16.02.2012
Danger of default catastrophe remains
Greece's economy has been driven into almost unprecedented depths by the relentless austerity measures, writes Eddie Ford
Over the last week, the chances of an imminent catastrophic Greek default seemed more real than ever. We witnessed a Russian roulette-style game of brinkmanship and confrontation between the Greek government and the European Commission, European Central Bank and International Monetary Fund troika - as the latter made relentless demands for additional austerity. Cut to the bone and then some more. For the troika, it seems, the Greek working class is to be sacrificed on the altar that is the euro zone project - whether the country remains in the euro or not.
After a near endless series of delayed meetings and missed deadlines, the Greek coalition or ‘national unity’ government headed by the technocratic nonentity, Lucas Papademos, finally gave its consent on February 9 to the troika’s next austerity package - sacking 15,000 public sector workers by the end of the year, slashing the minimum wage by 22%, a further ‘liberalisation’ of the labour laws and an overall total of €3.3 billion in cuts.
The agreement came at a heavy political cost though. As previously threatened, Giorgos Karatzaferis withdrew his rightwing Popular Orthodox Rally (Laos) from the coalition government, abruptly pulling out its four cabinet ministers. Two ministers from George Papandreou’s Panhellenic Socialist Movement (Pasok) also resigned in protest. The final straw for Karatzaferis and the others was the proposed pension cuts - even Antonis Samaras of the centre-right New Democracy came out in opposition to them.
In a stormy parliamentary debate on February 12, apocalyptic - and desperate - language was used by the remaining government ministers to justify the deal, or semi-deal, with the troika. “If we do not dare today,” Papandreou declared, “we will live a catastrophe.” His fellow Pasok member and finance minister, Evangelos Venizelos, even more dramatically asserted that the “war is now” and “if we falter” then “nothing will be left standing” - therefore, he exhorted, the “real dilemma is between painful measures and crushingly painful ones”. Rattled, Samaras angrily told a dissenting deputy - “What do you want, a country where food will be handed out with food stamps and where we will have no fuel?” Some might argue that that would almost be an improvement on the situation that exists at the moment, where some 1.5 million Greeks have absolutely no income - so presumably are struggling to eat at all.
When it came to the actual vote in the 300-seat Greek parliament, MPs agreed by 199 to 74 - the rest cowardly abstaining - to implement the troika’s austerity measure. In punishment, the coalition parties expelled from their parliamentary groups those deputies who failed to back the bill - with Pasok and ND booting out 22 and 21 MPs respectively, reducing their coalition bloc from 236 to 193. Naturally, the dissenters will be excluded from the lists of party candidates for the next general election - which looks likely to happen in April. Samaras was “absolutely clear” that there was no place for “rebels or bravehearts” in his party, a sentiment endorsed by Papandreou. In the new troika-dictated political-economic order, no disobedience is permitted. Everyone must toe the line and shut up. Cuts first, democracy a long way second.
But it will all be worth it, we were told. By butchering the economy and pulverising the working class, the corrupt Greek elite would receive the next tranche of €130 billion (or even possibly €145 billion) in bailout money and thus, come March 20, the €14.5 billion interest repayment would be met.
Not enough
Only not enough - nowhere near enough, it seems. If Greece wants to receive the next round of bailout money, it has to do exactly what it is told. There must be total compliance. Full spectrum troika dominance.
Philip Rösler, the German vice-chancellor and federal minister of economics and technology, said the vote was merely a “necessary condition” on the path to Greece’s second rescue package - much more had to be done for Athens to prove that it is serious about enforcing the cuts. As for Bertrand Benoit, a spokesman for the German finance ministry, he said the offer was “not sufficient” and Greece had to come up with a “revised plan”. Under the current plans, he claimed, Greece’s debt would still be as high as 136% of GDP by 2020, as opposed to the 120% foreseen in the second bailout package.
Jean-Claude Juncker, the prime minister of Luxembourg and chair of the Euro group of finance ministers, put it more bluntly still - “no disbursement without implementation”. Greece must turn its budget cuts into law - fast - and “flesh out” the €325 million still needed in spending reductions, given that the Greek government could not agree to further pension cuts.
