Wednesday, 17 November 2010

Greece's IMF deal marked by pain and loud protest

GREECE CAME under International Monetary Fund supervision of its own volition on May 9th. That is when a memorandum of understanding between the government, the IMF, the European Central Bank and the European Commission passed into law, binding the Greeks to reform their economy in return for €110 billion over three years.

Two tranches of the money have so far been released, with a third due next month. With each instalment, the Greeks have to prove that they have taken specified steps to cut the deficit.

At the time, the socialist government of George Papandreou called its restructuring plans the most ambitious fiscal adjustment ever undertaken by a European country. The gambit is to eradicate a €29.2 billion deficit over three years – no small feat for an economy like Greece’s, now over $292 billion in debt. The government twice raised consumer taxes like VAT and twice reduced public sector salaries – above-salary benefits were cut by 10 per cent, then slashed a further 8 per cent.

So far those steps have proven painful – economically, socially and politically. The powerful civil servants’ union, claiming to represent 600,000 people, joined forces with the General Confederation of Labour in Greece, the largest private sector union umbrella organisation, claiming to represent a further two million. Together they have held a series of one-day strikes this year, often immobilising the capital and disrupting travel to and from Greece.

Greece hit the nadir of its press coverage when three bank employees died of smoke inhalation days after the memorandum was first announced, after anarchists lobbed Molotov cocktails through their high street window.

The socialists tried to introduce the reforms deliberatively and diplomatically. Even so, they faced fierce opposition. A major memorandum commitment was the liberalisation of transport. June, July and September were marked by truckers’ strikes that choked off petrol supplies as a few thousand unionised drivers fought the end of an era when they set haulage rates and traded licenses for hundreds of thousands of euro.

October saw the Acropolis itself put out of action when contract workers came to the end of their employment and sought to become open-ended hires. Such practices often led to mass inductions into the public sector in the past. Not this year.

The government’s fatigue was apparent on the eve of the November 7th local elections. Papandreou declared he would interpret a protest vote as a loss of confidence in his government and seek a new popular mandate. He held enough of the status quo, losing half the administrative regions but retaining some of the largest town halls, to declare a stalemate.

Greeks may not have punished his government, but neither are they thrilled with it. At 60 per cent, voter turnout was 12 points lower than four years ago.

In a brief speech on the night of the elections, Papandreou let slip he does not expect growth until 2012. “Let 2011 be the last year of recession,” he said, urging Greeks to bite the reform of painful reforms now rather than later. The economy contracted by 4 per cent last year and is set to repeat the performance in 2010, but the latest Bank of Greece forecast was for modest growth next year. That idea has effectively been denied.

The amount of social and political upheaval Greece has demonstrated it is not necessarily a recipe for Ireland. When Greece was forced to reform its social security system to lower benefits and increase retirement age, the event was marked by street protests.

When Ireland announced it would raise the retirement age from 65 to 68, it passed without notice, as did its early slashing of Civil Service salaries by 20 per cent. That is partly because Ireland does not have a militant left wing (Greece has two communist parties) eager to break the stranglehold on power; and perhaps because it spent less of the past two decades of EU subsidies raising expectations that an uncompetitive economy could last.

This article was published in the Irish Times on November 12.

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