Tag Archives: Greece troika

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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An EU force for the task at hand

For some, its presence in Athens is a clear indication that Greece’s eurozone partners want to run the country themselves; for others it is a confirmation that the European Union wants to offer practical help. Whatever your view on the EU Task Force for Greece, though, there are a couple of things that are undeniable: the team from Brussels is aiming to facilitate the disbursement of about 15 billion euros in EU structural funds over the next two years that would help Greek jobs and businesses, and it is helping provide expertise in areas of Greek public administration that suffer from chronic problems, such as tax collection and the judicial system.

The Task Force officially assumed its role in Greece on September 1 and recently published the first quarterly report on its work. It is made up of about 25 people in Brussels — led by the European Bank for Reconstruction and Development (EBRD) vice president Horst Reichenbach — and of 12 people in Athens. The Athens “antenna” is headed by Georgette Lalis, a Greek who has been a civil servant with the European Commission since 1981. She has held several executive positions but her last job in Brussels was as director of international affairs for energy. Between 2001 and 2004, she was CEO of the land registry (Ktimatologio SA).

Speaking to Kathimerini English Edition, Lalis distanced the role of the Task Force from that of the troika and identified a wide range of projects that it is cooperating on with Greek authorities, including a change to EU rules to provide Greek businesses with a working capital injection of 500 million euros.

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A haircut for the bold or the bald?

Illustration by Ilias Makris

Some people will think that the haircut of 50 percent or so being proposed for holders of Greek debt is a get-out-of-jail-free card for Athens and unfair punishment for investors. They would be wrong on all counts.

The writedown, set to be finalized at the European Union leaders’ summit on Wednesday, is the result of failures by both parties. The banks and hedge funds made what they hoped would be a risk-free investment in a country that they knew was the most badly placed of all those standing on the shifting sands of the euro. The market should have factored in the structural problems that plagued both the single currency and Greece, but it didn’t. In accordance with the rules of the game, both sides will pay a price.

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