Ominously, perhaps showing that the EU bureaucracy had finally lost all patience with Athens, Juncker cancelled the emergency February 15 meeting of euro zone finance ministers - supposedly the crunch meeting to finally authorise the Greek bailout money. Mario Draghi, president of the ECB, and Olli Rehn, commissioner for economic and monetary affairs, had also been due to attend the meeting. Instead, they held a teleconference on that day. In explanation, Juncker cited the “missing information” from Athens on how it plans to make the promised €325 million in cuts and the lack of written assurance from Samaras that the ND will fully implement the troika’s cuts programme even after the elections (Pasok having dutifully signed up already). Whatever the result, and whoever wins, the EU bureaucracy will come out the winner - or so it hopes.
Feeling the pressure, however, Samaras capitulated to the troika’s diktat and on the afternoon of February 15 dispatched a pledge that if ND wins the next election in Greece - a far from certain prospect - it will “remain committed” to the “objectives, targets and key policies” as laid out by the troika. The ‘missing’ €325 million was to be found in cuts from defence, health and local government budgets.
But will it still be enough? Worryingly for the troika, Samaras said that “policy modifications” might be required to “guarantee the full programme’s implementation” - which hardly sounds like complete, unquestioning compliance. More like the noises of a man, perhaps, who is trying to wriggle out of some of his ‘commitments’. Indeed, one of his top advisers told the BBC that the troika’s programme - as it stands now - was a “recipe for failure” that would plunge Greece into ever deeper recession. Obviously true. But the troika and its servants do not want to hear the truth - only total acquiescence to their austerity regime. It is not yet a done deal.
We now hear that EU officials are considering delaying Greece’s second bailout until April, after the general election - on the basis that the finance ministers “are not satisfied that Greece’s political leaders are sufficiently committed to the deal” (Reuters). The intention behind such a move, if true, is not hard to discern. Europe is signalling to Greek voters that only a government led by New Democracy or Pasok is acceptable, because both their leaders have ‘taken the pledge’ - even if it might turn out in the end to be a meaningless pledge. The EU bureaucracy’s contempt for democracy could not be more plain.
Darkly, Venizelos warned that some euro zone countries were “playing with fire” - noting that there were “many” in the euro zone “who don’t want us any more”. He may not necessarily be suffering from paranoia. The Dutch finance minister, Jan Kees de Jager, militantly proclaimed: “We don’t give an inch. We want everything. A complete package. If we don’t have that clear, we cannot agree with the package.” Hardly the spirit of compromise. There is no question that there are those within the euro zone who are quite prepared to jettison Greece as a price worth paying - but if it happens they may live to rue the day.
Relations have almost totally broke down between Greece and troika, it almost goes without saying. Exasperated, Christos Papoutsis, the Greek public order minister, exclaimed that the government has made “superhuman” efforts to comply with the austerity demands made by the euro zone - but has now “reached the limits of the social and economic system”. Now, he pleaded, Europe “should act responsibly”. In other words, give us the money anyway. Without it, Greece will go bankrupt and the consequences could be incalculable.
Inevitably, under such crisis conditions, support is draining away from the mainstream parties like Pasok and ND. The former has plummeted to 8% in the opinion polls. Karatzaferis denounced the “humiliation of the country” on TV: “Clearly Greece can’t and shouldn’t do without the EU, but it could do without the German boot” - a direct appeal to Greek nationalism and the still bitter memories of brutal German occupation during World War II.
Having said that, there is an obvious truth to what he says. It was Germany, after all, that wanted to put an unelected EU bureaucrat in charge of Greece’s economy, and has also been particularly insistent that the main party leaders sign a pledge of eternal loyalty to the troika’s austerity measures. In fact, why bother voting at all if all the parties are meant to have the same programme? By behaving in such an authoritarian and essentially irrational way, the EU state order is rapidly losing all legitimacy. In which case, the centre cannot hold.
Karatzaferis is obviously calculating, no doubt correctly, that in the forthcoming elections the Laos presence in the parliament - currently standing at 16 MPs - will be substantially increased. Well worth quitting the government for, that is sure. Other ‘extremist’ parties are also very likely to do well. A recent poll has the Communist Party of Greece (KKE) and the Coalition of the Radical Left (Syriza) holding firm at 12.5% and 12% respectively. The Democratic Left, a semi-rightist split from Coalition of the Left of Movements and Ecology (Synaspismos) - the latter being the largest party in the Syriza bloc - has had a surge in popularity too, currently garnering 18%, up 4.5% since last month. All together, the various left parties - however broadly defined - total a relatively impressive 42.5%, even if for now the KKE has stupidly ruled out all cooperation with the other parties. Also, support for the far-right Golden Dawn (Chrysi Avgi) has hit 3%, reaching the threshold for entering parliament. GD is “uncompromisingly nationalist” and opposes the “so-called enlightenment”, the industrial revolution and, according to its charter, “only Aryans in blood and Greeks in descent can be candidate members” of the organisation.
