The Greek debacle

George Irvin unpacks what's been going on in Greece, and why Athens is right to be angry.


Does the Greek Parliament’s latest vote in favour of further cuts — despite the 40 deputies who defied the whips and were forced to resign —mean that the Greek crisis is resolved? Of course it doesn’t.

For one thing, the troika (ECB, IMF and EU) will not approve the €130 billion ‘bailout package’ next Wednesday unless Antonis Samaras, leader of the New Democrats, agrees to sign. Samaras has made it clear he will not do so until after the April elections because he knows that if he signs now, his party is toast.

For another, even with Parliamentary endorsement of nearly €4 billion in cuts for 2012, it is hard to see how the government of Mr Papademos — or whoever succeeds him after the elections — can deliver. And of course, there must be a serious question about whether Ms Merkel and her Eurozone (EZ)  allies want Greece to stay in the euro.

As the Dutch PM, Marc Rutte, is reported to have said last week, the EZ is now strong enough to weather Greece’s departure — eurospeak for ‘get out’.

Recall what the troika is demanding for 2012 alone:

• a 22 per cent cut in the monthly minimum wage to €586;

• layoffs for 15,000 of civil servants;

• an end to dozens of job guarantee provisions;

• a 20 per cent cut in its government work force by 2015;

• spending cuts of more than €3 billion;

• further cuts to retiree pension benefits.

These demands come as the country faces its fifth consecutive year of recession, and recent OECD figures showing GDP to have fallen by nearly 15 per cent since January 2009 with unemployment standing at 18.7 per cent.

As Helena Smith reports in The Guardian, ‘Greece can’t take any more’. Even with the latest cuts and bailout, it is optimistic to forecast that the country’s debt/GDP ratio will be 120 per cent in 2020.

According to the FT’s Wolfgang Münchau: “[a] 120 per cent debt-to-GDP ratio by 2020?  That’s nine years of strikes in Greece,” and that is not sustainable.

Is Greece’s problem high labour costs?

Nouriel Roubini’s influential think-tank RGE estimates that as far as labour costs are concerned, the view that Greek wages rose too much during the good years is pure myth. In fact, over the period 2005/08, Greek wages rose less quickly than the average for the EZ.

Further cuts mean further recession, and it should be perfectly obvious by now that Greece cannot pay down its sovereign debt as long as the economy is shrinking.

As I (and many others) have explained elsewhere, the debt/GDP ratio can only fall where the rate of interest on the debt is less than the rate of GDP growth. Just as Osborne’s cuts are jeopardising the future of the UK economy, so Merkel’s cuts are sinking a (far weaker) Greece.

Unlike some of my colleagues on the left, I have always been pro-euro. But the suffering imposed on Greece now makes me ashamed of being European.

See also:

The UK isn’t Greece, it’s IcelandAlex Hern, December 21st 2011

What happens when Greece defaults?George Irvin, November 25th 2011

Time to move beyond the eurozoneBarry Gardiner MP, September 21st 2011

Greece: The game is nearly upGeorge Irvin, July 1st 2011

Is it really best if Greece goes bust?Ben Fox, June 22nd 2011

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18 Responses to “The Greek debacle”

  1. Tony Whitfield

    "@leftfootfwd: The Greek debacle: by @gwi40 #greece" feel sorry for the people

  2. Tony Braisby

    The Greek debacle: by @gwi40 #greece

  3. Frances Coppola

    "the suffering being imposed on Greece now makes me ashamed to be European". Well said. MT @leftfootfwd: #greece #gfc2

  4. Anonymous

    Nouriel Roubini’s influential think-tank RGE estimates that as far as labour costs are concerned, the view that Greek wages rose too much during the good years is pure myth. In fact, over the period 2005/08, Greek wages rose less quickly than the average for the EZ.


    This shows financial illiteracy.

    What matters is whether or not people are productive for the money they cost to employ.

    If their wages rose, but the produce less than the cost of employing them, then Roubini can whistle in the wind, they are still bust.

  5. Anonymous

    You still haven’t said what the UK debt is, including PFI and all the other off the book debts.

  6. Pulp Ark

    The Greek debacle #Multilateral_Foreign_Policy #Athens #Greece #muslim #tcot #sioa

  7. Newsbot9

    Sure, when you rate people’s productivity purely on their wealth as you do. After all, YOU’RE worth a premium in your world rather than being an active danger.

  8. leftlinks

    Left Foot Forward – The Greek debacle

  9. George Irvin

    RT @leftfootfwd: Irvin: The Greek debacle

  10. AltGovUK

    RT @leftfootfwd: The Greek debacle: by @gwi40 #greece #NewsClub

  11. Anonymous

    No, on the basis of what they contribute.

    For people like you who consume vast amounts by taxing poor people to fund your gold plated pensions, you don’t make the grade.

    For people who can’t contribute much, but still try, they rank high.

    For those that don’t try, they rank low.

  12. Newsbot9

    Ah yes, the mythical pension. The one which don’t exist, and yet you crusade against. And I see, you rate people according to an arbitrary scale you create.

    Well, on my version of that scale, it’s “banishment”. Walk, Blagger, walk.

  13. Anonymous

    The state pension has no assets.

    The state second pension has no assets.

    Your gold platted pension has no assets.

    That means all three are extremely risky.

    That you can’t see that you’re running a huge risk. Take a GP. Most are sitting on pensions in the multi-million range, if there were real assets.

    The choice is then, pay them their pensions, or get medical treatment.

    I vote for the medical treatments.

    You no doubt want your gold plated pension.

    The problem you face is to convince people like me and others to give up on our medical treatment so you can live the life of Riley. We out number you, and that’s your problem. It’s a real risk.

    Now if you have a fund, and other people have funds, then your interests and our interests coincide. We all want our pensions, and its hard to get a government to vote to steal them. You’re safer, and richer with a fully funded (unlike the state ‘fully funded schemes that have massive black holes).

  14. Mr. Sensible

    I heard the associate editor of the Telegraph on the Radio last night saying that austerity was self-defeating in the Eurozone. Too right. So when is that paper going to call for our cuts to be slowed?

  15. BenM_Kent

    PFI – a very bad Tory idea, granted – is a long term liability.

    Like the hoo-hah over public sector Pensions, it is massively disingenuous to lump these liabilities in with the “National Debt”.

  16. Anonymous

    I don’t think it is.

    On PFI, you can split that into two.

    1. The capital element
    2. The future spending part (maintenance)

    The first is clearly a debt. Under all accounting set ups, its a debt.

    Now lets look more at the pensions debts.

    Civil service pension is a contract. Why shouldn’t that be put down as a debt, along with any assets in the funds (if they exist). ie The liability is the net difference between the present value of what is owed, against the present value of any assets.

    Standard accounting for any business.

    Now why omit the state pension?

    If you deposit money with a bank, it creates a liability. They owe you the money back plus any interest.

    If you deposit money with the government and they say they will pay you a pension, it creates a liability.

    Very simple.

    Why people want to omit the liabilities is more interesting. It’s because if they are included, the government is bust. The ponzi bubble is blown. So they want to hide it.

    The consequences for the people who are owed a state pension however, is more dire. They won’t get it. All the accounts do is make it transparent that they can’t pay out their pensions. Not reporting the debts doesn’t magic the debt away and mean you will get the pension.

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