The news earlier this month that Greeks, acting on fears the country might exit the euro, transferred 30 billion euros to foreign banks, many of them in Switzerland, would have left most people in the debt-ridden country perplexed. It is a year since Greece signed a deal with the European Union and the International Monetary Fund to receive a 110-billion-euro bailout to prevent bankruptcy. That agreement came with strict terms and over the last 12 months the government in Athens has imposed the kind of austerity measures that make it difficult for Greeks to imagine that some of their countrymen might have enough spare cash to deposit in Swiss bank accounts.
One of the key features of the loan agreement has been repeated tax increases. Value added tax (VAT) has gone up several times since last year, income tax has been adjusted, duties on alcohol, fuel and tobacco products have been hiked and the tax on pensions has been increased. As a result, Greece now has the third-highest VAT rate in the EU, the second-highest duty on petrol and the third-highest social security contributions in the 27-nation bloc.
The impact of these tax rises at a time when civil servants, who make up more than a fifth of the workforce, have had their salaries slashed by about 20 percent and more people in the private sector are losing their jobs has been significant. Greeks have suddenly reined in their spending and this is having a major impact on the economy. Retail trade was down more than 12 percent in 2010, leading to an estimated 65,000 shops closing down. Job security, meanwhile, is fast becoming a luxury. Unemployment rose to 15.9 percent in February, the highest in well over a decade.
A poll for Kathimerini newspaper this week indicated that 62 percent of Greeks believe the EU-IMF loan agreement has harmed the country and 75 percent think the IMF’s presence in Greece has had a negative effect. It is not surprising, therefore, that Prime Minister George Papandreou is having difficulty convincing the leaders of the opposition parties to agree on the next set of measures. A meeting on Friday between Papandreou and the opposition leaders ended without the cross-party agreement that EU Economic and Monetary Affairs Commissioner Olli Rehn had wanted.
Papandreou’s government has to save an extra 6 billion euros through spending cuts and taxes this year in order to please the EU and the IMF, which have been threatening not to release the 12-billion-euro June instalment of Greece’s loan package. Apart from convincing Parliament to vote for these measures, Papandreou also has to keep voters on his side. But Greeks are increasingly sceptical about the direction their country is going in and 53 percent feel that the government should renegotiate the country’s debt with its lenders. Six months ago, this figure was just 40 percent.
The majority of Greeks are living with a sense of insecurity not only their about present prospects but also about what the future holds. Despite minor growth in the first quarter of this year, Greece experienced the largest contraction of its economy in more 50 years (4.5% of GDP) in 2010 and the government’s promises of growth next year seem unconvincing. The lack of certainty has been compounded by constant speculation about whether Greece will have to restructure its debt or whether it might even have to leave the euro.
It is this uncertainty that has fuelled Spanish-style protest by “Indignant” Greeks in Athens and several other cities over the past few days. Thousands have taken to squares and streets to protest peacefully, fearing that their country is slipping towards catastrophe and that ordinary citizens are going to pay the price, as they have done for the last 12 months.
This article appeared in the Swiss newspaper Il Caffe.