European solidarity Greek style

February 20, 2016


 
Article 2 of the Treaty establishing the EuropeanCommunity included the task of promoting economic and social cohesion and solidarity between Member States and that the strengthening of economic and social cohesion.

The preamble of the Maastricht Treaty establishing the European Union said that its signatories desired “to deepen the solidarity between their peoples while respecting their history,their culture and their traditions”.

The Lisbon treaty included in article 222 a Solidarity Clause which enforces the legal obligation for “the union and its member States to act jointly in a spirit of solidarity if a member State is the object of a terrorist attack or the victim of a manmade or natural disaster”.

How well have these principles and commitments worked out in the case of Greece?

A year since the election of the Syriza government in Greece and six months since the Greek government capitulated to its creditors demands even though it had won a resounding ’No’ result in the July referendum, the situation of both the country and the Greek government continues to deteriorate. The implementation of the measures agreed last summer, the need to revive Greece’s banks, the search for ways to get the economy back on track, the constant pressure to satisfy the country’s lenders and dealing with the fallout from Europe’s largest refugee crisis since the Second World War have placed an immense amount of pressure on the Greek government.

Greece needs growth to recover but in order to comply with its bailout programme, which provides the only source of funding available for the payment of outstanding debt and to prop up the banking system, it has to adopt measures (such as VAT rises, pension cuts and income tax increases) that will further depress an already drastically depressed economy. By refusing debt rescheduling and debt forgiveness the creditors are imposing upon Greece economic policies that are the opposite of those required to foster growth, in fact they are polices that can only shrink the economy further.

The entirely predictable result of the creditors policies is that the Greek economy continues to shrink. Greece entered a recession in the fourth quarter as its gross domestic product contracted 0.6 percent in the three months through to December 2015 after shrinking a 1.4 percent in the previous quarter. Despite being recapitalised for a third time late last year, the country’s banks have yet to play an active role in driving an economic recovery. They are still nursing the wounds of losing more than 40 billion euros in deposits in the months before capital controls were imposed at the end of June. Since the election of the Syriza government the European Central Bank has acted the opposite the way a central bank should act to encourage confidence and stability in the financial system. In fact the ECB has at key moments acted in ways that seemed designed to destabilise the Greek banking system for what appear to be political reasons.

During the February 4th general strike about 40,000 to 50,000 people protested in Athens, making it one of the biggest rallies in recent years, there have been two other general strikes since the July referendum. The unusual thing about recent protests is not necessarily their size or intensity but the breadth of society that they cover. Never before during Greece’s never-ending crisis have farmers, engineers, lawyers and doctors stood side by side. This is the result of the fatigue of spending over five years under an ‘adjustment’ programme that has not only failed to get Greece back on its feet but which has actually devastated the economy, and which hardly anyone believes in anymore, as well as just over a year under a Syriza government that promised a different economic path, fairness, transparency and genuine change but which has not been able to deliver on any of these fronts.

Pensions

The most recent protest and strike was triggered by anger at proposed increases in social security contributions, the option chosen by the government instead of yet more cuts in existing pensions. However, had the government chosen to slash pensions again (they have already been cut eleven times since the beginning of the crisis) it would have felt the wrath of pensioners instead. It is not only pensioners that would feel the impact as retirement pay in Greece makes up in many cases for the lack of a proper welfare system.

Greece currently spends about 17 percent of its GDP on pensions, which is above the European Union average but has risen from less than 12 percent since the beginning of the crisis due to the Greek economy contracting by around a quarter. At the same time, the number of Greeks in work has fallen to 3.6 million, which is less than the 2.6 million pensioners and 1.2 million unemployed combined. The rise in unemployment during the crisis has caused serious damage to Greece’s pension funds. The country’s main social security fund (IKA) saw the level of contributions paid in by workers plummet by 31.5 percent between 2010 and 2014 as a result of people losing their jobs and those in employment seeing their salaries reduced. The Syriza government is being compelled by the agreement with the creditors to find 1.8 billion euros in savings from the pension system, with doubts about whether his government will survive such a move, when IKA alone has lost 16.5 billion euros over the five-year period in question.

