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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