A Greek Tragedy

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“All euro area members must conduct sound national policies in line with the agreed rules”.

This was the opening line in a statement from EU heads of government made in Brussels on 11 February. The statement was about Greece and it welcomed the austerity measures being introduced by the errant EU member in an attempt to meet the EU’s demand to bring its budgetary deficit down by 4% in 2010. In other words – commit economic sabotage on itself to fulfill the wishes of an outdated and outmoded economic big brother.

Unlike the Irish government, who are part of the vanguard in the EU cheering on a move to the right in these troubled times – Sinn Féin does not support the actions Greece is being asked to take. Nor for that matter do we support the Irish government’s analysis and approach to our own economic woes. Sinn Féin believes there is a fairer way, a better way, out of the global and domestic recessions.

Let’s examine the opening line of the statement. What is a ‘sound national policy’? The EU, and unfortunately our own government, would have us believe that a sound national policy is one that deflates an economy to the point of depression – imposing serious hardship on its people, curtailing workers’ rights so they cannot infringe on economic decisions and steadily eroding public services so that people are pushed into consuming private services. These private services are usually bought from the state cheaply in a sell-off initiated by ‘sound national policy’.

The Irish government pursued its own brand of ‘sound national policy’ in the Budget when it cut workers’ wages, cut social welfare, health and education funding and in total took €4 billion out of the economy. Both Fine Gael and Labour supported the government’s plans to do this. And here we are now, three months later and the live register is still growing, house prices are still falling, the banks still aren’t lending and our consumption sector is in freefall.

This is the same medicine now being passed onto Greece.

In the financial world’s analysis of this Greek tragedy, a few sound voices are pointing out the lunacy of what is happening. It was the EMU’s one-rule-fits-all policy that caused much of the smaller European economies’ problems in the first place. The access to easy credit by these developing economies, like Ireland and Greece, combined with the loss of monetary control, all fed the bubbles that arose in the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). The command that every economy stay within the 3% Stability and Growth pact, when different countries have different needs, further damaged economic development. It wasn’t true anyway – the larger countries, for example France and Germany, broke the pact on occasion and suffered no real consequences.

The insistence now that economies bring their domestic deficits back to within this 3% is utter madness. Attempting to reduce a deficit in a time of recession is counterproductive. Deficit reduction should be counter-cyclical (reduced in time of growth and allowed to grow in times of borrowing need) to allow governments the sovereign decision making needed to right an economy in decline. Borrowing for investment should be allowed, if that investment is designed to stimulate an economy and therefore grow it.

Of course, there are always exceptions made by the EU. In the Irish case, workers must suffer pay cuts and those who have lost their jobs must live on less, because we are not allowed borrow to pay for a jobs strategy or societal needs. But we can borrow €54 billion to give to banks for toxic loans as long as we place that borrowing through a Special Purposes Vehicle and keep it off the General Government balance sheet.

The EU and this government have turned Ireland into a debt-servicing vehicle so we can protect the euro. Never mind that we are going to continue to see unemployment rise along with emigration and our public services fall into disarray. And because we have no monetary control over the euro and our main trading partners are non-euro members, they want us to further deflate our economy to make ourselves cost competitive – which means more hardship for people across the country.

Greece faces these measures now and ironically, they are less worse off than we are with regards to debt, when we include NAMA. The problem for the Greeks is that they have become, in economist Joseph Stiglitz’s words, a victim of a speculative attack against their economy. The eyes of the predatory finance markets have fallen on the Mediterranean country and their possible failure to refinance sovereign debt means they are now reliant on the EU to back them up. Which suits the EU just fine because now as well as protecting and preserving the euro, they can decide Greece’s budget decisions and hence political decisions too. Once again we witness a right wing solution to a right wing-caused mess.

Joanne Spain is economic advisor in Sinn Féin.

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One Response

  1. Michael Youlton

    March 3, 2010 12:01 pm

    Good article Joanne,

    If it was a comedy first time round, it has now become a real tragedy.

    PASOK, the ruling social-democratic party in Greece, plans new spending cuts worth an expected €4.8 billion, reducing bonus pay for civil servants and ratcheting up VAT from 19 to 21%

    PM George Papandreou, addressing the Greek Parliament in Athens, on Tuesday, March 2, 2010, said the country is grappling with an acute debt crisis that unfolded after the conservatives lost the general election . The government is set to announce more severe economic austerity measures on Wednesday, following EU demands for deeper spending cuts. (AP Photo / Thanassis Stavrakis)
    Prime Minister George Papandreou saID the country is in a “state of war” and was fighting for its national survival. Government officials, speaking on condition of anonymity because it was ahead of the official spending cuts announcement, said the measures would save the government €4.8 billion.
    They said the measures would include cuts in civil servant annual pay through reducing their Easter, Christmas and vacation bonuses by 30 % each, and a 2% increase in VAT
    The new austerity package comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.
    Greeks have their annual salaries split into 14 monthly payments with the last two considered holiday bonuses. Trade Unionists have said abolishing the 14th salary would be tantamount to a “declaration of war.”
    In a dramatic speech to his Socialist party deputies Tuesday night, Papandreou said all Greeks would have to accept painful sacrifices, and he warned of “catastrophic” consequences unless the country can borrow on international markets at lower lending rates.

    Unions strongly condemned the cuts.
    “It is a very difficult day for us … These cuts will take us to the brink,” said Panayiotis Vavouyios, the head of the retired civil servants’ association. “Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace.”
    About 200 pensioners protested Wednesday in central Athens, scuffling with riot police and breaking through a police cordon to get to Papandreou’s office and official residence, where they stood outside chanting “Money for the rich, but none for us!”
    The new measures are to be officially announced after Papandreou briefs the country’s president following a Cabinet meeting.
    The country’s civil servants’ umbrella union has declared its third nationwide strike for March 16, while tax officials walk off the job for 48-hours on March 8. Taxi drivers were on strike Wednesday for the second straight day.
    “People are under a very heavy burden and they do not have enough to get by. I wonder after these measures are implemented, what will be left? At some point, you have to say that this is enough,” said Ilias Iliopoulos, general secretary of the civil servants’ union. “If the country asks us to contribute a month’s wage we will give it. But we cannot be the only ones who are made to pay.”
    Greece has already imposed a hiring freeze in the civil service and raised taxes on fuel, cigarettes and alcohol as part of an existing austerity plan.
    “We would have liked to have had more time for the results of our big structural reforms to become apparent,” Papandreou said Tuesday night. “But … our creditors, on whom we unfortunately depend, won’t give it to us.”
    Greece says it wants EU help to borrow money at lower rates, but European officials have remained tightlipped over any potential bailout plan, insisting Athens must first improve its finances.
    Papandreou is scheduled to meet German Chancellor Angela Merkel in Berlin on Friday, French President Nicolas Sarkozy in Paris on Sunday and U.S. President Barack Obama in Washington on March 9, in talks also expected to focus on the financial crisis.

    The Greek national debt has reached €300 billion ($405 billion). Greece plans to borrow some €54 billion through sovereign debt issues this year, and has so far raised around €13 billion, including Government bond sales. Some €20 billion ($27 billion) worth of government bonds mature in April and May.
    Athens has promised to reduce its budget deficit from 12.7 % of gross domestic product in 2009 to 8.7 % this year but many economists consider that goal unrealistic.
    The European Central Bank and International Monetary Fund are helping the EU assess Greek finances after Athens revealed a major budget shortfall last year and was accused of issuing misleading financial data for years.