Fri May 14th, 2010 at 02:44:38 AM EST
What follows is a biased account of the Greek crisis as it unfolds. It is a palimpsest of rewritings, and write-overs, as not managing to finish it week after week, I had to continuously modify and update it as time went on. Please forgive any discontinuities or inconsistencies that might remain!
I write this diary in anger. This is of course not simply a Greek crisis, it is a European crisis, part of the global crash of 08. The way the economy was managed over the past two decades has partly led to this debacle, but its intensity and its destructiveness are due to circumstances outside of provincial Greek mismanagement and chaos. That said let the story begin:
A few weeks ago a new wave of measures was announced by the Greek government, after consultation with the real government of the country, the IMF. They were gripping measures in the way that Great Cthulhu's tentacles are gripping as you face the unnameable void on your way to perdition... [More inside]
front-paged by afew
These measures included (but are not limited to, as they are unfolded in a damned hurry through bills that are voted in parliament before anybody has a chance to say anything really bad about them):
- New cuts in wages in the public sector, including the substitution of the, already a couple of months ago reduced, 13th and 14th salary (these are salaries not bonuses, it is just the way the annual wages were distributed in the year) with a flat sum of 1000 Euro (pre income -tax, pre-payroll tax) in total. In all public servants have lost on average something like 20-30% of their salary.
- Analogous cuts for all (private and public sector) pensioners. The 13-14th pension is replaced, again, with a flat sum of 800 euros total. That a third of all pensioners won't be hurt much, if at all, by this reduction, is a measure of the "generosity" of the Greek pension system pre-crisis
- A new tax on pensions over 1400 euros/month
- Annulment of the meagre "solidarity bonus" for the poorest of the poor
- Reduction of public investment programs by 500 million euros in total
- Reduction of local gvt spending through restructuring of the country's administrative structure - a proposal that might have been useful, were it researched before implementation. As it stands we will have a sweeping administrative reform with a few months worth of preparation and planning and pretty much zero input from the local governments, just to produce savings on government spending on time.
- The main VAT rate will jump to 23%, from 21% since this past March and 19% at the start of the year. The low rate, for basic goods and services is increased to 5,5% from 5%
- Extra taxes on fuel, the third tax hike of the sort, leading to something close to 1,6 Euro per litre of gas at the pump (a measure I wouldn't be complaining about if it weren't for the fact that public transport fare hikes have started and, it is rumoured, are being generalized across the country [update: a first victory! They were taken back after protests!]). This has knock-on effects on the price of almost everything.
- Reduction and spreading in time of dismissal compensation costs for the private sector
- Doubling of the legal monthly limits to lay-offs for large companies
- Lowering the legal minimum wage (it is now at 740 Χ 14 = 10360 gross, something like 8700 Euros/year mixed) for young people and the long-term unemployed to 550 X 14 Euros gross (in the context of something much like the "First Employment Contract")
- Increasing the average retirement age to 63 from 61 currently
- Also in the works (not announced now, but pending): allowing peripheral labour negotiations to admit a minimum wage lower than the national collective agreement minimum (which will make it token or at best a benchmark) and a new "training" contract, that will allow young people to work for 350-500 Euros per month.
One might expect that these are the sort of measures that will plunge Greece into a vicious circle of never ending recession, and they'd probably be right...
The idea is that if these measures don't work in reducing the deficit, harsher measures will follow. These measures theoretically at least are not affected by the latest round of discussions that led to the trillion euro package. It seems that Greece is condemned to reach near-third world status. Already first trimester stats point to a 2,3% reduction in GDP, 12% unemployment. This is going to be the largest peace-time deterioration of living standards for most of the population in living memory. This is happening, mind you, in a society in which, according to research [in Greek], by 2007, 1 in 3 people were living on less than 470 Euros a month and 1 in 5 children were living under the poverty line.
The reaction of the affected workforce is far from accepting and compliant: and it was angry: I have described here the sort of anger and passion that the big general strike demo showed. Its violence became, for a moment, too extreme for its own good. Three workers asphyxiated to death after hooded youths, of the sort that pose as some version of anarchist in their own minds, burned the bank building they were working in. This had a chilling effect on the demos. Things are relatively quiet now. A new general strike has been called for May 20th, where public anger will be gauged again. In the meanwhile, three socialist MPs refused to back the measures and were expelled from the party in what was surely record-breaking time. The Conservatives, have dressed themselves up as the party to stand up against the IMF (so the Communists and the Left won't have a monopoly on public fury they claimed) - they too dismissed a leading cadre of theirs (Dora Bakoyianni) when she voted for the IMF package. The chances of this political system being left standing by the time anything resembling a recovery emerges are slim indeeed, despite its phenomenal resilience in the face of incompetence and corruption....
