The Greek tragedy, approaching the exode
In the typical ancient Greek tragedy the chorus plays a key role in the unfolding of the drama. It offers a significant amount of background information to help the audience follow the plot, expresses aspects of the drama such as hidden fears or secrets that the main characters could not reveal and most importantly it is instrumental in the conclusion of the drama in the exode.
Exode, exit ode, is the conclusion of the play where the chorus exits the stage singing a song with lyrics of wisdom, directly linked to the plot with the intention of emphasising the main message of the drama and providing food for thought for the audience.
Watching the Greek Prime Minister Lucas Papademos in his press conference after the 14 hours marathon of the last eurogroup I had a growing feeling that the modern Greek tragedy is approaching the exode.
Greece’s new and old creditors agreed on a combined package in the early hours of Tuesday that relieves Greece from a significant portion of her debt obligations, clinching the top spot in the history of debt restructures, but at the same time the Greek Prime Minister knows that this deal comes with a heavy price for the Greek economy, the Greek society and the sovereignty of the country.
From the beginning of the crisis and the first program, Greece’s northern European partners were particularly irate by the fact that they had to subsidise the Greek government’s primary deficits that stood then near EUR25bln. Over the last two years and a storm of direct and indirect taxation, emergency tax contributions and social transfer cuts, the new program that was submitted last night in the Parliament has a 2012 primary deficit of just half a billion, revising the initial 2012 budget surplus of EUR2.4bln as a result of the self-inflicted recession from the reduction of private sector wages and associated impact on tax revenues, social insurance contributions and social transfers. Do not look for logic in this because there is none. It was imposed on Greece as a result of dogmatic ideology on troika’s part in the name of the abstract notion of competitiveness despite the evidence that wages are not the main issue of Greek economy’s lack of competitiveness.
Greece is now exactly where her partners want it. They will finance the country’s debt obligations, and those alone, through an escrow account that for now will only have troika funds – Greece will contribute revenues to the account when privatisations proceeds pick up and the budget is expected to have a primary surplus – and as part of the new MoU Greece will constitutionally make the servicing of the debt the primary objective of her fiscal policy. Additionally, the reviews are expected to lose the past dramatic effect of parliamentary votes with the backs against the wall so Greece finds money “to pay wages and pensions”, as simply the government will have to live within its means. If revenues do not add up to expenses the government will just have to find ways to close the gap.
The most inventive description of the new program comes from the Financial Times that call it “arithmetic gymnastics”. The baseline scenario of the debt sustainability report, on which the new program was based on, assumes a contraction of the Greek economy of 4.3% this year and stability in 2013. This is not delusional, it is intentionally misleading.
In 2011, the average Greek family saw its disposable income decreasing by an average of 25% as a result of repeated tax measures and already falling wages – through wage agreements at the company or individual level – below the minimum wage of the national or sector wage agreements. With the new program, the same family will take an additional hit on their wages, casualty of the minimum wage reduction that affects various aspects of the pay-check.
Additionally, as agreed in the latest MoU all sector wage agreements will have to expire within the next twelve months, something that will lead to wages adjusting to the new minimum wage either at company or individual level, further suppressing disposable incomes of broader parts of the Greek society and domestic demand.
Adding to the dismal situation of the Greek economy are the recent findings of a survey run by the Greek Small Business Association (GSEVEE) in firms with up to 49 employees that represent 99.6% of Greek businesses. 180’000 small and medium size firms are facing closure within the next 12 months putting at risk 240’000 jobs in the industry, 106’000 of those jobs just in the first half of 2012. This is on top of the one million already unemployed and the 150’000 public sector employees that the government has committed to lay off over the next three years. These numbers are for a labour force in the region of five millions, suggesting unemployment figures of frightening and irreparable proportions.
The program’s forecast of 4.3% contraction in 2012 is a utopia. With an economy that depends approximately 70% on household consumption, a job market in pieces and a 6.8% contraction of GDP in 2011 – when private sector wages were left untouched – the impact of the new program on the Greek economy in 2012, with very modest calculations, will be as damaging if not worse. A damage that will put to the test troika’s basic assumption from the onset.
There is nothing to suggest that the Greek drama will unfold differently than it has done thus far. Despite the downward revision of the 2012 budget revenues, the revision is on unrealistic grounds that will soon be proven wrong. 2012 started with total revenues 6% lower and consumption tax revenues down by approximately 19% compared to last year.
The Greek state, or what is left of it, is tied to a situation that will have no other option but to introduce further reductions in pensions and public sector wages, going even deeper and faster into the collision course that could very well lead the country exactly where the latest program attempted to avoid, a disorderly default. Only this time 2/3 of the country’s debt will be to the official sector and the entirety of the debt under English law.
After two years, the Greek tragedy is approaching the exode with no signs that the exit of the chorus will be the only exit in this drama.