Tag Archives: Competitiveness

Caution: Falling wages

Illustration by Manos Symeonakis

So this is what it’s come down to. The negotiations over wages in Greece due to take place over the next few days will be a defining moment of this crisis, not because a reduction in the minimum wage or cuts to private sector salaries will make a huge difference to the economy but because it is a test of whether those involved in the process – labor unions, employers, the government and the troika – are prepared to face the truth. It is test of whether someone is willing or able to step forward with some kind of coherent plan.

It doesn’t take long to think of several good reasons why reducing private sector wages during a deep recession seems a suicidal idea. They include the fact that it would further undermine withering domestic demand and likely precipitate the closure of more businesses on top of the 38,000 that have shut down over the last two years. The more fiscally minded might point out that lower wages means lower tax revenues, which has a heightened relevance at the moment given that recent figures showed Greece raised 50 billion euros in revenues in 2011 compared to 50.8 in 2010 despite imposing a raft of new taxes.

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Namaste Greece

Illustration by Manos Symeonakis

“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.

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Restructuring? It’s child’s play

Graffiti by Absent

Anyone who is a parent or has looked after a small child will be familiar with the dreaded moment when a toddler tells you, “I didn’t do anything.” Once you hear these words, it’s a sure bet that you will find food on the floor, toys smashed to pieces or crayon scrawls on the wall. But it’s not just kids that employ these naively transparent methods, politicians are pretty adept at using them too.

It was, therefore, pretty easy to see through the government’s spin doctors this week as they insisted that the issue of debt restructuring did not come up at all during a meeting in Athens between Prime Minister George Papandreou and renowned financier George Soros. Visiting George did not mention the subject even once, government sources told journalists.

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