Apparently, Greece is close to an agreement with its foreign lenders. A deal will most probably include a commitment to budgetary surpluses that will gradually increase. A commitment is crucial because it suggests the intention to honor our obligations. It would also convey a message that we no longer wish to live on borrowed money.
Achieving a small budgetary surplus of about 1 percent of GDP in 2015 would mean introducing 4 billion euros’ worth measures or more. The figure will grow with each day that passes without an agreement. It would be ideal if that 4 billion could come from a decrease in state spending. A serious reduction would be a far cry from moves such as rehiring staff at state broadcaster ERT.
Strangely, government officials appear unable to grasp the fact that a budgetary surplus can only be achieved by raising revenues or cutting down on waste. All we hear is talk of increasing taxes. Not a single word about reducing spending. The leftist-led government has ruled out recessionary measures. In Finance Minister Yanis Varoufakis’s Orwellian speak, tax hikes are not a recessionary measure.
Should spending be contained by trimming salaries in the state sector or by reducing the number of staff? Over the past few years spending cuts have been based on reducing wages and pensions. No one would like to see them reduced further. Cutting wages too much discourages civil servants and creates counterincentives. It undermines the quality of services and breeds corruption. The only alternative policy is the one that has never been tried, and that is to reduce spending by abolishing the dozens of unnecessary agencies and departments, and making their staff redundant.
In a recent article in Estia newspaper, lawyer and former Justice Minister Giorgos Stefanakis reminded readers of something late Socialist Prime Minister Andreas Papandreou wrote in To Vima newspaper on October 25, 1987: “We have twice as many civil servants as we need to carry out the necessary public services.” After the 2004-09 Costas Karamanlis administration, we probably have three times as many.
I do believe that the state must take measures so that fired employees receive 70 percent of their salary for the first three years while receiving training so that they can be redirected to sectors with higher demand.
Regrettably, radio and television pundits have made Greek society touchy about any measure that infringes on the sacred cow that is the civil service. However, sacrificing part of it is the only way to achieve a budgetary surplus without further harming the economy.
Over the past five years, Greek governments’ economic policy has mostly been about imposing taxes and more taxes while reducing pensions and salaries. The economy has slowed by 25 percent and 1 million people have lost their jobs. The proposals of the SYRIZA-led coalition seem to be restricted to raising taxes by a significant degree. Such measures will only bring about the same results: deeper recession and higher unemployment.
Firing a civil servant presupposes a ministerial decision that abolishes the position held by the employee. Greek ministers seem to be unable to make such a decision. At the same time, they have no qualms about green-lighting brutal taxes so they can assure voters that “state sector salaries are guaranteed.” However, taxes have a detrimental effect on economic activity and lead to more sackings in the private sector. A minister would find it far easier to introduce a tax measure that would result in 100 private sector dismissals than one which would lead to the layoff of one civil servant. Greek society is – also because of media influence – passively watching ministers behaving in an unfair and unacceptable manner.
Greece spends more money on pensions as a percentage of GDP than any other country. Given the sorry state of the economy, there is a need to examine what measures can be taken to cut spending. As is usually the case in this country, the corruption is hidden in endless technicalities, an overdose of legislation, and a lack of evidence and transparency.
Three observations here: Firstly, it is unfair to cut the pensions of 80-year-olds to protect the premature pensions of their 50-year-old counterparts. We need a law stipulating that no early pension be awarded to under-65s. Early pensioners should not be entitled to a basic state pension. We also need to scrap any provisions that favor early retirement. Secondly, we must do away with the dozens of third-party levies that unevenly boost the pensions of various privileged groups (such as journalists and lawyers). Finally, all auxiliary funds must be integrated with the mainstream funds. This would help simplify the system and enhance transparency.
Greece needs to boost production and exports. It needs investments. Any measure that can facilitate production and exports would be welcome. Anything that obstructs them would not. This rule must run through the agreement with creditors, if Greece is to hope for an economic upswing. That would not be easy, of course, for it presupposes ditching the statism which has been used by all governments (no one has used it more than SYRIZA) as a tool to hold on to power. Statism breeds a large number of state-dependent parasites that deprive healthy, non-state-dependent forces of funds.
It is within this context that we must look at labor reform, not within the government’s “red lines.” It is in that context that we must examine privatizations and big, self-financed investments. Not just the ones that have already started, but dozens of others that have yet to start, such as the concession of the port at Lavrio, east of Athens, and its connection with the Attiki Odos highway and the suburban railway, as well as the concession of the island of Makronisos for the installation of wind turbines and solar panels. And, finally, it is in that context that we must examine the complete abolition of the emergency property tax known as ENFIA and the economic independence of municipalities. Municipalities must be financed by the residents who benefit from their services. It is the residents of a municipality who must pay, not all taxpayers with the state acting as mediator.
I am not optimistic. I believe that the problems will remain unsolved unless we (a) commit to achieve increasing budget surpluses, (b) drastically reduce the size of the civil service and (c) cut back on statism.
Any agreement that does not include the above elements will only postpone the next crisis, which will not be far down the road.
* Stefanos Manos is a former Greek government minister.