“Greece won’t become India,” Prime Minister George Papandreou apparently told members of his beleaguered PASOK party this week. Papandreou struck this note of defiance after the troika team monitoring Greece’s public finances caught the government off guard by asking for the minimum wage to be lowered or for collective contracts to be scrapped.
Papandreou’s comment prompted much mirth about him once claiming Greece should become the Denmark of the South and now having to fight to keep his country from becoming the India of the North. Others pointed out that, indeed, there was no chance of Greece becoming India because given the current deep recession, structural failures and stifling austerity measures, there is no way it could match the subcontinent’s dynamism — whereas the Greek economy is expected to shrink by 5.5 percent this year, India is growing at a rate of more than 7 percent.
“No chance of GR becoming dynamic, technologically savvy, sophisticated like India,” tweeted Athens University economic theory professor Yanis Varoufakis, who has become an outspoken voice against the way Greece and the eurozone are tackling the current crisis. Ironically, as Greece struggles to get textbooks out to its schoolchildren, Indian pupils are receiving $35 tablet computers manufactured in their homeland.
Indeed, there is much to admire in the Indian success story over the last few years and to dismiss it just as a vast sweatshop manufacturing products for the West is puerile. However, India is still plagued by poverty, a great wealth disparity and serious social problems. It’s perhaps these aspects that Papandreou had uppermost in his mind when he made his ill-advised comment.
As out of place as the prime minister’s reference to India may have been, it nevertheless touched a raw nerve in Greece. It did so for two reasons. Firstly because the troika’s sudden intervention in an issue as sensitive as what hundreds of thousands of Greeks who are at the bottom end of the pay scale earn was a painful reminder of how much sovereignty Athens has signed away to receive the emergency loans it needs. As each week passes and the troika demands faster reforms and deeper cuts, partly as a result of the government’s procrastination, the more the impression is created that Greece is turning into political as well as economic protectorate, it is coming under the control of an EU/IMF Raj, if you will.
The troika has reportedly given the government the option of either striking a deal with labor unions to agree on a lower minimum wage — currently set at about 750 euros gross or 570 euros net — or if this fails, as is highly likely, to pass a law abolishing collective contracts. Rarely since the European Commission, the European Central Bank and the International Monetary Fund began sending technical teams to Greece has the government been presented with such a stark choice. We’ve been building up to this, though. The constant pressure on the government to increase or create new taxes during recent months has been incessant and a key part in turning the more moderate section of the Greek public against policymakers both at home and abroad. Since the issue of India has been raised, it should not be forgotten that the salt tax imposed by the British Empire on Indians was a key trigger in the Ghandi-inspired uprising that overthrew the Raj.
The second reason that the apparent pressure for the minimum wage to be lowered added to the ample tension in the atmosphere is that it picks at economic and psychological wounds. Of those Greeks who have not lost their jobs since the start of this crisis, there are few who have not seen their wages reduced substantially. Eurostat figures earlier this year indicated the drop compared to 2010 was more than 6 percent. By next year, when further cuts to civil servants’ salaries will kick in, this figure will be much higher. Equally, at the prompting of the troika, the government has also changed the law on collective contracts to allow companies to bypass them for a limited period in response to the crisis. So, in effect, most in the labor force are already experiencing a downward force on their salaries and do not have the safety net of a collective contract.
However, to suggest to these people that wages will have to drop even more and labor rights be further curtailed is a serious body blow. It snatches away the hope that they will have some kind of anchor to normality to grasp onto through the crisis. It heralds a massive rollback in the prosperity Greeks built up over the last few decades. This might be an expected side effect of the crisis but the more lifelines that are snatched away, the more difficult it will be for Greece to climb out of the deadly psychological state it’s in at the moment.
Perhaps it might be easier to accept the prospect of a lower minimum wage if there was a clear economic argument in its favor. But there isn’t. Advocates will claim that further wage cuts are necessary to make Greece more competitive but this doesn’t tell the whole story. Earlier this year, German Chancellor Angela Merkel and French President Nicolas Sarkozy floated the idea of a “competitiveness pact” for Europe. One of their proposals suggested making wages more flexible and not inflation-indexed. The reaction of Luxembourg Prime Minister Jean-Claude Juncker, also head of the Eurogroup, was telling. “I can’t really detect a reason why abolishing the indexation of wages should improve the competitiveness of my country,” he said.
Salaries are only part of what defines a country’s competitiveness. In fact, if they were the defining factor, surely Greece would be in a better position. The minimum wage in Greece may be higher than in Malta, Spain and Portugal but it is lower than in Austria and Cyprus and roughly half of what it is in Ireland, Belgium, Luxembourg, the UK and the Netherlands. Greece’s competitiveness problem lies mainly in the state’s inability to provide an environment in which entrepreneurs and businesses are happy to invest and have a chance to grow. Whereas the process of internal devaluation started from Day 1 of this problem, the effort to overhaul the failing system that supports the economy only appears to be getting under way now.
Greeks have already had to pay out of their own pocket because of the reluctance to deal with the country’s inefficiencies; to make them do so again by reducing the minimum wage would obliterate one of the few remaining social contracts the country has. Any discussion on this subject has to be accompanied by tangible improvements in public administration and a clear plan to invest in the economy. To this end, the discussions the government held with German Economy Minister Philipp Roesler this week appear a positive development. But more is needed — no economy became competitive on just low wages and no foresight or investment. Just ask the Indians.