“Despair has enveloped Greece. This weekend the bankrupt nation, for that is what it is, began negotiating the latest act of a drama that many fear will end in catastrophe — financially, socially and politically.”
These are the opening words of an article for the Observer by Helena Smith, who has reported from Athens for more than 20 years, and who says the country is “on the edge of a precipice.” On Sunday evening, the Greek parliament accepted a €130bn (£108bn) rescue package from the EU and the International Monetary Fund, to prevent a default, in March, on €14.5bn in maturing debt. However, this also involves a further €3.3bn in wage, pension and job cuts, including axing another 15,000 civil servants’ jobs by the end of the year (and the loss of 150,000 public sector jobs by 2015), and imposing a 22 percent cut in the minimum wage and pension cuts of €300bn, even though Greece is already in a catastrophic state that will not be helped by a further round of savage cuts.
This is because the austerity measures of the last few years have led only to further economic stagnation, and are driving Greece into what I believe it is appropriate to describe as a death spiral. The country is in its fifth successive year of recession, and on Friday a two-day general strike began, and demonstrators took to the streets of Athens, which erupted in fire and violence.
Dealing with this history, and the latest phase of the crisis, Helena Smith wrote, in an article entitled, “I fear for a social explosion: Greeks can’t take any more punishment”:
[T]he truth — as unpalatable as it may be for the IMF, EU and European Central Bank, Greece’s “troika” of creditors — is that, far from plugging the country’s budget black holes, the harsh austerity pursued in the name of deficit-reducing goals has pushed it towards economic and social collapse. Relentless wage and pension cuts, tax rises and cost-cutting reforms have left the country a shadow of itself. In its fifth successive year of recession, Greece is a hollowed-out version of what it once was, coming apart at the seams a little more with each day. Men and women forage through rubbish bins late at night. More sleep on the streets. Last week as Eurostat, the European statistic agency, announced that poverty had engulfed more than a third of the nation, it was revealed that unemployment had also exceeded one million people, from a record 19% to 20.9% in one month.
“Nothing functions. Nobody pays anybody any more and the state is not just crumbling but in complete stasis,” said Giorgos Kyrtsos, a prominent political commentator. “These guys,” he said of officials in the troika of European agencies negotiating the bailout, “should really lose their jobs. They’ve miscalculated everything. I understand on Friday the police trade union called for their arrests. Well, maybe they are right!”
With the rhetoric at such levels, and none of the sacrifices having improved the situation so far — at more than 10% last year, Greece’s budget deficit was way off target — it is easy to see why, among politicians at least, there is little stomach for more. “We don’t want to turn our country into a marginalised third world state where citizens are forced to live on slave wages,” said one MP, requesting anonymity ahead of the vote. “If we go along with these measures, that is exactly what will happen.”
Giorgos Kyrtsos told Helena Smith, “The loan agreement may be voted through, just as our foreign lenders want, but it will be a hollow victory. Despair is growing. We are soon going to see incredible scenes with everyone taking to the streets if these measures are applied. Something has to give, and at this point it has to come from Europe.”
Last Wednesday, during a 24-hour general strike, George Pantsios, an electrician for the country’s public power corporation, told the Independent, “People are scared and haven’t really realised what’s happening yet.” He explained that he had “only been receiving half of his €850 monthly wage since August.” He added, however, “once we all lose our jobs and can’t feed our kids, that’s when it’ll go boom and we’ll turn into Tahrir Square.”
“We’re already bankrupt,” Corinna Panopoulos, a state psychologist, said. She added, “This new agreement will simply be our tombstone and the meeting will be the final curtain of this play.” A single mother with two children, she said her salary had dropped by a third and she had “moved in with her mother to make ends meet.” She added that her sister, Christina, who had a job as a supply teacher, would be losing her job in June.
The website ANSAmed also reported on one particular aspect of the suffering of the Greek people — the rise in homelessness. “Hospitals in Athens are becoming hospices, as increasing numbers of homeless people are feigning illness in order to ensure a few nights of sleeping in warm surroundings and being fed,” the website explained. Tasos Antonopoulos, the chair of employees at the Laiko hospital, told the weekly Epikaira, “Unfortunately, public hospitals are becoming centres for the homeless. They pretend to have pains or heart problems so that they can be admitted to hospital and be sure of having a bed and some food for a few days. They only need to lie down on a folding bed, just for the time needed for clinical analysis.”
