Friday, 3 February 2012

Wage Talks Head for the Wall

On Monday, Greece begins its final week of negotiations before a February 13 deadline to agree on a package of austerity and reforms that would open the way for a 130 billion euro bailout loan. Without that loan from its eurozone partners, Greece will go broke on March 20, when it will find itself unable to honour two bonds worth 14.5 billion euro. And February 13, says the finance ministry, is the latest time by which it can start a bond swap with private investors who have agreed to forgive a chunk of Greek debt.

As things stand, the prospects of making that deadline are not inspiring.

Talks between unions and employers on a voluntary reduction in private sector salaries are at an impasse. Today they sent Prime Minister Loukas Papademos a letter stipulating that salary cuts are not agreeable to them. They say real private sector salaries have fallen by 14.3 percent in the least two years. Instead, they want the government to address obstacles to entrepreneurship such as bureaucracy, taxes and land zoning.

Greece's troika of creditors (European Central Bank, European Commission and International Monetary Fund) wants the minimum wage of 751 euro a month gross to fall by at least 10 percent. It wants bonuses amounting to another 15 percent of salary to go. It also wants sectoral wage agreements to be replaced by company wage agreements, effectively obviating the traditional role of unions. To get all this done, the government will now have to circumvent union talks with an act of parliament. If that happens, say the unions, they will respond ferociously, with both a legal challenge and strikes and protests.

But that is not all. The troika also wants commitments to reduce auxiliary pensions by an estimated 35 percent, and the government to shed 150,000 public sector employees by 2015, in addition to the 200,000 who have already gone in the last two years.That would stir the civil servants' union, ADEDY, from its temporary calm, and bring the country's two main labour movements onto the streets of the capital.

The refusal of social partners to share the government's reform burden through voluntary measures means that the political cost will be one-sidedly borne by the coalition government. But it is doubtful whether even its overwhelming majority of 252 out of 300 seats can withstand popular anger. Many MPs are wary of committing to the troika's goals. The reason is simple. Greece has entered a recessionary spiral that is being exacerbated by the austerity measures. Many people who agree with the need to reduce the size and cost of government disagree with the troika's timing and methods.
Greece's recession last year may have been 6.5 percent of GDP, half a point higher than thought, estimated the Centre of Planning and Economic Research (KEPE), a respected think tank, earlier this week. That would mean a 13-point total shrinkage of the economy over three years, with KEPE estimating an additional 3.42 percent recession this year and zero growth in 2013.

What that means in human terms, says KEPE, is unemployment of over 20 percent this year and more than 22 percent in 2013. The General Confederation of Greek Labour estimates even more - 1.6 million unemployed this year, leading to a shortfall of eight billion euro from pension funds.

The anti-recessionary, anti-austerity argument is gaining ground among Greeks on the street. Many believe the troika presented Greece with a misguided plan, or, worse, take the conspiratorial view that it somehow wanted Greece to fail. The power of this argument should not be underestimated. When proposals such as relieving Greeks of control over their budget are leaked, even educated people begin to wonder whether the eurozone is trying to provoke Greece into a voluntary withdrawal.


  1. It would be in the interest of Greece to be driven into default despite all her effort (as opposed to provoking default). A Euro-exit has nothing to do with a default. If it ever comes to a Euro-exit, then only because Greece herself wants it.

  2. I think Yanis Varoufakis would agree with you. (


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