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Midnight at the oasis

By Nick Malkoutzis

It’s a measure of the absurd situation that Greece and its lenders have got themselves into that it’s highly doubtful whether there is a single Greek MP or European official that believes the austerity package due to be voted through Parliament around midnight on Wednesday will contribute towards the country’s recovery.

Apart from the dewy-eyed optimists (it would be a shock if there are any of those left), there is unlikely to be anyone who has confidence that the 13.5 billion euros of spending cuts and tax hikes over the next two years will play a part in halting Greece’s incessant decline.

The 2013 budget foresees a primary surplus - the first in over a decade - of 0.4 percent of GDP on the back of the latest measures. While achieving this surplus is one of the milestones on the road to stability, there are serious questions about how it should be achieved. With approximately 9.5 billion euros of measures (equivalent to 4.5 percent of GDP) to be implemented next year, the program of cuts demanded by the troika makes a mockery of assertions by leading economists and even the International Monetary Fund managing director Christine Lagarde that frontloading will end up being destructive, not just counterproductive.

The fiscal multiplier for the spending reductions means that the Finance Ministry’s forecast for a 4.5 percent of GDP recession next year appears unjustifiably hopeful, as does the prediction that unemployment will be lower in 2013 than it is now. Economic output is due to travel back in time to the same level as 2004, while public debt will continue to be propelled forward, reaching the astronomical level of 189 percent of GDP.

The more one looks at the implications of what Greece is being asked to do, the more it begins to look like a suicide note rather than a recovery plan.

Yet here we are, being dragged towards this most unenviable option with no volition but with no alternative to offer either. It’s the story of the last three years that successive Greek governments, lacking the wherewithal to come up with their own answers, have relied on the supposed munificence of its lenders to guide them out of this crisis. The result is that both sides find themselves further from a solution than when they started.

Like camel trains traversing the desert in the hope their guide will lead them to water, each government has brought bills containing legislation it has agreed with the troika to Parliament with the promise they hold the key to salvation. Each time they have been approved, each time they have divided the House and Greek society, each time the economic fundamentals have worsened and society’s tolerance levels have been eroded. The caravan’s hopes of finding an oasis have turned to dust.

While the fiscal consolidation has always involved pain, there has been the opportunity to counter this somewhat with the soothing effects of structural reforms. Even this has proved a missed opportunity. Both Greece and the troika failed to appreciate the importance of pushing hard from the start reforms that would make for a more equitable society, changes that would, for instance, tackle cartels, remove bureaucratic barriers and improve public administration. Here too they have done what comes most easily: cut. Labor rights in Greece have been torn to shreds, the health, welfare and pension systems are being dismantled and education is withering.

Any progress that has been made – and there has been some - has been lost in the fug created by the lingering sense of unfairness about who is bearing the brunt of these changes and the growing feeling of desperation that each memorandum and each mid-term fiscal plan brings.

So, we reach today, when a three-party coalition that started off with grand designs for “renegotiating” better bailout terms with the troika finds itself having to swallow a pill more bitter than it could have imagined. It is indicative of the ground that the government has conceded over the past few weeks that Prime Minister Antonis Samaras initially insisted that wages of public servants earning “special salaries”, such as those in the army and security services, should not be reduced. His government will now vote to cut them by up to 30 percent.

Samaras will just about manage to hold his party together for the vote but PASOK has already begun to implode. Its MPs, like passengers dumped by a bus in the middle of nowhere, are clinging to each other for safety but it can’t be too long before they each decide to start wandering off in different directions. Democratic Left, meanwhile, is torn between the responsibility of governing and the abandon of opposition.

It is testament to the troika’s intransigence that this unique construct in Greek politics, a three-party coalition made up of disparate groups and elected following two divisive votes in the fifth year of Greece’s recession, should be pushed to the edge so quickly. Its synergy has been lost, its belief has been crushed.

This sense of helplessness has pervaded most of the political system. SYRIZA’s Alexis Tsipras calls for new elections in full knowledge that his party would be flattened by the weight of expectation and unmanageable circumstances if it came to power now. This was reflected in the recent comments of one of SYRIZA’s leading MPs, Panayiotis Lafazanis, who admitted the leftists were not ready to govern. The Independent Greeks and the Communist Party, meanwhile, have lost any foothold they had in the political debate and have been left flailing their arms in the hope someone takes notice.

We are fast approaching the point were Greek society will also feel utterly trapped, devoid of any hope that there is a way out of this situation. With one in four unemployed and the economy certain to shrink further, there is little left for people to cling on to. In terms of structural reforms, the current climate means that all people see are the onerous terms of the next package: the retirement age rising to 67, public servants salaries being slashed further, labor laws being dismantled, pensions being reduced and healthcare costs increasing.

Even Tuesday’s sparsely-attended anti-austerity protest in Athens was infused with an air of resignation. It feels as if the whole country is poised to give up hope.

In his victory speech on Tuesday, US President Barack Obama described hope as “that stubborn thing inside us that insists, despite all the evidence to the contrary, that something better awaits us so long as we have the courage to keep reaching, to keep working, to keep fighting.” Well, that noble sentiment is being drained from Greece’s lifeblood and the approval of structural reforms and spending cuts at midnight will not restore it.

In fact, it is difficult to see what can be done within the country that will revive hope. Reforms will still be implemented at a slow pace by the crumbling civil service and fading political class, public finances will continue to be brought in line according to the most abrupt fiscal adjustment conducted by any OECD country and healthy businesses will strive to remain afloat in a worsening environment.

This leaves Greece’s lenders, the bane of many Greeks’ lives, as the only source from which hope can be derived. The next bailout instalment, which will allow the bank recapitalization process to be completed, will only provide temporary respite. A move to extend funding for the Greek program combined with a decision to make debt sustainable seems the only way that people can be convinced there is a long-term aim to the current pain. A plan to reduce public debt so future generations do not face the same problems must now be the main driver behind Greece’s adjustment program but it has to be accompanied by measures that alleviate the agony in the short-term. Overcoming the European Investment Bank’s inexplicable obstinacy with regard to providing financing for Greek businesses, for instance, is just one positive step that could be taken.

By passing through Parliament the latest austerity and reform package, Greece will be doing all that has been asked of it by its lenders, even at the risk of political and social collapse. As of Thursday, the onus will be on the IMF and the eurozone, in particular, to provide a solution that keeps Greece in the euro and gives its economy a chance to recover. Otherwise, darkness will descend on Wednesday night and the oasis will be nowhere in sight.

[Kathimerini English Edition]

ekathimerini.com , Wednesday November 7, 2012 (15:58)  
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