Archive for September 2012
“This government has some legitimacy, and it has found some support in Europe. And now it is being pushed to make further cuts to the bone that may risk a social explosion”. This is a comment, reported in a recent New York times article, from an unnamed official involved in the discussions between the Greek government and the troika over the latest round of austerity measures, 11.5 billion euros or 6% of GDP worth of spending cuts, that need to be agreed so the troika gives Greece a favourable review that will unlock the release of the next tranche of financing.
Since Greece signed the first MoU in May 2010, Greece’s political establishment has been looking no further than three months at a time, in between troika reviews. Since the Spring of last year, when the first program’s recessionary policies began to damage the economy and the macroeconomic framework, there has been constant battle to bring the program “back on track”. This anxiety and uncertainty has transferred itself to the Greek society.
Greece’s creditors – eurozone countries, the European Commission, the IMF, and the European Central Bank – have suffered from a similar short-sightedness in their crisis management. If I have not lost count, it has taken 20 EU leaders’ summits so far without a decisive solution to the evolving sovereign debt crisis. This muddle has been going on for so long that perhaps everyone involved and observing believes this is the only method of crisis resolution available. This perception is wrong.
Here is a comment from Klaus Kastner on my last post regarding Greece and the need for an honest discussion between the Greek coalition government and the official sector given that majority of the country’s near term debt obligations are towards eurozone countries, the ECB and the IMF.
Klaus has extensive banking experience and I found his remarks just too good to be missed in the comments section of the blog, so I re-post here.
As much as one may disagree with certain technical, or the tactical, aspects of his suggestions, what is important in his comments is the wide range of solutions available to European leaders and institutions to change the current self-defeating course and reach a decisive and sustainable solution to the Greek debt problem without putting the country’s social cohesion and democratic institutions at risk.
Another visit to my homeland came to an end in the weekend and as much as I would like to take back with me only memories of family and friends, it is impossible to ignore the broken spirit of many Greeks. Having spoken to people from all types of economic activity – employers, employees, young and much older job seekers, small or larger tourism business owners, self-employed and pensioners – it is evident that the depression the macroeconomic indicators are reporting month in and month out is also reflected in people’s daily lives.
Even for the informed follower of the Greek crisis, the headlines coming out of Greece do not capture the full extent of the economic deterioration the country is experiencing and the complete disconnection between the people and the state, a disconnection that will inevitably test the strength of the social fabric.
Business owners have seen their revenues decrease by 30-40% since last year when the country and the economy were already feeling the impact of a full year of the policies dictated by the troika. The drop in revenues is more than 50% compared to the summer of 2010. My trip also coincided with the clearance of the tax returns for the 2011 tax year. Families that received last year minor tax rebates for their 2010 income, this year have to pay in the region of 2,000 euros extra as a result of the various tax measures the Greek government had to implement in a bid to comply with the program’s targets and secure the disbursement of bailout funds necessary to continue basic state functions. This process is the result of the recession-driven repeated misses in revenues targets.