Greece: Papandreou announces deeper budget cuts

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Greece: Papandreou announces deeper budget cuts
By Stefan Steinberg
4 March 2010

Bowing to intense pressure from international banks and the European
Union (EU) the Greek government headed by Prime Minister George
Papandreou, of the social democratic PASOK, has agreed on a second
package of tax increases and spending cuts totaling €4.8 billion ($6.5
billion; £4.4 billion). In justifying his government’s latest
austerity measures, Papandreou likened the economic crisis in Greece
to a “wartime situation.”

“These decisions are necessary for the survival of the country and the
economy,” Papandreou told reporters, “so that Greece can exit the
vortex of speculators and defamation, so that we can breathe and keep
on fighting.”

Papandreou came to power last October by appealing to mass popular
anger against the right-wing austerity policies of his predecessor,
Kostas Karamanlis. Now, not six months in power, Papandreou has
outlined the most far-reaching attacks on working class living standards.

The measures introduced by the government on Wednesday include an
increase in sales taxes from 19 percent to 21 percent, a 10 percent
cut in public sector pay, increases in the tax on fuel, cigarettes and
alcohol, a freeze on pensions and cuts to holiday bonuses for civil
servants.

These measures will have especially devastating consequences for
low-income workers, the unemployed, families and pensioners.

Commenting on the new Greek austerity package, Jose Manuel Barroso,
president of the European Commission, declared that the plan confirmed
that the Greek government was committed to “taking all necessary
measures” to cut its deficit.

Following weeks of steady decline in value, the euro rose against the
dollar following the unveiling of the new measures. Leading finance
houses also gave a guarded approval to the austerity plans. Credit
rating agency Standard & Poor’s issued a statement saying that the
markets have been overly pessimistic on Athens’ debt position.

On the other hand, share values registered modest declines on the
Greek exchange, with investors fearful of the consequences of the cuts
for business interests,

The Papandreou government’s new round of cuts follows an orchestrated
campaign by the EU, banking interests, and European governments led by
Germany to pressure Athens to rapidly agree to additional austerity
measures.

On Monday, the EU economic and monetary affairs commissioner, Olli
Rehn, declared after meetings in Athens that Greece faced “a crucial
moment for the future of your country. No member of the eurozone area
can live permanently beyond its means.” In private talks, Rehn had
criticised the government for not moving faster to reassure finance
markets of Greece’s willingness to cut its deficit and repay its debts.

Rehn’s comments were immediately welcomed by Berlin. “The ball is in
Greece’s court now,” a German government spokesman declared.

German Chancellor Angela Merkel on Tuesday night convened a meeting of
government ministers to obtain agreement on a possible emergency
rescue package for Greece. While officially denying that the German
government would intervene to help Greece, European ministers and
bankers have been carrying out an intense round of behind-the-scenes
negotiations on such an emergency plan.

Both EU and German politicians are concerned that the measures
introduced by the Papandreou government will be insufficient to stave
off bankruptcy. They fear that any failure by the Greek government to
meet its debt payments on time could in turn be followed by
declarations of bankruptcy by a series of other exposed European
states. Such a development would not only threaten the EU’s joint
currency, the euro, but also the EU itself.

On the other hand, the EU and Germany are hesitant to publicly
announce any plans for a bailout package because they fear that it
would lessen the pressure on Greece to implement the draconian cuts
demanded by the banks. In addition, following massive bailouts for
European banks, any bailout plan for the debts incurred by Greece as a
result of the financial crisis would be deeply unpopular with the
European and German electorate. Consequently the German government is
leading talks to organise such a rescue package out of the public
spotlight.

According to one leading finance analyst, the cuts outlined by the
Greek government “have boosted the markets because they suggest Greece
is serious about cutting its deficit. They also make it easier for
other eurozone countries to offer financial support as they can say to
their own taxpayers that Athens has taken the measures the EU has
demanded.”

At the same time, there are deep divisions over the nature of a
bailout plan—in particular whether it should be organised by the EU
and Europe countries alone, or be based on the resources of the
US-dominated International Monetary Fund (IMF)—which would effectively
allow Washington a role in the affairs of the euro.

No final decision on a plan had been made as of Tuesday, but a
European-based rescue package is the most likely scenario, according
to the Financial Times.

Merkel on Wednesday expressly welcomed the cuts announced by
Papandreou, who will travel to Berlin on Friday for further talks with
the German government.

While markets and the EU have reacted favourably to the latest round
of cuts announced in Athens, financial strategists agree that they can
only serve as a beginning for far more ruthless budget reductions in
the near future.

Papandreou could not broach such savage cuts without the political
backing of the Greek trade unions. Following the general strike on
Wednesday of last week, leaders of Greece’s two principal trade union
federations made clear that they were prepared to “share the pain.”
The unions aim to allow workers to vent anger in short strikes, while
channeling their opposition to Papandreou’s policies along nationalist
lines.

In an interview with the WSWS last week, Stathis Anestis, spokesman
for the GSEE (General Confederation of Greek Workers), stressed that
“the confederations and the trade unions supported the election of
this government.” He added, “It is not that we wish to strike.”

In an interview with CNN on Wednesday, Vasileios Xenakis,
international secretary of ADEDY (Civil Servants’ Confederation),
described the latest cuts as “unbalanced” and warned of a social
calamity if trade unions were not included in the negotiating process.

In other words, Xenakis and the Greek trade unions do not reject the
cuts. They are instead offering their services in implementing them as
a means of confusing social opposition.

http://wsws.org/articles/2010/mar2010/gree-m04.shtml

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