As artistic movements come and go, so do political ones. Greece is currently venting a torrent of frustration that has made the rounds of international media. We could call it Greek Expressionism. It is a self-indulgent and politically motivated attempt to preserve the uncompetitive status quo of a spoonfed economy. At the same time, it is an outpouring of righteous anger by honest middle class workers who are struggling to keep their children middle class and are fed up of being lied to by governments who mismanage their taxes.
When Pasok came to power last October the mood was quite different. There was a measure of optimism that, despite the demoralisation and empty coffers, an ambitious government peopled by a new generation of ministers and led by a not-altogether-Greek premier might pull the nation out of the comeuppance of all-too-Greek habits.
The government decided to tell its European partners a shocking truth: that its 2009 deficit would be in the order of 12.7 percent of GDP, not the 5.7 percent announced after the election. European Union finance ministers erupted in indignation, and spent the rest of 2009 telling Greece to cut its deficit. A first slate of public cost-cutting announced at the time was made more severe in an EU-doctored stability plan in January. Public sector jobs lost some of their sheen for the first time in living memory. But by then, international markets had already taken the situation out of the hands of governments. The Greek bond was reduced to junk status and carried an interest rate so high as to be prohibitive.
In early February Greece asked the EU to cobble together a financial safety net the mere existence of which would hopefully be enough to calm markets. The EU argued about whether spendthrift states should be bailed out by responsible ones. By the time it had agreed to the safety net in principle on March 25, markets were unimpressed. The announcement of specific pledges the following month amounting to 45 billion euros provided an ephemeral boost. On April 23 Greece asked for the terms of the package, signalling that it would make use of it. On May 2 the government announced those terms to an already frightened public, leading to the largest protest in decades three days later. Anger against banks spilled over. A Marfin Popular Bank branch was torched, killing three employees.
The socialist government of Yiorgos Papandreou faces multiple problems – ideological, demographic and political. First, it cannot behave in a classically socialist manner. The handout economy that enabled the public sector to swell to roughly 50 percent of the economy today is over. Pre-election rhetoric about reversing privatisations was quickly forgotten. The Hellenic Telecommunications Organisation privatisation has been left in the hands of Deutsche Telekom. Olympic Airways, recast as Olympic Air, is still Marfin-owned, despite the lack of funds to pay severances to employees who agreed to go. The long-term lease of a container terminal to China Ocean Shipping Company (Cosco) was briefly disputed, then adhered to.
Social policy rhetoric has also been toned down. A 2008 law stiffening social security was not repealed; on the contrary, a new bill will raise the retirement age and reduce payouts. A pledge to top up pensioners penalised by splitting their contributions between different funds has been dropped.
Some of Pasok’s ideological platform made it through. The government eked out a one-off recession handout to the poor before the end of 2009. The tax scale was recalibrated to penalise higher earners and absorb flat-tax professions. But the halving of the tax-free threshold to 6,000 euros (in the absence of sales receipts) and the raising of Value Added Tax (sales tax) by four points have flattened notions of social justice for the poor, leaving Pasok more vulnerable to left-wing accusations of being an ideological impostor. Pasok’s turnaround was nowhere clearer than in its implementation of an election promise to give civil servants a pay rise, followed by a slashing of benefits and bonuses.
Parties can ultimately survive even the most dramatic changes of ideology as circumstances demand. But Greece’s demographic problems are severe and difficult to reverse. The worst is the declining productivity of the population. According to the General Confederation of labour (GSEE), the largest grouping of private sector unions, the active workforce comprises only 4.5 million out of Greece’s 11 million people. One million of those workers are on the public payroll, and at least half a million are unemployed (officially 12 percent). This means that three million workers or fewer are generating the productive income that carries the other eight million.
Given Greece’s negative population growth, legalising immigrants on the basis that they work and pay into the system increasingly seems like the only way to keep this problem at bay. Concerns about moral justice aside, this may have been a large part of the rationale behind this year’s revolutionary immigration law, which for the first time gives citizenship to the children of legal immigrants.
