Eric Arthur Blair
12-12-2009, 04:25 AM
ATHENS — Ever since Greece’s credit rating was downgraded last week, its new Socialist government has fought back, saying it has the mettle to tackle the soaring deficit and structural woes that have earned the country a reputation as the weak link in the euro zone.
“We will reduce the deficit, we will control the debt and there will be no need for a bailout,” the Greek finance minister, George Papaconstantinou, said in an interview in his office here this week. “We are not Iceland; we are not Dubai.”
But Mr. Papaconstantinou may have good reason for the traditional Greek metal worry beads he fingered during the interview. Outside his office, garbage was piled high in Syntagma Square, a result of a two-week strike by trash collectors that ended Friday.
A student demonstration was advancing on the square a day after pensioners had taken to the streets. This week, protests for the first anniversary of the death of an Athenian teenager shot by the police turned violent, but did not cause as much damage as disturbances last year.
Common in Greece even during better times, such protests are expected to increase drastically once the government introduces austerity measures in its 2010 budget, including wage freezes and measures to scale back public sector hiring, steps it says are needed to bring Greece’s finances under control.
As Mr. Papaconstantinou suggested, the problem is not Greece’s alone: heavily indebted countries, including Ireland, Britain and Spain, are under pressure to show that they can stimulate growth and grapple with debt burdens at the same time. Investors and European monetary officials are skeptical.
Greece, in particular, has to transform a culture with a low tolerance for change and a high tolerance for protest, no easy task for a two-month-old Socialist government that says it is committed to sustaining social spending. While convincing European Union leaders in Brussels, the new government also has to win over Greece.
The president of the civil servants’ union Adedy, Spyros Papaspyros, said the union was prepared to strike if cutbacks were unilateral and severe. “If funding cuts are made in critical sectors such as health or welfare, we create a serious risk of destabilization,” he said.
The political and social challenges are intense. “It will be a very tall order for any country to pull off the fiscal rescue they’ve now got to pull off,” said Simon Tilford, the chief economist at the Center for European Reform in London, a research group. In light of Greece’s political challenges, he added, “I find it at this point difficult to see how Greece is going to manage this without some kind of fiscal crisis.”
Certainly, the bond markets think Greece is a risky bet. Yields on the country’s two-year bonds soared to 3.09 percent from 1.9 percent this week — the worst for the markets here in more than a decade — and were about 3 percent on Friday, while the 10-year bond rose to 5.3 percent this week from an already elevated 4.99 percent. In the United States, by contrast, a 10-year bond yields 3.55 percent, and a two-year bond 0.81 percent.
The dire economic situation has prompted the question of what went wrong in a country that was once seen as a model for European Union membership and that enjoyed 15 years of sustained growth, coming from behind to host the 2004 Summer Olympics.
“We didn’t use the Olympic spirit well,” said Elias Clis, a former Greek ambassador. “The previous government took the safe way, and the safe way is a very dangerous path.”
After winning by a wide margin in October, the Socialist government of Prime Minister George Papandreou announced that the country’s budget deficit was 12.7 percent of the gross domestic product, more than four times the 3 percent ceiling set by the European Monetary Union.
Mr. Papandreou last week estimated the national debt at $430 billion, calling it Greece’s worst crisis in three decades and blaming his conservative predecessors for the economic state. Greece’s national debt is expected to rise above 110 percent of its gross domestic product.
Last week, the ratings agency Fitch downgraded Greece’s credit rating based on fears that the deficit might cause the country to default, and the change sent Greek shares plunging and made the markets jittery. Standard & Poor’s has said it will reserve judgment until it sees the plan the government is expected to announce in January.
On Friday, Mr. Papandreou stressed the need for drastic measures. “We acknowledge the scale of the problem that we are faced with, and we are determined to make the shift toward a sustainable and healthy economy,” he said in Brussels.
He called for a “merciless crackdown on the corruption that is endemic in society and on widespread tax evasion.”
Yet that is not expected to be easy. The underground economy, which some estimates place as high as 30 percent of gross domestic product, helps people in countries like Greece that have European prices but salaries below the European average.
As he sat in a cafe with friends in the chic Kolonaki area on a recent afternoon, Antonis, 33, who disclosed only his first name, proudly announced that he refused to pay taxes.
“Why should I pay?” he asked with a grin. “I don’t care about my government; I don’t care about my country,” he added. He conceded, however, that he did care about soccer and women.
Such views, while not always so vehement, are common in Greece, where the government is widely seen as corrupt, regardless of who is in power. Few people expect much from the state — except highly coveted public sector jobs. Today, one in four Greek workers is employed by the state, a result of decades of public hiring to stave off social unrest.
The Papandreou administration has said that in 2010 it will hire only one new state worker for every five who retire. But that, too, poses problems. Savas Robolis, a member of the main labor union, the Greek General Confederation of Labor, who serves on a government committee on pension reform, called the pension situation a “time bomb.”
He said Greece had only enough money to pay pensions for one more year. If the country does not replenish the pension funds, “then we will face a huge social crisis in 10 years,” Mr. Robolis said.
Fears of cutbacks are causing widespread anxiety. Lambrini, who works in the Health Ministry and would give only her first name, said a possible freeze on her $1,300 monthly salary was a real concern for her and her husband, a municipal worker.
“We want to plan a family, but I don’t see how we can with such low incomes and with prices going up all the time,” she said.
