Tag Archives: Greek deficit

When silence is the best policy

KaramanlisPapandreou_Gump

Despite receiving a bullet in the post and having an MP from the Independent Greeks suggesting it won’t be long before someone shoots him, Finance Minister Yannis Stournaras is more likely to be concerned by this week’s “friendly fire” rather than any other kind.

Unhinged Cretans and boorish opposition MPs are hardly the worst that Stournaras is going to face during his time in the scorching hotseat at the Greek Finance Ministry. Attacks from within are a different matter, though.

A number of New Democracy lawmakers lined up to take pot shots at him over the past few days for a number of reasons, top of which was his decision in recent interviews to discuss the fiscal derailment that took place between 2004 and 2009, when Greece was led by Costas Karamanlis and his conservative government. In doing so, Stournaras has broached a somewhat taboo subject.

“I will show you a chart with annual public spending as a percentage of GDP,” he told Sunday’s Kathimerini in an interview. “From the early 1990s until 2006, when it reached 45.2 percent, there were few fluctuations. Immediately afterwards, in 2007 it rose to 47.6 percent, in 2008 to 50.6 percent and in 2009, it skyrockets to 53.8 percent. The only way I can describe what happened after 2006 is an economic derailment.”

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An issue of statistical significance in Greece

A Greek flag flies behind a statue to European unity outside the European Parliament in BrusselsThe head of Greece’s statistics agency, Andreas Georgiou, is to face a criminal inquiry. An ex-employee of the Hellenic Statistical Authority (ELSTAT), Zoe Georganta, has accused him of colluding with the European Union’s statistical arm, Eurostat, to inflate Greece’s deficit figure for 2009, thereby justifying Greece’s EU-IMF bailout, signed in May 2010, and  its drastic austerity measures. Georgiou vehemently denies the charges.

Financial prosecutors have referred the matter to a special magistrate and the Greek justice system will have to decide on the validity of each side’s arguments.

Beyond the judicial process, some observations about the case are needed as it goes to the very heart of understanding how Greece’s public finances veered dramatically off course and the country turned to the eurozone and International Monetary Fund for emergency loans.

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Blood, sweat, but mostly tears

Minus cigar and bulldog, Finance Minister Evangelos Venizelos declared on Sunday that, like Winston Churchill, the government had nothing to offer but “blood, sweat and tears.” It was a preface to his government again demanding from the Greek people that they offer all this plus one other vital factor: more of their cash.

When we come back to look at the time line of Greece’s crisis, there is little doubt that Venizelos unveiling a new emergency property tax in a bid to plug a hole in public finances to meet the targets set by the troika will be seen as the moment the silent majority’s grudging tolerance of the austerity program crumbled under the weight of unfairness and grim financial reality.

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London calling. Listening, Athens?

Illustration by Manos Symeonakis

On the day London was awarded the 2012 Olympic Games, we played The Clash’s “London Calling” on a radio show I co-hosted in Athens. The song — about a world slipping toward some kind of destruction — was played by a lone guitarist at a recent event to mark the one-year countdown to the English capital hosting the world’s biggest sporting event. A few days later, its lyrics — such as “London calling to the underworld/Come out of the cupboard, you boys and girls” — proved an appropriate soundtrack to possibly the worst civil unrest, rioting and looting the city has ever seen.

It seemed a delicious irony that an e-mail informing me about ticketing arrangements for the 2012 Olympics should arrive in my in-box on Tuesday afternoon, as London and other cities braced for a fourth night of rioting. But there is nothing amusing in seeing the city you were born in being ripped apart a few weeks after the city you live in suffered the same fate. I can feel nothing but sadness at seeing areas I know well, places where friends live and a neighborhood where my father ran a business for more than two decades being decimated by youths who appear to have no comprehension of the damage they are wreaking on communities.

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Hey Merkel, leave the Greeks alone

Illustration by Manos Symeonakos

A year ago, a month ago, perhaps even a week ago, German Chancellor Angela Merkel’s comments about Greeks needing to work more would have gone down as badly in Athens as a joke about room service in the Strauss-Kahn household. They would have sparked another exchange of barbed comments between Athens and Berlin and further histrionics from the more rabid elements of the media in the two countries. This time, Merkel’s words landed quietly on a pile of other comments made about Greece over the last few days.

Greeks have been hit this week by a barrage of opinions on debt restructuring, new loan agreements and even political consensus. And at the end of it, they are none the wiser. Restructure now, say some economists and European officials. It is too early, others say. Only soft restructuring should be discussed, argue some experts. Substantial haircuts are required if Greece is to survive, say others. Greece will need new loans to stay afloat, say the whispers in the corridors of power in Brussels and Washington. We are not applying for any more emergency funding, say those who hold power in Athens. Get your political parties to agree, says a European commissioner. It is our democratic right to disagree, says the leader of the Greek opposition.

