Greece’s popular uprising takes aim at
the austerity measures undertaken by the previous government in trying to bring
Greece’s finances under control. These have to a large extent been dictated by
the Troika, the EC, ECB and the IMF as to the size of reduction in deficit or
addition to revenue however, without reference to the mix those policy measures
might take. Greece is currently running a budget deficit of around 10% of GDP
and a debt to GDP ratio of around 150% after the recent haircuts.
Unfortunately, the previous government
imposed the simplest form of implementation but probably also the harshest, reducing pensions and salaries in the
public sector and increasing taxes across the board. This resulted in a severe
contraction in economic activity and brought what little dynamism Greece’s
economy had to a standstill. Unemployment in the private sector
increased dramatically whilst revenues from higher taxes did not have the
desired effect as the economy contracted. At the same time the budget deficit
although initially contracted reversed direction as government was
unwilling to reduce its bloated size falling hostage to its own
predicament. Equally banks stopped lending as it became apparent that they were
insolvent thereby accelerating the contraction.
Instead of putting blame therefore on
their own incompetency and inadequate half measures, politicians blamed the
Troika and the signed Memorandum of understanding which had an aim at
deregulating markets and creating a more competitive environment for
entrepreneurial Greece.
So coming back to your two points laying
blame on the greedy banks and or the lazy protesters unwilling to forego their
hard won privileges my comments are:
1-
As
far as banks are concerned Greeks have never really identified them as the
cause of their problems only in as much as they form part of the world
financial system which was to blame for the initial financial crisis. To a
large extent Greek banks did not participate in this frenzy of lending which
was commensurate with the crisis, if anything the banks were quite prudent in
their lending practices. The mistake was that they were forced to invest in
Greek government bonds as a gesture of solidarity, a quid pro quo, a token for
their existence. This meant that as these securities were marked down by more
than 50% owing to the well documented haircut, they became insolvent as banks
had a very large proportion of their assets invested in them. It was the
spendthrift government that brought down the banks as opposed to the banks
creating the problem in countries like Spain, Ireland and of course the US.
2-
In
the case of lazy protesters there is a lot of truth to this assertion. Over the
course of the last three decades we had to a large extent a socialist
government run by PASOK with a manifesto of deficit spending and promises of
increased electoral public employment in exchange for votes. The centre right
NEW DEMOCRACY party also lay claim and embraced this modus operandi effectively
condoning this behaviour. This was effortlessly carried out as Greece was the
beneficiary of very low interest rates courtesy of the Euro and the party
euphoria that ensued having no regard to the longer term structural imbalances
prevalent throughout this period. Equally, massive transfers of wealth occurred
to help the periphery catch up with the core. It goes without saying that this
money did not find a home in productive investment but rather in excessive
consumption, lavish living and Swiss and local bank accounts. Europe turned a
blind eye as it was in many ways easier. At some point Greece had to pay the
ferry man. Lending seized and the Troika imposed its lending conditions. The
problem is this bloated Government sector of spoilt (un)public servants has
never been cut to size, a large part of which earn excessive salaries, a large
part of which is totally redundant and of course is being maintained at the
expense of the private sector which in neglect is being asked to pay an ever
increasing share of taxes. It is self-evident that this process has a dead end
and we have reached it.
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