Greece spiralling into catastrophic depression

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Athens

Greece is expecting to agree the terms of European leaders for a rescue package this evening as the country seeks to avoid a default on its international debts. But Greeks fear that the cuts, imposed on them in return for a €130bn bailout, is sending the country spiralling into a catastrophic depression.

The deal was to be considered by eurozone Finance Ministers in a conference call tonight, but final agreement has been once more postponed until next week while European leaders review the credibility of Greek party leaders’ promises that there will be no back-sliding on the terms.

“The country is on a knife’s edge,” said Finance Minister Evangelos Venizelos as party leaders signed a pledge to implement the agreement that will inevitably deepen Greece’s depression. The conservative leader Antonis Samaras, who is likely to be the next prime minister of Greece after an election, today reluctantly signed a letter committing him to cuts in wages, pensions, jobs and state expenditure.

The Greek press is referring to the tough terms and the grudging and sceptical approach of eurozone leaders to giving Greece the money as “Chinese torture”. But, deep though the resentment is, few Greek leaders or even protesters have been able to propose an alternative to the agreement that, in addition to providing the €130bn loan, would reduce Greece’s debt to its private bondholders by €100bn.

The mood in Athens is a mixture of fatalism and gloom. Dmitris Kakomitas, a pensioner, said “My pension has fallen from €600 a month to €300. If I didn’t own my own house I’d have difficulty surviving.” He was standing across the street from three red fire engines that were keeping watch on the smouldering wreckage of a 19th century block of shops burned out by protesters last Sunday. He said he didn’t agree with what had happened, suspected criminals were involved, but added that “it wouldn’t be difficult to find an angry pensioner willing to throw a petrol bottle through a window of one of those shops.”

Others, mostly pensioners, standing around Mr Kakomitas expressed resentment that the wealthy kept their money abroad while poorer Greeks were having to bear the brunt of the cuts. “When the rich do come back to Greece, they will be able to buy our property for a piece of bread,” said Leon Dourmais, another pensioner. Others blamed an over-large and corrupt public sector for the crisis. “What can you expect when every politician appoints five people from his own family?” asked Costas, a retired engineer.

Scepticism about another round of austerity measures and a conviction that it is not going to do much good prevails among experts as well as in the streets. The minimum wage is to be reduced by 20 per cent as part of the new terms imposed by the so-called Troika (the EU, European Central Bank and IMF). “Their idea is that this is going to help employment, but it won’t,” says Aggelos Tsakanikas, the head of research at the Foundation for Economic and Industrial Research in Athens. He says that only 10 per cent Greeks are paid the minimum wage and these are “still paid more than the Bulgarians or the Chinese.” A reduced minimum wage will not make Greece more competitive.

Equally, increasing taxation deepens the depression and does not raise more money for the state because the size of the economy is rapidly shrinking. Greece is entering its fifth year of recession. Dr Tsakanikas says that something should be done to lift public morale so “people can see that something works.” He says that there are five main road projects that are almost complete but have been abandoned. The same is true of seven metro stations in Athens that could be opened quite soon. The problem is that the crisis has now gone on so long that the state is paralysed and even functional parts of the economy are seizing up. “Even healthy firms can’t get credit from the banks,” says Dr Tsakanikas. One of the few positive initiatives the government has taken is to open up the Parthenon to foreign film companies. 

Many Greek politicians and economists have convincing ideas of what should be done to save the country. But, however correct their diagnosis of Greece’s problems, their solutions tend to be long or medium term and are not directed at how to avoid imminent disaster. Many commentators have horror stories about the excessive size and dysfunctional nature of the state with its hundreds of thousands of ill paid employees.

The former Finance Minister Stefanos Manos said earlier that nothing would improve “until the bloated public sector is drastically reduced in size.” He says that Greece has four times as many teachers per pupil as Finland but that the quality of education is far inferior. As a result Greek parents send their children to have private tutorials where the quality of education is also poor.

Mr Manos says the IMF has got it wrong in reducing state salaries, often already low, while the real problem “is the large numbers of civil servants of low quality.” He says that in some ministries the IMF could not find anybody technically qualified to talk to them. He adds that when in government he found that his ministry employed 38 lawyers, who did no government work though they received private clients in their offices. “I fired 32 of them, but when a new government came in, they immediately got their jobs back.”

Many other individuals and groups have benefited from sweet-heart deals through political influence or patronage. Owning a pharmacy is a notoriously easy way to make money because of the high mark ups on medicines. There are often closed shop professions and permission to open new pharmacy is impossible to obtain. But a Greek pharmacist can add €350 to the cost of a €1,000 cancer injection, while a German pharmacist can only make €30. Mr Manos says that “what is needed is not opening up the professions, but reducing the guaranteed profits.”

It is these structural reforms that the Troika has demanded and the Greek state has failed to deliver. It will have difficulty doing so in the middle of a full blown political and economic crisis. At the same time, Greek politicians are keen to show to their voters – and they may be facing re-election in a few weeks time – that they fought to the last against Greece’s subjugation to Germany and the Eurozone leaders.

The depression being inflicted on Greece by ever more severe austerity measures means that Greeks are in a highly resentful mood. Of all EU members, Greek society is one of the most fragmented politically and economically. The German occupation was followed by a brutal civil war and by the last successful military coup in Europe in 1967. There were deep divisions between left and right. Each developed their own patronage systems to reward followers. The most powerful and richest economic lobby in Greece – half the world’s merchant marine carries the Greek flag - is the ship owners, but their business was always offshore and carries limited economic benefits for Greece.

What should be done? Few of the critics have convincing ideas. Traditional sectors like tourism and agriculture could be expanded, though television pictures of tear gas wafting through central Athens is not doing a lot for Greek tourism. Some Greek commentators simply say that Greece will never return in the near future to the standard of living it had when it had the same triple-A credit rating as Germany.

Most striking in Greece is the extent of the social disaster. “The middle class is being wiped out,” says Fotis Kouvelis, the leader of the newly formed Democratic Left party that is doing well in the polls. “Some 30 per cent of Greeks now live below the poverty line.” Though the state sector may be bloated, the safety net for the poor is limited.

A ramshackle state machine and few natural resources mean that Greece is ill-equipped to deal with the aftermath of a default and its possible departure from eurozone and the European Union. It imports much more than it exports. Mr Manos says it would soon run short of oil and food products if it returned to the drachma because it could not pay for them. “We are not like Argentina, Russia and Turkey,” he says. “We do not have their natural resources. If we had to leave the EU, the disaster for Greece would be economically and politically unbelievable.”

For now the Greek state and people appear paralysed by the extent of the disaster that has already fallen on them. It is the Greek equivalent of the Great Depression in the US when the GDP eventually fell by 25-30 per cent.

Greeks say that there will be a social explosion if things get any worse, but it is difficult to see what shape this will take. There is no revolutionary party ready to take power. In some ways Greeks would be better off if there was a radical alternative because the prospect might frighten Eurozone leaders into being more conciliatory. Instead they are becoming more relaxed about a Greek default being containable. For all the devastating impact of the EU measures on the country, neither government nor opposition has put forward a realistic alternative.

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