If it were a society that paid its way, these demographics would render Greek living standards akin to those of an eastern European country. As it is, Greece seems prosperous. That is because of three things. The deregulation of banking and membership in the euro lowered interest rates and boosted private borrowing. For a while, Greeks spent money they did not fully realise they would have to pay back and pushed up inflation in the process. Governments did worse, leveraging the economy to a very high degree and borrowing close to 300 billion euros, a national debt that will, at its peak, amount to one and a half times the size of the economy, the European Commission predicts. And European Union subsidies continue to pour into the country, boosting GDP by an estimated percentage point.
All three of these sources of wealth are now drying up. The country cannot afford to roll over old debt, let alone borrow new money. Banks have tightened the money supply to the private sector and consumers. And European Union subsidies will be sharply curtailed after the current financial period runs out in 2013. There will be less money from net contributors such as Germany, and newer, poorer member states will want to claim a larger share of it. Farmers used to living off EU money will simply go bust and sell the family land in a last-ditch effort to change profession, or become workers on corporate farms.
Under ordinary circumstances, Greece could plan to grow its way to a healthier economy by boosting competitiveness and exports, and spending more government money to cushion economic reform. With the world in recession and credit unavailable, it needs to reform a shrinking economy even as the government shrinks, enduring two forms of pain at once.
Devaluing the currency to boost export-driven growth is not an option while Greece remains in the euro. Departing from the euro would lead to such a large devaluation (about 30 percent, former Prime Minister Kostas Simitis recently estimated), that savings would be wiped out and the debt, calibrated in euros, dollars and yen, would skyrocket overnight.
The only options left to Papandreou’s government are therefore bold ones. But here enter the political problems. Greece has a powerful left wing. Together the Communist Party (KKE) and its offspring, the Left Coalition, garner 12 percent of the vote. Together with the civil servants’ union (ADEDY) and GSEE they can mobilise tens of thousands on the streets and largely dictate the political climate. The opposition conservatives are in the throes of internal redefinition after a humiliating defeat at last October’s polls. Rather than forging a consensus position with the government, they are distancing themselves as much as possible. Thus the austerity measures passed by Papandreou on May 9 received support only from the right wing minority party, Popular Orthodox Rally (LAOS).
The left lives in a separate vision of reality. The KKE wants Greece to abdicate from membership of the EU, NATO and the capitalist free market. The left and the unions have fought for the status quo and fought economic reform, privatisation and liberalisation for over a decade. But the conservatives have no excuse for undermining socialist efforts other than revenge.
Can such an isolated government maintain social cohesion and a political majority while eliminating the deficit and reforming the economy?
Seen through the eyes of television networks, Greece seems to be falling apart. But the lens can be misleading. Vandalism makes for good footage, but television does not put that picture in its correct perspective. Greeks are indeed unhappy about the recession and want their politicians to be more accountable, but the majority are not about to overthrow the government by putsch, let alone suspend the constitution.
Papandreou needs to calm Greek society as he has sought to calm markets. He admirably faced the opposition with its share of responsibility on the day the three bank workers died, saying that extreme language lays the groundwork for extreme actions. Despite its troubles, Greece maintains an admirable freedom of expression, in contrast to the violent treatment of anti-capitalist protesters in Seattle (2000) and Genoa (2001). And despite realising too late how much had to be done to curb the deficit, the government has stuck to its guns and kept its nerve – more than can be said for the Karamanlis administration.
The challenge ahead is to focus on development and new growth while sticking to the agreed spending cuts. Many economists are pessimistic about whether the plan can work. Growth cannot come for at least a couple of years, they say, by which time the EU-IMF money will have run out, and Greece will again be faced with market reality. But Greece has shown that it can rebound very quickly from economic disaster, especially with outside help. A liberalised economy boomed in 1950-1955 thanks in part to the Marshall Plan. Liberalisation and outside assistance can work again. Then, as now, Greece had to contend with a defeated and disgruntled left clinging to a discredited ideology. Capitalism will have to prove itself through success coupled with social justice. Against these, the KKE’s apocalyptic ramblings can do little.
Through all this, Papandreou must work towards greater political transparency – one of the main planks of his election platform. If money has been misappropriated, this has been done by elected governments. Greek voters no longer feel it is enough for them to have a say once every four years. Papandreou’s promise to put government procurements online is in the right spirit. If he also gives parliament’s audit committee greater power to investigate the finances of parties and politicians, he may sufficiently frighten the political system into behaving, and surviving.
This analysis is the editorial in the spring issue of Odyssey Magazine (www.odyssey.gr)