Greek pensioners protest against pension cuts and healthcare access in Thessaloniki

 
Social security contributions took a major hit not only as a result of people dropping out the labour force en masse but also due to the programme-engineered reductions in wages, which aimed to restore Greece’s competitiveness and accelerate the internal devaluation. The minimum wage at the start of 2012 was pushed down by more than a quarter and the majority of sector wage agreements that tracked the minimum wage then followed.

According to data recently published by the federation of IKA employees, the average salary in Greece’s largest pension fund was 13,300 euros in 2009 and dropped to 10,300 in 2014. It is expected to slip further in 2015. Total wages that exceeded 33 billion euros in 2009, dropped to 22 billion in 2014, severely impacting that source of revenue in the system.

At the same time, the state was forced to cut back on the supply of funds towards the social security system, with its participation dropping from more than 13 billion euros in 2009 to an estimated 10 billion in 2016. Contributions and state funding that amounted to 35.3 billion in 2009 will not exceed 26 billion this year. IKA alone, has lost a cumulative 16.5 billion euros in contributions in the 2010-2014 period.

Although Greece still spends more than any other country in the European Union on pensions as a proportion to GDP this does not give a full picture, as Greece has an ageing population, with one of the highest “age dependency ratios” or the level of support given to younger and older citizens by the working age population. The problem the Greek government faces, and which the creditors are ignoring, is that Greek society has a dependency on pensioners. The country’s old-age dependency ratio is around 30 percent in Greece, one of the highest in Europe, according to Eurostat. One in two households rely on pensions to make ends meet and with an old-age dependancy ratio above 30% for every 100 people of working age in Greece there are 30 people aged 65 or over. It is estimated that two-thirds of Greek pensioners have pensions below or close to the European poverty line.

According to a study last year by an employer’s association, pensions are now the main – and often only – source of income for just under 49% of Greek families, compared to 36% who rely mainly on salaries. With a jobless rate of about 26% – youth unemployment is at 50% – and out-of-work benefits of €360 a month generally paid for no longer than a year, pensions have become “a vital part of the social security net for many, many people,

In Greece the size of the deficit in the pension system is 9% of GDP, compared with 3% of GDP in Germany. Pension funds have lost at least €25 billion since 2012. The system remains mired in bureaucracy and the pace of change is slow. The government’s tax-revenue shortfall in January alone was 23% below its €4.5 billion target for the month. There is also a backlog of more than 400,000 pension applications to deal with (many of which are requests for early retirement) that will add to the country’s existing tally of 2.65 million pensioners. As part of a package of savings and tax increases, Greece’s creditors are demanding the government cut pensions by the equivalent of 1% of gross domestic output, a more rapid clampdown on early retirees and for supplementary pensions to be financed by contributions, not by the state (which would effectively mean cutting them further).

Although the IMF has now publicly admitted in a series of papers and statements that it was a mistake to tear up its own rule book and not insist upon debt restructuring back in 2010 (see ‘IMF admits it got it wrong on Greece’), and even though it has distanced itself from the the other members of the Troika (the EU and the ECB), the Fund is insisting Greece must repay its debt to the IMF promptly and on time. The IMF is only now tentatively supporting Greek debt restructuring in so far as it applies to the money owed to the EU.

The IMF appears to be insisting on cuts to pensions as the main path for Greece saving 1.8 billion euros (equivalent to 1 percent of GDP) this year in order to meet its fiscal targets. The IMF believes that the Greek economy cannot be taxed anymore and that all other public spending has been reduced as much as possible. IMF managing director Christine Lagarde has said that if Greece does not cut pensions to meet the programme’s targets then the savings will have to come from debt relief provided by the eurozone. Since Greece’s euro partners do not want to consider such measures, or at least steps that will bring significant savings, then there is nowhere for the government to go.

The assualt on pension provision has to be seen in the context of a general collapse in social security spending. As part of the belt tightening, Greece has slashed many aspects of social security spending, both in terms of overall expenditure and state transfers. Greece’s total social security bill has dropped from 49 billion in 2009 to 38.5 billion in 2015 and has been one of the key components of wiping out the massive primary deficits since 2009.

At 2.4 billion euros, pharmaceutical spending from the state health provider is one billion below the 2011 spend. Medical expenses stand at 1.9 billion, almost another billion down from the 2011 figure. Hospitals have seen their revenues reduced by 600 million euros, while they have reigned in expenditure from 3.6 billion in 2011 to 2.7 billion in 2016.

