Under scrutiny
January 17, 2012
Technical teams representing the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) arrived in Athens on Tuesday to prepare for talks on a second bailout for Greece, as the country comes under greater pressure to reduce its deficit and revive its economy.
Greece has managed to reduce its 2011 budget deficit to 9.6 percent of its gross domestic product (GDP). According to Greek Economics Minister Michalis Chryssochoidis, that's below the psychologically important 10 percent mark.
Reducing the budget deficit to below 10 percent can be seen as a success given all the doom and gloom surrounding Greece's debt crisis. But that 9.6 percent is at least half a percentage point off the mark from the deficit goal for 2011.
As a consequence, Greece has to find a way to save an additional 1.5 billion euros ($1.9 billion), which may give the so-called troika cause to take issue with the Greek government. The mission heads of the EU, the European Central Bank and the IMF are expected to arrive in Athens on Friday.
Yet even the troika has come to the conclusion that no more money can be squeezed out of retirees and small earners. Instead, financial experts are pushing for reform in the labor market in order to reduce costs and stimulate the competitiveness of the Greek economy.
Labor market reform
For the first time, the statutory minimum wage and guaranteed Christmas and vacation pay are on the table, according to Jannis Lixouriotis, a lawyer and professor of labor law at the University of Athens. But Lixouriotis said he does not believe that these measures go far enough, given the current state of the Greek economy.
"The freezing of wages and reduction of Christmas money alone are not enough. Instead it's much more important that the bargaining powers sit at the same table and negotiate deep structural reforms in the labor market," Lixouriotis told Deutsche Welle.
Lixouriotis said that a single agreement cannot dictate the level of all salaries and wages in the country, as is currently the case, without taking the productivity of individual economic sectors into consideration. More flexibility is necessary, he said.
Many people would lose their jobs today simply because their employer is not authorized to give them new assignments or relocate them elsewhere, a state of affairs that Lixouriotis argued cannot continue.
Troika scapegoat
Just a few hours after the troika's expected arrival in Athens, employees and employers plan to meet for talks. But the unions have rejected wage cuts and said they are only willing to negotiate over the reduction of indirect labor costs. The Greek government, led by the former central banker Lucas Papademos, has said it would declare a wage freeze if the bargaining powers cannot come to an agreement.
In addition, government spokesman Pantelis Kapsis threatened further cuts when he explained that Greece's minimum wage is much higher than that of Spain.
"The government uses the troika as an alibi for its own inaction," Lixouriotis said, adding that he believes that Greece's problem is above all a Greek problem, not a European one, as it is often portrayed. The politicians, however, refuse to see that reality, he said.
The troika's experts act as the boogeymen of austerity who gloss over the challenges of the Greek economy. In that way, money can always be found to plug financial holes, but the structural reforms just don't go far enough, Lixouriotis said.
Limits of austerity
While some claim that the Greek government is not willing or able to implement the troika's recipe for reform, others say that foreign-imposed austerity measures are doomed to failure anyway. That's because the radical austerity could strangle the Greek economy.
Jannis Varoufakis, economics professor at the University of Athens, is among the skeptics. He has been pleading for a long-term change of course and believes that Greece's European partners also carry responsibility.
"Not even God could get this austerity program to work," Varoufakis told Deutsche Welle. Not just Greece, but all the eurozone members are in danger of collapsing, because they have not closed ranks to tackle the crisis, he added.
No exit
And the blame game does not help either, Varoufakis said. Instead, a new conception is required for the euro and a program is needed that encourages growth, something like a pan-European investment program.
Varoufakis said he strongly believes that reforms, although very necessary, cannot solve the debt crisis. If no concept is workable, then Greece should default within the eurozone. He warned of the collapse of the entire currency union.
"An exit from the eurozone would be economic suicide," Varoufakis said. "And in addition: In that scenario the euro would not survive 24 hours."
According to Varoufakis, the eurozone is constructed in such a way that a fatal domino effect could be triggered in a very short period of time. The consequences would be a deep recession in northern Europe, above all in Germany and the Netherlands, as well as an era of 'stagflation' among southern European debtor nations.
Author: Jannis Papadimitriou / slk
Editor: Sam Edmonds