ANSAmed also noted that, in central Athens, hundreds of people at a time “patiently wait in line in the dining room of the city’s administration building.” The director of the centre, Dimitra Noussi, told the BBC that “the centre where the homeless are fed, initially built for people with drug and alcohol addiction, has suddenly turned in to a centre for people suffering from poverty.”
An analysis by Epikaira established that these people were “not suffering from psychiatric problems, or even from alcoholism or drug addiction. Instead, they are individuals who, until a short time ago, had homes and jobs and suddenly, with the arrival of the crisis, lost everything. Others, meanwhile, are small businesspeople or shopkeepers who have been declared bankruptcy. These are people with a medium to high cultural level, aged between 30 and 45. The study shows that some of the older individuals lost their jobs shortly before they were due to receive a pension.”
So, with this level of suffering, what is the answer for Greece? In Der Spiegel last week, in an assessment of how counterproductive the austerity measures have been, and will continue to be, Stefan Kaiser suggested that what was needed was for Greece to be allowed to go bankrupt, but with structured support from the troika. As he explained:
If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut. In other words, it needs to go bankrupt.
And it’s not just private creditors who will have to forego a large part of their outstanding Greek debts. It is also other European countries and the European Central Bank. That would be expensive for taxpayers across Europe, and it would also be economically risky. Indeed, no one knows what consequences a Greek bankruptcy would have for other crisis-ridden countries like Portugal, Ireland or Italy. But at least it would be an honest solution.
Of course, things wouldn’t stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam — in other words, a kind of Marshall Plan.
All this would be very expensive, and German taxpayers would also be forced to do what they have feared from Day One — which is to pay for Greece. But this solution has two major advantages. The payments would be limited, and they would actually help Greece.
This view is not an isolated one. As Der Spiegel reported on Saturday in a round-up of the German media’s commentaries, the center-right Frankfurter Allgemeine Zeitung noted:
[T]he series of austerity programs have brought the economy to a standstill and forced the people, who are continually being asked to make new sacrificies, onto the streets … Greece presents a desolate picture, in terms of its economic structures, competitiveness, social cohesion and political system. In other parts of the world, it would be called a failed state. It is time that the Europeans admit that fact and take the necessary action.
Whether the resulting conclusion is that Greece can no longer be saved from bankruptcy, or whether it should be persuaded — or forced — to leave the euro zone, is ultimately a question of math. Which option will end up being more expensive for Greece and its public and private-sector creditors? No finance minister knows the answer, and no economist can calculate it reliably. This uncertainty is deadly, both for the markets and for countries. It must be ended quickly.
The center-left Süddeutsche Zeitung captured the inescapable logic of the death spiral — that the more austerity is applied, the less recovery is possible:
The EU partners and the Greek government have a baleful fear of the truth. Which is the following: Greece can not actually be saved (with the current approach), not by slashing the minimum wages, and not with cuts in salaries, which are supposed to remain frozen until the country has lowered its unemployment rate from nearly 21 percent to 10 percent. But where will the new jobs come from? After all, there is hardly a major company that wants to invest in Greece at the moment, which also means there is little hope of achieving the planned revenues from the privatization of state-owned assets. Lower wages also mean lower tax revenues and less consumption.
[…] if the country can’t be saved by turning the thumb-screws, then what? Then the only alternative is radical debt relief on the part of the major private creditors, the banks and the hedge funds. The European Central Bank would probably also have to write down some of its holdings of Greek debt. Then, Greece would need a Marshall Plan on top of that. All of this is expensive, and progress will not happen overnight. But there are no longer any real alternatives.
In addition, the Financial Times Deutschland noted, “Greece is currently trying to do something impossible: which is to reform the economy in the midst of a deep depression. That simply doesn’t work … It is high time to give the Greeks hope of growth once again. The fact that many reforms are still needed in Greece is no reason to drive the country into complete ruin through disastrous crisis management. That doesn’t help the Greeks. And neither does it increase the chances of German taxpayers having to pay less.”
The opinions above strike me as sensible — and probably more so than a chaotic default, and a departure from the Euro project, which, although it would theoretically lead to a balanced state of self-determination with the return of the drachma, might first of all involve something close to economic extinction for the entire country. However, unless a coherent solution is reached, as suggested above, a chaotic departure from the Euro seems inevitable, and the Greek people deserve better than to be sacrificed so wilfully, when other possibilities exist, if the EU and the bankers will acknowledge that destroying an entire country is not acceptable.