Cost of cri­sis is un­evenly spread

Spar­ing some well-or­ga­nized pro­fes­sional groups from aus­ter­ity cuts hurts oth­ers

Kathimerini English - - Front Page - BY DIM­ITRIS KONTOGIANNIS

ANAL­Y­SIS Po­lit­i­cal con­sid­er­a­tions and re­cent court de­ci­sions deem­ing the wage cuts im­posed on spe­cial cat­e­gories of civil ser­vants un­con­sti­tu­tional are mak­ing it harder for the bailout pro­gram to stay on track. This is not good news for the cit­i­zens who have borne the brunt of aus­ter­ity mea­sures since 2010, ex­ceed­ing 30 per­cent of GDP, be­cause they will likely be called upon to as­sume an even big­ger bur­den in the fu­ture.

Greece has taken fis­cal mea­sures to­tal­ing ap­prox­i­mately 63 bil­lion eu­ros or 34 per­cent of GDP to stream­line its pub­lic fi­nances since 2010, the year it re­quested the bailout pro­gram, through 2014. This breaks down into spend­ing cuts of 33 bil­lion eu­ros and tax hikes of 30 bil­lion eu­ros to achieve a tar­geted pri­mary sur­plus equal to 1.5 per­cent of GDP in 2014 from a pri­mary deficit of 10.5 per­cent in 2009. There is no ques­tion that the fis­cal ad­just­ment is huge, amount­ing to about 12 per­cent­age points of GDP in five years.

Dis­ap­point­ing re­sults

How­ever, the ef­fec­tive­ness of the fis­cal pro­gram is dis­ap­point­ing, stand­ing at about 44 per­cent, since the coun­try took mea­sures of 63 bil­lion eu­ros to have rev­enues ex­ceed pri­mary spend­ing by 28 bil­lion eu­ros to this year, as­sum­ing the 2014 tar­get is at­tained. This largely re­flects the big­ger-than-an­tic­i­pated drop in eco­nomic ac­tiv­ity, which some at­tribute mainly to the over­dose of aus­ter­ity and oth­ers, like the troika, to in­suf­fi­cient progress in struc­tural re­forms.

We would ex­pect the coun­try to take ad­van­tage of the fa­vor­able in­ter­na­tional con­di­tions for the eu­rope­riph­ery and in­ten­sify its ef­forts to sur­pass the fis­cal tar­get and exit the bailout pro­gram ahead of sched­ule. How­ever, this does not seem to be the case. With elec­tions for the Euro­pean Par­lia­ment and lo­cal gov­ern­ment just a few months away, the coali­tion gov­ern­ment ap­pears to be hav­ing dif­fi­cul­ties in pass­ing leg­is­la­tion op­posed by some of its 153 deputies in the 300-seat Par­lia­ment, while the main op­po­si­tion left­ist SYRIZA party con­tin­ues to take the lead in opin­ion polls. More­over, the gov­ern­ment also ap­pears to be of­fer­ing breaks to at least one group, i.e. to farm­ers de­mand­ing breaks on bad loans in a bid to fend off their protests about new tax­a­tion mea­sures ahead of the elec­tions.

Of course, this comes as no sur­prise as pol­i­tics have al­most never failed to dis­ap­point in elec­tion years.

How­ever, re­cent court de­ci­sions rul­ing that wage cuts to judges, the armed forces and other emer­gency ser­vices are un­con­sti­tu­tional have made the at­tain­ment of bud­get tar­gets even harder. Th­ese de­ci­sions could mean a per­ma­nent in­crease in an­nual bud­get spend­ing of 500 mil­lion eu­ros from 2014 on­wards while some 700 mil­lion eu­ros may have to be re­turned to the above groups for cuts suf­fered over the 2012-2013 pe­riod. More­over, talk­ing to pub­lic sec­tor work­ers in other ar­eas re­veals that there is a sense bit­ter­ness as they feel they have suf­fered more in terms of wage cuts and job losses but can­not hope for a sim­i­lar out­come be­cause they do not be­long to the core state.

Sur­plus at risk

Un­der th­ese cir­cum­stances, the achieve­ment of the 2014 pri­mary sur­plus is clearly at risk and may re­quire ad­di­tional tax hikes or/and for the Euro­pean Par­lia­ment and lo­cal gov­ern­ment just a few months away, the coali­tion gov­ern­ment ap­pears to be of­fer­ing breaks to at least one group, i.e. to farm­ers de­mand­ing breaks on bad loans in a bid to fend off their protests about new tax­a­tion mea­sures ahead of the elec­tions. spend­ing cuts af­ter the May elec­tions to meet the tar­get. But it will be even harder for the two-party coali­tion gov­ern­ment to pass such re­stric­tive mea­sures if the con­ser­va­tive New Democ­racy and the center-left PASOK party do not do well at the polls. This may lead to greater po­lit­i­cal un­cer­tainty and no or lit­tle fis­cal ac­tion. How­ever, Greece has no other source of fi­nanc­ing other than the EU and the IMF, and it will be forced to take mea­sures at some point.

His­tory shows that the longer a coun­try waits, the harsher new mea­sures will be. Greece will be no ex­cep­tion and the bur­den will largely fall on the shoul­ders of work­ers who have no job se­cu­rity and are not shielded from pay cuts. Un­for­tu­nately, there is no way to avoid more pain and the cost of aus­ter­ity seems to be un­evenly spread by the state mech­a­nism, which plays a cen­tral role in an eco­nomic model rooted in the 19th cen­tury.

With elec­tions

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