Stop the world, I want to get off
Greece has become a critical nodal point of the unfolding Crisis, possibly a taste of things to come on a wider scale - if one takes van Rompuy's vague complaints about "populism" and coming "unpopular measures" as the threat it seems to be. As Rick Wolff notes: "What is happening in Greece parallels developments everywhere; only details and timing vary".
A few weeks ago, a never-ending series of negotiations within the EU and the Eurozone, a marathon in which at every turn of the way a new promise of stopping the collapse supposedly was waiting, resulted in an ever increasing and increasingly unsustainable rate for Greek government bonds: The final "support mechanism" involved the IMF, which, it turned out was the least demanding of the partners. As ET readers know, the offer included 2/3 of total loans from EU members at a rate of over 5%, a rate that, again, was way over anything plausibly achievable without at least a partial default somewhere down the line. Cynical observers here, noted that this sort of "bail out" was just enough to postpone a Greek default for as long as it will take for German and other eurozone member banks to get rid of the massive amount of Greek government paper they own. Michael Hudson is making a similar case regarding the bigger package:
Let's call the "Greek bailout" what it is: a TARP for German and other European bankers and global currency speculators. The money is being provided by other governments (mainly the German Treasury, cutting back its domestic spending) into a kind of escrow account for the Greek government to pay foreign bondholders who bought up these securities at plunging prices over the past few weeks. They will make a killing, as will buyers of hundreds of billions of dollars of credit-default swaps on the Greek government bonds, speculators in euro-swaps and other casino-capitalist gamblers. (Parties on the losing side of these swaps now will need to be bailed out as well, and so on ad infinitum.)
This windfall is to be paid by taxpayers - ultimately those of Greece (in effect labor, because the wealthy have been untaxed) - to reimburse Euro-governments, the IMF and even the U.S. Treasury for its commitment to predatory finance. The payment to bondholders is to be used as an excuse to slash Greek public services, pensions and other government spending. It will be a model for other countries to impose similar economic austerity as governments run up budget deficits in the face of falling tax collections from the financial sector being enriched by the translation of junk economics into international policy. So the bankers for their part will have little trouble meeting their bonus forecasts this year. And by the time the whole system collapses, they will have spent the money on hard assets of their own
Apparently "other countries" are already imposing "similar economic austerity"...
The pain of suffering people who take you for a fool
As if living with under the constant threat to one's livelyhood isn't enough, one has to bear foolish moralizing on the work ethic and complete and ignorant bullshit about the country one is living in. I'm especially sick, tired and a hair's breadth away from full scale violence against my laptop or my TV, already of two things:
- Outside Greece: the whole "narrative" of how "Greece" did this, how "Greeks" should shoulder that, how "Greece" was pampered, didn't work hard enough, how Greeks have lived comfortably off Germany's handouts and how unit labor costs have been too high. Greece is not a person. It doesn't have personality flaws. Greeks are not a homogeneous mass. There are vast differences in living standards. The money borrowed went to a sizeable minority, and among that minority will emerge the real winners of the Greek debacle.
- The repeating mantra inside Greece through 90% of the media, that "we lived beyond our means for so long - it's Our fault" - coming usually from the type of folks who have large Swiss Bank accounts, island villas and Porsche Cayennes and directed to the type of folks that are already unable to sustain their consumer or housing debts and are going bankrupt. Not everyone has been living "beyond their means". In fact most, by any reasonable definition haven't. Most of those that publicly lament this profligate living, however, have.
I can't and do not watch the news on Greek TV, or Greek media. This is surely a taste of things to come, a necessity for what is going to be practically a state of siege, but it is unnerving: the uniformity, the orwellian double-think, the optimistic and can-do attitudes and buzzwords with which the Greek media (and especially the TV channels) "cover" the crisis. Greek TV is a paragon of the corrupt system that led Greece to disaster. Anyone outside the "responsible" line are either not shown on TV, or shown just to be made an example of, to show how despicable these horrid leftists are. And its all their fault anyway for catering to the damn unions. Etc.
I can't take it anymore: a taste of Greek reality
Having worked in Greece, in the private sector, for 11 years now, and being pretty much what most people mean by "middle class" around here, let me give you some perspective on how things look from the real inside, not the fictional country manufactured specifically to spite and anger Bild and Torygraph readers. Let me forewarn you that in these 11 years I have seen in the people I know and work with - hardly at the bottom of the income ladder on average - and around my living environment disposable incomes drop, real unemployment rising, the number of garbage scavengers decidedly increase, crime rates soar and privare debt sky-rocket. I know of very few people (and remember I'm at the middle, possibly on the uppish side overall) that have markedly improved their financial situation during this past decade of "high growth". The ones that did, had money in the family and took advantage of that. Few borrowed themselves into a reasonably continuous life-style. One peaked and crashed in the space of a few years. But that's it. For an economy that was growing at between 3 and 5% annually for 12 years, one would have thought that the blessings of prosperity would be clearer and more widespread. This was supposed to be an expansion...