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Missing the trees for the forest

Illustration by Manos Symeonakis

In a country where residents wake up in the morning not knowing if an illegal strike will take place and deprive them of the capital’s metro system, and visitors show up at its most revered archaeological site only to be turned away by protesting employees, it hardly seems that the prime minister’s priority should be to attend an island gathering of big thinkers. Discussing theoretical permutations when there are practical problems to deal with somehow doesn’t appear very fitting.

Rather than tackle more mundane issues in Athens, Prime Minister George Papandreou chose this week to visit Poros for the Symi Symposium, a brainchild of his which sees some of the world’s top politicians, economists, academics and opinion leaders gather in Greece every year. Like cicadas striking up across Athens, you could hear the disapproving tut-tuts of his political opponents but especially his government colleagues. In Papandreou’s absence, his PASOK party embarked on a new bout of schizophrenic infighting.

In fact, the past few days have epitomized Papandreou’s premiership — like the schoolchild who wants to sketch freely but is constantly forced to paint by numbers like the rest of his classmates — the PASOK leader’s attempts to allow his grand visions to take flight are repeatedly grounded by the complications of the day-to-day running of the country.

Yet, it seems churlish to criticize a leader for wanting to inspire and be inspired by great ideas or for broadening his contacts and the country’s allies by meeting with foreign leaders and experts. After all, his predecessor was castigated for remaining rooted to the spot, like a homing pigeon that didn’t have a message worth delivering.

Free from the burdens of protesting Culture Ministry contract workers and striking air traffic controllers, Papandreou was able to tackle meaty subjects at a symposium whose title alone — “Fast Forward: Progressive Ideas for Greece, Europe and the World” — projected positiveness. One of his big ideas this week was to express support for a Tobin Tax, also known as a Robin Hood Tax.

The idea — to impose a tax of as little as 0.1 percent on financial trades — was first proposed by American economist James Tobin in the 1970s as a way of reducing the volatility of currency exchange rates and, more significantly for today’s leaders, to “promote autonomy of national macroeconomic and monetary policies,” in other words to deter speculators.

As you might expect from a Nobel Laureate, Tobin had the intelligence to understand that the timing of his proposal was unfortunate. The idea of taxing transactions at a time when neoliberal economic policies were taking root meant that his plea fell on deaf ears. “It did not make much of a ripple,” he acknowledged some years later. “In fact, one could say that it sunk like a rock.”

However, the crises that have shifted the world’s economic paradigms over the last couple of years mean the idea is being floated again, especially as it would allow governments to build up funds that could be used for a number of things, from bailing out banks to driving development. The Tobin Tax sounds like something from Lord of the Rings and for years it seemed a work of fiction but now there is growing momentum toward making it become a reality.

“The proposal for the imposition of a tax on financial transactions, a so-called ‘Tobin Tax,’ which will bring in funds that we can invest in our economies, is very significant and one which we will insist on because investment is vital if we want to exit the current crisis,” Papandreou told his audience on Poros.

This week, both the French and German finance ministers Christine Lagarde and Wolfgang Schauble declared their support for such a levy (also known as a financial transaction tax or FTT), ahead of an Ecofin meeting where they raised the issue with their European counterparts. In declaring his support for the levy in the same week, Papandreou appears to be aligning himself with Europe’s big players. Isn’t this just what we want from a Greek leader — for him to put the country at the forefront of developments and progressive thinking rather than bringing up the rear?

You would think so but Papandreou’s attempt to grab at these big ideas somehow leaves a nagging feeling that he is overreaching, perhaps unaware of the full implications of what he is promoting. For instance, there is a strong counter-argument to the Tobin Tax. Some financiers claim it goes against the principles of wealth creation and would simply drive business to other countries where the levy does not apply. Sweden, where Papandreou spent part of his youth, applied such a tax on trades of local stocks and derivatives in the 1980s but the scheme was abandoned in the 1990s because many investors simply traded from other countries and the revenue generated by the levy did not meet expectations.

By declaring his support for a Tobin Tax, Papandreou may be showing that he’s in step with other leading thinkers but at the same time he is opening himself up to another, even more damaging, accusation that is often leveled at him — that he has a knack of identifying good ideas but just not the ones that would help overcome the problems he has to solve.

Papandreou’s statement of support for the levy came on the same day that Greece announced it had managed to slash its budget deficit by 46 percent during the first six months of 2010 compared to last year, but that it had fallen well short of its target to increase revenues by 13.7 percent. While public spending cuts seem to have done the trick, the idea of raising taxes, VAT in particular, has not had the desired effect.

Papandreou’s government had to scramble to rescue public finances but in its rush to do so, little thought was paid to the fact that hiking taxes when people are pushed for money leads to them spending less and will ultimately prove counterproductive, as the government collects less revenue. PASOK has not been able to find a way to compensate for this. It makes Papandreou’s bid to chase the world’s rich when Greeks become increasingly poorer seem like irrelevant folly rather than visionary politics.

Herein lies one of Papandreou’s greatest challenges. As he leads his band of not-so-merry men into the battles ahead, the prime minister must find a way of balancing his love of the broad, theoretical political brushstrokes with the need for precise, effective interventions that will address the pressing problems Greece faces. Anything less, and he’s in for a rather lonely and painful ride through the glen.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on July 16, 2010.

