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Greek society on a tight rope – The limits of austerity in a dysfunctional state

March 11, 2013

Published in ‘New Europe’, print & digital editions

Greek economyLast week, four young students gathered at the home of one of their friends in the northern Greek city of Larisa. They used a makeshift brazier to prepare lunch and then to heat the place; a few hours later, two of them were found dead and the other three are in critical condition, due to the fumes. The event caused a general uproar all over the country, and not an unjustified one: last year, sharp tax increases in domestic fuel skyrocketed prices, forcing many families to resort to similar elementary methods of heating, for the first time since world war II; many accidents have since been reported.

A couple of days before this event, the ministry of finance’s secretary general for tax revenue had sent a circular letter to the regional tax offices, urging them to activate a recent law provision to prosecute any citizen who owes taxes exceeding the amount of 5,000 euro – which means that theoretically about two million people risk up to one-year in jail… After the general outcry, and the prime minister’s intervention, the same secretary declared that he had been misunderstood, and that he only had intended to “help the people pay their taxes.”

Over the same period, two senior Greek politicians were tried and sentenced for corruption to extremely severe jail terms. The three-times elected former mayor of Thessaloniki got a life sentence for his alleged participation to a 17 million euro embezzlement of municipality’s funds, while a former defense minister got an eight-year term for inaccurate tax returns. Both sentences were widely criticized, and thought to be strongly influenced by the current political climate. Some commentators even claimed that they were aimed at calming public opinion.

These are only three of several seemingly unrelated events that reveal the simmering tensions in today’s Greek society. A society that is undergoing the experiment of extreme austerity, imposed by its creditors and managed by the same political class that brought the country to the edge of bankruptcy three years ago. Sharp wage cuts, astronomical tax increases, and the total drying up of bank credit and liquidity of the economy, are the factors behind an unprecedented cumulative 30 percent drop in Gross Domestic Product over a five-year period (including the estimated 2013 decline), reaching the magnitude of contraction of the 30’s Great Depression.

The consequences for society are dire: nearly 30 percent of the population is unemployed, without mentioning the numerous non-registered self-employed workers. As for young people, unemployment has climbed to 60 percent. More than 120,000 small and medium firms have ceased activity over the last two years; more than 80 percent of people are facing difficulties in reimbursing their bank loans.

Worse off, the economic policies followed by the government, which are supposedly in line with the Memorandums imposed by the creditors, leave serious doubts about their efficiency. The policies’ main lines were to fight tax evasion, to carry out structural changes in the economy, and to privatize a large part of the public sector companies. After three years of hesitation and vain attempts, none of these were achieved.

Tax evasion was never really addressed; instead, the government focused on those regularly paying their taxes and increased the pressure on them. New taxes were introduced to make up for the decline in taxable income. Previous year’s income or, even better, “deemed income,” determined arbitrarily according to one’s house surface or car engine, was abusively used as tax base. Extraordinary contributions were ‘invented’; in one case, payment of such contribution was combined with the power bill, implicitly meaning that failure to pay the tax would entail a disconnection of electricity. And when the constitutionality of such method of payment was challenged in court and declared illegal, the finance minister asked the Public Power Company to disregard the ruling.

In the meantime, no significant structural change was introduced; neither did any serious privatization take place. The infamous Greek bureaucracy remained fully intact, always in position to discourage whoever dared start a new venture. As for foreign investments, in spite of several highly publicized official visits to European capitals and Middle-eastern emirates, foreign interest looks more like a distant hope rather than a realistic prospect.

In such a bleak landscape, there is hardly place for optimism. Since three years, all Greek governments have been discredited, giving fake promises that “next year it will be better.” Equally unrealistic and unconvincing are the largely populist approaches adopted by the opposition. The general impression is that politicians have no real project at hand. And even if they did, they wouldn’t be able to implement it given the weaknesses of the administration. So, they are just buying time – but time for what? To avoid a formal bankruptcy until the upcoming German elections? To allow the Eurozone to find a definitive solution about its southern part?

No one can tell. The only thing we can assert is that Greek society is running out of time. The experiment has lasted long enough to draw conclusions about the possibilities of tackling an acute public deficit through austerity in a dysfunctional state. If prolonged, the risks of implosion will run high, and the consequences for Europe will be difficult to predict.

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