Hard choices in a desperate country

first_img Facebook Twitter: @NeosKosmos Instagram In Greece, these days no street café, train or street corner is immune from beggars, and some areas are much more obviously poverty stricken than others. Greece’s unemployment rate has improved from a year ago from just over 27 per cent to just under 26 per cent, with youth unemployment at around 60 per cent. Added to wage and pension cuts and generally fixed prices, homelessness is as obvious as the poverty. Hunger can be seen in the faces of too many, and some beg not for money but just for something to eat.Although Greece’s socialist SYRIZA government is seen on the world stage as playing hard to renegotiate the country’s crippling debt, there is growing cynicism with the government at home. Reform has been limited and compromises many. Promises to support poorer Greeks have been partially or completely abandoned, the rich have yet to begin to pay as planned, and restructuring the tax regime, including sequenced payment of back taxes, has still not yet been implemented.With national debt at more than 170 per cent of GDP and the country struggling meet debt repayments, the government is trying to stave off a major economic disaster. There are two deeply divergent views on Greece’ economic future. The first, propagated by European financial authorities, is that Greece needs to reduce spending, increase tax revenue and stimulate its economy.With limited economic activity elsewhere in its economy, reducing government spending would push the country further into economic depression. On taxation, it has been estimated that the country lost 120 billion Euros in tax revenue in the first decade from 2000 as a result of corruption. That is more than a third of the country’s national debt of around 320 billion Euros, or enough to cover debt repayments for the next six years.The second option is that Greece will eventually exit the Euro zone and revert to its own currency. The immediate advantage of this would be that imports would jump in price and the cost of exports would decline, helping to bring Greece’s economy back towards a balance in trade and reduce private debt.However, it would also see inflation spike to dangerously high levels. To the extent that it’s new currency was devalued against the Euro, such a move would also proportionately increase the size of the country’s already towering debt. There would also be a liquidity crisis, with no money available for lending for business – or any other – activity. There would not be enough money to pay public servants – about a third of the workforce – or pensions. The economy would grind to a very quick halt.Greece is therefore likely to continue to try to find a middle path, in which is does not default on its debt entirely, but in which it may continue to negotiate how it pays back that debt and over what time frame. In the short term, Greece does not have enough money to survive on its own income, so will have to continue to borrow. To do so it will need to show some commitment to repayment, and to implementing financial reform. Much of this will come at the cost of its political promises.If there is one lesson, then, to come from this continuing economic crisis, it is that the social contract between wealthier and poorer Greeks will have to be strengthened, where the poor remain poor, or perhaps get poorer, but the wealthier also start to pay according to their ability and their legal obligations.The alternative is, inevitably, that the system will break. The last time this happened, in 1967, there was a military coup. The alternative to Greece’s loss of democracy is a much more radical leftist revolution, which would make Syriza look like the social democrats they are beginning, in practice, to become.*Damien Kingsbury is Professor of International Politics at Deakin University, and recently visited Greece.last_img read more