Whatever the political and programmatic strengths and weaknesses of the non-mainstream parties, they all have one thing in common - adamant opposition to the troika’s austerity measures and the package passed by parliament on February 9. And, as we have seen with his recent ‘pledge’, even Samaras himself has talked about how the ND and other parties should have the “ability to negotiate and change the current policy which has been forced on us” (my emphasis). No wonder Juncker is so worried about his steadfastness. Can he, or any of the others for that matter, really be trusted? If only the elections could be cancelled and that EU commissioner parachuted in ...
Even if the virtually impossible happens, and the Greek government over the next few days conjures up a cuts plan that entirely satisfies the EU leaders, the national parliaments in Germany, Finland and the Netherlands still have to vote on the second bailout package. Since these countries have been the most vocal critics of the bailouts - why should we subsidise these ‘lazy’ and ‘unproductive’ countries? - it is by no means an automatic certainty that they will vote in favour of the second bailout package. They will need a lot of convincing that the deal will actually make Greece’s debt sustainable again.
Then there are the long-running and torturous negotiations with Greece’s private creditors over debt restructuring, which must also be concluded before it is too late - March 20 is not that far away. Yes, Rehn may have told reporters that the “draft agreement” with the creditors is “practically finalised”, but in the new economic order nothing is guaranteed. And if the bailout deal is delayed to after the general election, then that could frighten the horses - causing the creditors to give up on Greece and backtrack on its 70% haircut. The threat of a disorderly default remains.
Death spiral
Meanwhile, thanks overwhelmingly to the relentless austerity regime pursued by the troika, Greece has entered an economic death spiral - with no apparent way of pulling out. The statistics make for very grim reading. Ten-year bond yields for Greece have reached an utterly unsustainable 29.8%.
Then on February 9 Greece’s central statistical office published data starkly demonstrating that the economy is heading over the cliff. In the latest month for which there is reliable data, November 2011, the unemployment rate increased by a massive 126,000 (to 20.9%) compared to October. Youth unemployment now stands at a staggering 48%. Of course, this trend is certain to continue, as the government starts pruning the 150,000 public sector jobs, as demanded by the troika.
Needless to say, production in Greece is falling through the floor, with its industrial production index in December 2011 down 11.3% compared to 12 months earlier, while manufacturing decreased by 15.5%. As might be expected, consumer confidence in Greece has also collapsed - unemployment and wage cuts mean no-one has any money to spend on ‘frivolous’ extras. Just getting food to eat is hard enough.
If you want more evidence of Greece’s economic death agony, other official government figures released on February 14 clearly show that the deterioration in the economy accelerated in the final three months of last year - GDP contracting by 7% in the fourth quarter of 2011 compared with a year earlier. This represents an acceleration from the 5% contraction in the third quarter. Last year represented the fifth year of recession - with another eight years to look forward to.
In the opinion of Uri Dadush of the Carnegie Endowment think-tank in Washington - and many others - we may well be seeing an “historically unprecedented” economic contraction, with Greek GDP shrinking between 25-30% - which would mark, Dadush said, a “disastrous crisis”. Such a slump downwards would put Greece in the same league as the United States in the 1930s, where the economy shrank 29% during the great depression.
For anyone of a rational frame of mind, the only conclusion is that the troika’s bailout exercise is a monumental exercise in futility. Even under the most ‘optimistic’ scenario - in which the Greek government implements everything the troika wants and the working class declines to resist - the country is heading for disaster.
The only thing that might prevent Greece from being kicked out of the euro is the fear of contagion. If Greece is denied its bailout money or allowed to default, whether by conscious design or happenstance, and gets booted out of the euro zone - then contagion would quickly spread to Portugal, Spain and Italy, ripping apart the euro. Greece may be tiny, but if it goes down it could take the euro with it. A point explicitly made by Kostas Kiltidis, a Laos MP, who fulminated that “nobody can take us out of our own home” - if they attempt to, “others are going to die economically with us”. Euro zone RIP?