The dust of time

Illustration by Manos Symeonakis

The weathermen said the dust that covered Athens last weekend came from the Sahara Desert. Don’t believe them. The air was thick and unpleasant but not because of Saharan sand – the choking, claustrophobic atmosphere was caused by the particles that spewed into the air when time finally caught up with Greece.

This dust was a filthy amalgam of the cobwebs blown out of the corridors of power by the wind of pragmatism, the mould spores sent flying as an antiquated public sector collided head-on with the 21st century, and the tiny particles of wasted potential and lost hope released into the atmosphere as inertia was dislodged by ruthless economic reality.

Breathing in this dusty air was both terrifying and edifying: Something unknown entered our system but something that reeked of decay left it. This was Greece’s moment of apocalypse, when it became clear to its government and its people just how far down they had slipped and how long a distance they need to cover.

Emerging through this thick dust, like Lawrence of Arabia on his sleepless camel ride through the Sinai Peninsula, is the man whose destiny it is to lead the country at this vital hour. How ironic that the party leader who wanted to increase public spending, is now the prime minister who has the task of slashing it like a sword-wielding Arab.

Although fate has played a cruel trick on George Papandreou, he seems to be warming to the task. Following a few months of disbelief and apprehension, his government appears to be getting to grips with the size of the mission, if not necessarily striking on a coherent strategy to accomplish it.

Finance Minister Giorgos Papaconstantinou is set to announce more austerity measures as it becomes evident that the dire state of the country’s finances will not be solved by snipping civil servants’ pay and tweaking some taxes. If PASOK does announce more measures, the implications will be greater than just economic. If the government chooses the additional measures rather than letting the European Union impose them, it could be the first sign that Greece – a country not so much living in denial as languishing in its amniotic fluid – is facing up to the future.

It could also be the first, liberating step toward economic recovery. For the first time in recent history, a Greek government will take painful but necessary action without sweetening the pill, without bowing to the ghosts of the past, without fearing the forces of inertia and with little regard for the political cost that its decisions carry. It would be a small but significant move toward putting the country on a new footing – one where Greeks expect their government to make policy, not grant favors.

As the EU and the International Monetary Fund wait in the wings, ready to be called on should they need to assist Greece, it’s becoming ever clearer that the next few months and years are not just about reducing the public deficit or debt – they are an opportunity to initiate a change of mentality.

Some of the measures themselves will prompt a different mindset. For instance, making people collect receipts to qualify for their tax-free allowance might have a reasonable impact on tax evasion but it will have an immeasurable effect on changing people’s attitudes to collecting proof of payment. Those who were once embarrassed to ask for a receipt will soon do it by habit — abiding by the law, rather than breaking it will become the norm.

With or without the help of the EU or the IMF, the economic battle will eventually be won but Greece’s future won’t depend just on that. It will be decided by the outcome of the psychological war – the fight to conquer the hearts and minds of the Greeks, where collecting receipts, paying tax and rediscovering the necessity of living within certain means will be vital.

It appears there’s a much more positive attitude to some of these measures than many would have expected. A number of opinion polls have shown support for the core of the government’s policies running at 60 to 70 percent. It’s worrying that this level of consensus should not be mirrored on the country’s political scene: After briefly providing PASOK with limp backing, New Democracy and its new leader Antonis Samaras have chosen to revert to the traditional role of Greek opposition parties, which is to lambaste, negate and obfuscate first and ask questions later.

Tempers between the two parties have been raised further by PASOK’s decision to table a proposal in Parliament this week for MPs to investigate how economic statistics were compiled between 2004 and 2009 – the period that ND was in power. The conservatives have hit back by saying any probe should go back to the early 80s, when PASOK was first elected to government.

It has often been said that Greeks get the politicians they deserve but it seems the current crisis has generated a maturity among the country’s citizens that is not reflected in the people that lead them. On PASOK’s part, going back over ND’s five years in power is irrelevant and a waste of time. There is only one question that needs to be answered and that is why a conservative government estimated in the spring of 2009 that the deficit for that year would be 3.7 percent of GDP and by the fall, the socialist government had revised the figure to 12.7 percent. If the country is to regain any credibility or trust within the EU, then it must answer this question. ND’s suggestion of delving back into the 1980s is ridiculous. All we’ll find there is ancient history and Greece has enough of that already.

If Papandreou is to truly make his mark by presiding over a change of mindset in this country, then he must push for a different mentality within Greek politics. The inertia that holds the system hostage will not allow this change to happen naturally, as it appears to be happening among normal citizens.

Papandreou has to be the instigator. Like T.E. Lawrence, he has to throw caution to the wind and maybe ponder one of the British army officer’s most famous quotes: “Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity.”

For Greece, the dreaming is over. It’s up to Papandreou now to shake those around him from their slumber and get them to rub the dust of time from their eyes.

This commentary was written by Nick Malkoutzis and first appeared in Athens Plus on February 26, 2010.