Shock therapy for Greece

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Shock therapy for Greece
By Marius Heuser
17 December 2009

Some of the measures will be “painful” and “we will have do without
pleasantries,” declared Greek Prime Minister Georgios Papandreou. This
was the grim message delivered by the head of government in a
televised address to the Greek population on Monday.

Under orders from the European Union, the Greek government plans to
announce a “shock therapy” budget next month aimed at reducing the
country’s soaring budget deficit. Papandreous’ declaration that in the
course of the next three months his government will implement measures
which have been postponed for decades puts his regime on a collision
course with the working class.

Greece faces the threat of sovereign default, with a budget deficit
expected to amount to 12.7 percent of the country’s gross domestic
product (GDP), more than four times the deficit-to-GDP ratio allowed
under the European Union stability pact for member states.

It is, however, only the most immediately threatened of a number of
Eurozone states that are plunging into bankruptcy as a result of the
world economic crisis and the massive indebtedness assumed by
governments to bail out their banking systems. Greece is just “the tip
of the iceberg,” said Norbert Barthle, budget spokesman for the ruling
Christian Democratic Union of Germany.

In a front-page article headlined “Debt Fears Rattle Europe,” the Wall
Street Journal on Wednesday wrote: “Portugal, Ireland, Italy, Greece
and Spain, a group traders have disparagingly dubbed ‘PIIGS,” all have
huge budget deficit and very low growth prospects, which means their
debt is on course to rise further, fast.”

The spreading crisis now centered in Greece has already led to a sharp
fall in the value of the euro on international currency markets, and
threatens to undermine the European currency.

In his Monday speech, Papandreou pledged to cut the country’s budget
deficit to below 3 percent in four years. “We must change or sink,” he
said.

In order to meet the dictates of the European Union, the government is
intent on reducing the budget deficit to 7 percent in 2011, 5 percent
in 2012 and under three percent in 2013. Papandreou has already
announced that he intends to slash public expenditure by around 10
percent.

In addition he plans to go ahead with the privatization of state-owned
enterprises, radically cut pension provisions and wipe out a large
number of public service jobs. He has further announced a freeze on
public service workers’ salaries.

In Greece, a quarter of the work force is employed in the public
sector and the anticipated job cuts will run into the tens, if not
hundreds, of thousands. The government has declared that only a fifth
of empty positions will be filled next year.

However, the prime minister on Monday failed to provide specifics on
cuts in pensions and other social benefits, and the financial markets
reacted negatively, driving the yield on Greek government bonds even
higher. Shares on the Greek stock market fell sharply Monday and Tuesday.

A Brown Brothers analyst said of Papandreou’s speech, “It does not
appear that he has provided much insight into how he will reduce
Greece’s heavy debt burden.”

The response of American finance capital was summed up by Standard &
Poor’s announcement Wednesday that it had downgraded Greece’s credit
rating from AAA- to BBB+, stating that “measures the government has
announced to reduce its deficit are unlikely to stem its rising debt
burden.”

There are already signs of growing resistance from the working class
and youth in advance of the social democratic PASOK government’s
announcement of its austerity budget. Teachers, who will bear the
brunt of cuts in the public sector, struck on Wednesday, and some
major unions have called a one-day general strike for Thursday.

On December 6, more than 10,000 people, predominantly youth,
demonstrated in Athens against police violence to mark the one-year
anniversary of the police killing of the 15-year-old student Alexis
Grigoropoulos. That event sparked more than a week of mass protests
which played a major role in the recent electoral defeat of the
conservative government of Kostas Karamanlis and its replacement by
the PASOK government of Papandreou.

Implementing a policy of “zero tolerance,” some 10,000 police were
mobilized for the December 6 demonstration in Athens. Police attacked
the protest and arrested mover 200 demonstrators.

Greece’s total debt burden is estimated at €300 billion and is
projected to rise in 2010 to 120 percent of GDP. The country is,
moreover, plagued by rampant corruption and the plundering of its
finances by the ruling elite.

The government’s austerity plans will have particularly severe
repercussions for the country’s youth. Youth unemployment in Greece
was already at 22.1 percent in 2008, exceeded in the European Union
only by Italy and Spain. An additional effect of the job cuts in
public service will be further downward pressure on wages.

Papandreou has announced no concrete proposals regarding expenditure
for education, but in order to achieve his ten percent cut in budget
outlays, further cuts to Greece’s already under-financed and crumbling
education system are inevitable. Currently, the Greek state invests
just 2.5 percent of its annual budget on education.

In an attempt to placate and contain social opposition, Papandreou
included in his speech on Monday a handful of proposals to tax the
wealthy. No bonuses are to be paid out to executives of state-owned
banks next year, he said, and a tax is to be imposed on bonuses paid
by private banks. In addition, he announced plans to increase the
inheritance tax and implement a more progressive tax system.

These vague promises are above all aimed at enabling the trade unions,
the nominally “leftist” alliance SYRIZA, and the Greek Communist Party
(KKE) to collaborate in imposing his austerity measures. These
organizations have played a central role in implementing cuts in the
past. This is why Papandreou met on Tuesday with the leaderships of
all of the country’s leading parties to discuss “the struggle against
corruption.”

The initial reaction by representatives from the SYRIZA alliance and
the KKE was reserved. As far as these organizations and the unions are
concerned, the one-day general strike on Thursday is designed to let
off steam and contain popular opposition within the bounds of protest
and pressure on the PASOK government.

The perspective of these organizations is based on providing a left
cover for the right-wing policy of PASOK. In the recent election
campaign, all of these organizations declared that a PASOK-led
government represented a lesser evil, and even indicated a willingness
to enter into a coalition with PASOK.

In reality, the previous conservative government called for new
elections in October because it was unable to implement the demands of
the European Union and the financial markets in the face of popular
resistance. The ruling elite concluded that this task had to be handed
over to PASOK, in cooperation with trade unions and petty-bourgeois
parties.

Leading political circles in Europe and sections of the business press
are demanding that the European Union bureaucracy assume direct
control of the Greek economy should the government prove incapable of
stemming the debt crisis.

Papandreous’ speech on Monday was a direct response to the EU summit
held last Thursday. European Union Economic and Currency Commissioner
Joaquín Almunia greeted the prime minister’s speech as a step in the
right direction. However, he added, the government in Athens had to
lay out concrete steps in January to guarantee the European Union
Commission that it is determined to realise “the rapid consolidation
of public finances.”

http://wsws.org/articles/2009/dec2009/gree-d17.shtml

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