She said she had never joined a labor protest before, but would take to the streets if her salary was frozen or cut. “I’ll be there,” she said. “And so will half the population.”
http://www.nytimes.com/pages/todayspaper/index.html
“We will reduce the deficit, we will control the debt and there will be no need for a bailout,” the Greek finance minister, George Papaconstantinou, said in an interview in his office here this week. “We are not Iceland; we are not Dubai.”
But Mr. Papaconstantinou may have good reason for the traditional Greek metal worry beads he fingered during the interview. Outside his office, garbage was piled high in Syntagma Square, a result of a two-week strike by trash collectors that ended Friday.
A student demonstration was advancing on the square a day after pensioners had taken to the streets. This week, protests for the first anniversary of the death of an Athenian teenager shot by the police turned violent, but did not cause as much damage as disturbances last year.
Common in Greece even during better times, such protests are expected to increase drastically once the government introduces austerity measures in its 2010 budget, including wage freezes and measures to scale back public sector hiring, steps it says are needed to bring Greece’s finances under control.
As Mr. Papaconstantinou suggested, the problem is not Greece’s alone: heavily indebted countries, including Ireland, Britain and Spain, are under pressure to show that they can stimulate growth and grapple with debt burdens at the same time. Investors and European monetary officials are skeptical.
Greece, in particular, has to transform a culture with a low tolerance for change and a high tolerance for protest, no easy task for a two-month-old Socialist government that says it is committed to sustaining social spending. While convincing European Union leaders in Brussels, the new government also has to win over Greece.
The president of the civil servants’ union Adedy, Spyros Papaspyros, said the union was prepared to strike if cutbacks were unilateral and severe. “If funding cuts are made in critical sectors such as health or welfare, we create a serious risk of destabilization,” he said.
The political and social challenges are intense. “It will be a very tall order for any country to pull off the fiscal rescue they’ve now got to pull off,” said Simon Tilford, the chief economist at the Center for European Reform in London, a research group. In light of Greece’s political challenges, he added, “I find it at this point difficult to see how Greece is going to manage this without some kind of fiscal crisis.”
Certainly, the bond markets think Greece is a risky bet. Yields on the country’s two-year bonds soared to 3.09 percent from 1.9 percent this week — the worst for the markets here in more than a decade — and were about 3 percent on Friday, while the 10-year bond rose to 5.3 percent this week from an already elevated 4.99 percent. In the United States, by contrast, a 10-year bond yields 3.55 percent, and a two-year bond 0.81 percent.
The dire economic situation has prompted the question of what went wrong in a country that was once seen as a model for European Union membership and that enjoyed 15 years of sustained growth, coming from behind to host the 2004 Summer Olympics.
“We didn’t use the Olympic spirit well,” said Elias Clis, a former Greek ambassador. “The previous government took the safe way, and the safe way is a very dangerous path.”
After winning by a wide margin in October, the Socialist government of Prime Minister George Papandreou announced that the country’s budget deficit was 12.7 percent of the gross domestic product, more than four times the 3 percent ceiling set by the European Monetary Union.
Mr. Papandreou last week estimated the national debt at $430 billion, calling it Greece’s worst crisis in three decades and blaming his conservative predecessors for the economic state. Greece’s national debt is expected to rise above 110 percent of its gross domestic product.
Last week, the ratings agency Fitch downgraded Greece’s credit rating based on fears that the deficit might cause the country to default, and the change sent Greek shares plunging and made the markets jittery. Standard & Poor’s has said it will reserve judgment until it sees the plan the government is expected to announce in January.
On Friday, Mr. Papandreou stressed the need for drastic measures. “We acknowledge the scale of the problem that we are faced with, and we are determined to make the shift toward a sustainable and healthy economy,” he said in Brussels.
He called for a “merciless crackdown on the corruption that is endemic in society and on widespread tax evasion.”
Yet that is not expected to be easy. The underground economy, which some estimates place as high as 30 percent of gross domestic product, helps people in countries like Greece that have European prices but salaries below the European average.
As he sat in a cafe with friends in the chic Kolonaki area on a recent afternoon, Antonis, 33, who disclosed only his first name, proudly announced that he refused to pay taxes.
“Why should I pay?” he asked with a grin. “I don’t care about my government; I don’t care about my country,” he added. He conceded, however, that he did care about soccer and women.
Such views, while not always so vehement, are common in Greece, where the government is widely seen as corrupt, regardless of who is in power. Few people expect much from the state — except highly coveted public sector jobs. Today, one in four Greek workers is employed by the state, a result of decades of public hiring to stave off social unrest.
The Papandreou administration has said that in 2010 it will hire only one new state worker for every five who retire. But that, too, poses problems. Savas Robolis, a member of the main labor union, the Greek General Confederation of Labor, who serves on a government committee on pension reform, called the pension situation a “time bomb.”
He said Greece had only enough money to pay pensions for one more year. If the country does not replenish the pension funds, “then we will face a huge social crisis in 10 years,” Mr. Robolis said.
Fears of cutbacks are causing widespread anxiety. Lambrini, who works in the Health Ministry and would give only her first name, said a possible freeze on her $1,300 monthly salary was a real concern for her and her husband, a municipal worker.
“We want to plan a family, but I don’t see how we can with such low incomes and with prices going up all the time,” she said.
She said she had never joined a labor protest before, but would take to the streets if her salary was frozen or cut. “I’ll be there,” she said. “And so will half the population.”
http://www.nytimes.com/pages/todayspaper/index.html