last Wednesday, a group of communist party activists and passenger shipping unionists harassed passengers attempting to board their cruise ship, the Zenith, in Piraieus harbor. In response, the ship’s operator, Spanish-based Pullmantur cruises, announced it will withdraw the ship from Greek waters. The Association of Greek Tourism Enterprises estimated the loss at 10 million euros and 400 jobs this year. Tourism is Greece’s biggest industry, amounting to 20 percent of GDP.
Yet strikes are set to intensify over the short term. A number of labour groups went on strike on Mayday, and journalists are walking off the job next Wednesday.
See this on the Irish Times:
http://www.irishtimes.com/newspaper/finance/2010/0430/1224269362868.html
The Financial Times reports that German bankers are considering supporting their government's pro-Greek bailout position through a parallel private lending initiative:
http://www.ft.com/cms/s/0/4b7b4770-5483-11df-8bef-00144feab49a.html
Local media have reported a series of Drakonian measures said to be included in the package. Among them is the complete severance of Easter, summer and Christmas bonuses in the public sector, amounting to two extra salaries a year. The government already trimmed these by 30 percent in the last austerity package, announced in early March. Their complete removal would be a historic irony, as they, along with much of the welfare state, were introduced in the early 1980s by then prime minister Andreas Papandreou, father of current Prime Minister Yiorgos Papandreou.
There could be more public sector pain in a further reduction in above-salary benefits. These are awarded for rank, length of service, educational level and children, among other things, and can as much as double nominal salary. The government already trimmed benefits by 10 percent this year, giving rise to four one-day strikes in the civil service.
Also allegedly planned is the abolition of Easter, summer and Christmas pension bonuses in both the public and the private sectors, since the state underwrites pension funds in both.
A further hike in VAT could be on the cards, despite a 1-2 point rise earlier in the year that has now begun to come through in retail prices and utility bills. Indirect taxes, though unfair on the poor, are an attractive option for the government because Greeks are notorious evaders of direct taxation. Greek governments raise only about 2.5 billion euros a year through direct taxation on individual income, compared to tens of billions from VAT.
Labour reaction has been mixed. Union leaders, who discussed the measures with Papandreou today, described them in the darkest terms. “This is the most savage, unprovoked and unjust assault,” said civil servants’ union leader Spyros Papaspyros last week, adding that the measures would “render salaried employees, pensioners and the unemployed wretched.”
The head of the largest private sector union group, the General Confederation of Labour (GSEE), said its answer would be delivered “on the streets”.
But the head of the Greek Economic and Social Committee, a former head of GSEE, said the measures were tough but would have to be fought through.
Organised labour is polarizing opinion through what some see as its excesses. Last Wednesday, a group of communist party activists and passenger shipping unionists harassed passengers attempting to board their cruise ship, the Zenith, in Piraieus harbor. In response, the ship’s operator, Spanish-based Pullmantur cruises, announced it will withdraw the ship from Greek waters. The Association of Greek Tourism Enterprises estimated the loss at 10 million euros and 400 jobs this year. Tourism is Greece’s biggest industry, amounting to 20 percent of GDP.
Yet strikes are set to intensify over the short term. A number of labour groups went on strike on Mayday, and journalists are walking off the job next Wednesday.
See this on the Irish Times:
http://www.irishtimes.com/newspaper/finance/2010/0430/1224269362868.html
The Financial Times reports that German bankers are considering supporting their government's pro-Greek bailout position through a parallel private lending initiative:
http://www.ft.com/cms/s/0/4b7b4770-5483-11df-8bef-00144feab49a.html
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