So let me take you on a tour of economic reality from where I stand:
1. A System of Corruption.
One thing most people are right about is the extent of corruption in Greece. A corollary to that is the huge extent of the Black Economy. What is less known is the extent to which corruption is embedded in the Greek economy, not as some sort of parasite but as an integral part of the workings. At all levels corruption serves as a lubricant for a rusty machine that by design requires it to function. There are hierarchies of involvement in this at all levels of society, a pyramid scheme of complicity in which the lower rungs (when they actually have a choice) are bribed pennies in order to assent to an ascending ferocity of feasting on public money (their money). This is a scheme of social legitimation of corruption through its apparent democratization. It starts from not issuing receipts and having two prices for services (i.e. plumbers: 100 Euro with a receit, 70 without), to doctors demanding extra money for surgery in public hospitals, to bribing public hospital boards to not operate or not buy expensive diagnostic machines so as to increase demand for access to private diagnostic centers, to public employees receiving a percentage of the supply costs in order to select the "right" supplier, to paying prefecture employees to turn a blind eye to, often vast, construction or planning illegalities (such as building villas in burnt forest areas) or simply to hurry-up procedures that are intensionally delayed so that one is forced to bribe the official to finish up various procedures (i.e. permits for connecting new buildings to the power grid) in a reasonable time frame. The list goes on ad infinitum. The many faces of Greek corruption would require terrabytes of just to list and years to document...
However this circus of corruption is not really open to anyone. People at the bottom, those with the lowest access to the bureaucracy and the oligarchy, as well as anyone that refuses to comply with this system, are screwed. Not participating in it is seen as either weakness or stupidity. And they end up footing an impossibly large part of the tax bill...
A recent article in the WSJ reports on the economic consequences of this system of corruption, stating that a recent Brookings study:
"...which examines the correlation between corruption indicators and fiscal deficits across 40 developed or nearly developed economies, highlights how corruption has hurt public finances in parts of Europe, especially in Greece and Italy, and to a lesser extent in Spain and Portugal.
Greece's budget deficit averaged around 6.5% of GDP over the past five years, including a 13% shortfall last year. If Greece's public sector were as clean and transparent as Sweden's or the Netherlands', the country might have posted budget surpluses over the past decade, the study implies.
"If Greece had better control of corruption--not to Swedish standards, but even at Spain's level--it would have had a smaller budget deficit by 4% of gross domestic product," on average over the past five years, says Daniel Kaufmann, senior fellow at Brookings and the study's author.
The numbers are IMHO, if anything, on the conservative side. A recent story in the Greek daily Eleftherotypia (in Greek), described how the Greek government lost 10 billion (Billion with a b) euros in taxes due, over three years, thanks to a scam involving a ring of revenue service inspectors in various offices around the country and "VIP businessmen" who conspired to "reinspect" taxes imposed on large companies to annulment. This is unlikely to be an isolated case. This story was reported in the center-leftiest of the mainstream papers, Eleftherotypia, and buried by most mainstream media, including of course the public and private TV stations. This is not incidental. The media has been functioning as an enabler of large scale corruption since time imemmorial but with increased efficiency after 1989, when government monopoly on the airwaves ceased. Which is another tale of corruption and stupidity...
2. Media and "entanglement"
Greek private TV stations are all broadcasting without a license. They are legally in some sort of temporary status 15 for years now, and the public airwaves are in fact being given away, traded and used not on some sort of rational basis but on the basis of use and power. The media landscape in Greece is owned in a very large part by people who happen to be public contractors. Their media outlets are as much, if not more, instruments of political pressure and intervention than typical journalism. They were the prerequisite for the domination of a class of corrupting oligarchs and the corrupt bureaucratic-contractor elites that surround them, over the past 20 years.
The TV product they produce, besides covering for the media bosses-contractors, is what I call part of a cultural far-right, in a sense that possibly the Italian ETers might recognize. They pumped up LAOS (the xenophobic far-right part) to parliamentary size and are pushing it to respectability for its patriotic stance alongside the socialists (their only parliamentary allies in the IMF vote), they pushed and are still pushing the anti-immigrant scare, they reproduce social stereotypes, they are covertly misogynous: the whole package. They led the attack against the Coalition of the Radical Left (SYRIZA) after December 08, for refusing the blanket condemnation of the kids that rose against rampant police brutality and indeed, it now seems, for what was to follow! They are now attacking the Communist Party (KKE) for leading workers protests and thus "damaging the economy". At the same time they are attacking parliament and parliamentarians while rooting for some sort of unelected "technocrat government" to help out with this mess, and push measures that might require partially rescinding articles of the constitution.
[In part 2: Economic stats, unrich Greece, where the money went, social ills, myth busting and what next?]