Refugees

Greece is also being penned in by the refugee crisis. Greece received 900,000 refugees and migrants in 2015 and is expected to receive even more this year. The refugee crisis will probably get worse as the large scale Russian bombing campaign in Syria (which is about 30 to 40 times larger and more intense than the combined Coalition air campaign against ISIS and which uses dumb inaccurate munitions to attack civilian areas) drives even more people to flee the country. The Russian’s campaign is intended to terrorise the civilian population in areas controlled by the non-ISIS opposition forces so as to depopulate them. This has the duel benefit (from the Russian and the Baathist government point of view) of depriving the opposition of its supportive population and of ethnically reshaping Syria. In the process the Russians have discovered that their air war has the additional benefit from their point of view of causing refugee flows that help to destabilise the EU. So the refugees will continue to flow in their hundreds of thousands into a bankrupt Greece.

The EU response has been to berate the Greeks for letting them in, even though Greece is bankrupt and it has the largest external border (8000 miles) of any EU country, and to insist that the Greeks must prevent refugees from leaving Greece. At the recent EU summit Greek Migration Policy Minister Yiannis Mouzalaswas said that the Belgian officials urged the creation of a refugee camp in Athens that could hold 300,000 people.

The creation of such a camp is a non-starter for a number of reasons but it is clear that one way or another Greece is going to have to hold a much larger number of migrants and refugees than is currently the case. Other EU countries want to see the number of people leaving Greece fall substantially and have already taken note of the fact that stricter border controls on the Greek border with the Former Yugoslav Republic of Macedonia (FYROM) have led to the number of crossings drop, while the number of migrants reaching Germany has also fallen since Austria became stricter about who could enter its territory after suspending the use of the Schengen passport-free system.

On the 10th of February the European commission issued Athens with a list of instructions to bring Greece into line with EU norms on refugee policy, including improving living conditions for asylum seekers and overhauling judicial procedures so people denied leave to remain have the right to appeal. Reception centres must ensure adequate staffing, so Greek authorities can deal with more asylum cases, the commission said. There has even been suggestion from some member states that it could be kicked out, at least temporarily, of the 26-country Schengen area. Athens has been given a month to make improvements before further checks in March.

In this sense threats of excluding Greece from the Schengen zone have only symbolic value as the tightening of border controls north of the country are already having a material impact since thousands of migrants are being prevented from travelling north. According to the EU border agency Frontex, the number of illegal border crossings on the Greece-FYROM border in December 2015 fell to 97,000 from 156,000 the previous month. During December 108,000 migrants were detected in Greece, which was down from 155,000 the previous month but still well above the number crossing into FYROM.

Under the EU’s Dublin system of migration rules, asylum seekers can be sent back to the first country they arrived in. But other EU member states have not been able to send asylum seekers back to Greece since the European court of human rights ruled in 2011 that conditions for refugees were so bad they were tantamount to “degrading treatment”. Although the EU adopted a plan calling for 160,000 asylum seekers to be resettled from Italy and Greece to other EU countries, the latest figures show that only 497 people have been moved.

People are arriving on Greek shores after crossing the Aegean Sea by the boatful each day, while countries to its north build fences and improve border controls. No matter what some (particularly officials from landlocked countries) in the EU say, Greece cannot stop the influx without risking migrants’ lives. So it is left with no choice but to rescue and register them. Its inability – until now – to ensure that the screening process is carried out to the standards the EU wants has caused significant tension with other member states that just want to see the flows drop and are not interested in arguments about lack of resources and preparation.

The EU’s inability to stop migrants leaving Turkey and the determination of countries in central and eastern Europe to limit the number of people entering their territory means that tens of thousands of refugees and immigrants are likely to be unable to leave a country that is itself trapped in a deep economic depression, the victim of a giant ideologically driven economic experiment.

The result is that, as in the euro crisis, Greece is regarded by many as a special case: A country that is unable to act effectively unless threatened with a worse fate. The discussion about Grexit or even a Schengen exit will continue in the coming year but much of the EU elite have already excluded Greece, viewing it as almost a pariah state within the eurozone and the EU.

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