Greek suffering is about to deepen

November 7, 2015

The average Greek has suffered deeply in financial terms during the economic crisis. Only in the last few weeks a raft of data has highlighted Greeks economic plight. According to Credit Suisse’s annual Wealth Report, average wealth in Greece has fallen by 28.7 percent since 2008, hastened by plummeting property prices and a collapsing stock market. During the same period, the European average rose by 6.7 percent.

A study by the European Central Bank shows that Greeks lost on average 16,909 euros per person in the four years from 2009 to 2013. Among eurozone countries, only the Irish experienced a bigger decline in personal wealth during the same period.

Eurostat data published this month showed that the percentage of Greece’s population at risk of poverty or social exclusion in 2014 reached a record high of 36 percent, or 3.88 million people. The European Union average is 24.4 percent. Greece has experienced the biggest rise in the EU since 2008, when the ratio was 28.1 percent.

The Organisation for Economic Cooperation and Development (OECD) found that household disposable income fell by 27.5 percent per capita in Greece from 2007 to the first quarter of 2015, bucking the trend in the world’s leading industrialised nations, where the figure went up by 8.13 percent. Greek household disposable income is now 72.5 percent of what it was in early 2007. Also, the household gross savings rate has plunged from 3.2 percent in early 2007 to minus 6.8 percent this year.

In the six month period of tense negotiations that followed the Syriza election victory, more than 40 billion euros in deposits were withdrawn from Greek banks, state cash reserves were used up, government arrears climbed to almost 6 billion euros, capital controls choked numerous small and medium sized businesses, investors were scared off and a weak recovery was transformed into an estimated recession of at least 1.3 percent of GDP for the year.

Greece is now a country where there are 3.6 million people working to help support 1.2 million unemployed and 2.6 million pensioners; where repeated spending cuts and tax hikes have only managed to push the public debt up to 178.6 percent of GDP, with the International Monetary Fund expecting it to be above 180 percent by 2020; and in which the tax owed by businesses and individuals has topped 80 billion euros and another 14.5 billion is owed to social security funds.

It is estimated that the changes to VAT rates, which were voted through in July, will lead to the average Greek family paying an extra 650 euros a year. The unpopular ENFIA property tax will remain unchanged for this year despite the government’s earlier promises to the contrary, meaning that a minimum of 2.6 billion euros (or 525 euros per owner) will have to be raised by early next year. On top of that, there are 6.4 billion euros of new spending cuts and tax rises included in the 2016 draft budget.


 

The special low VAT exemptions for the Greek Islands is coming an end as a result of EU imposed ‘reforms’ meaning that just as the islands grapple with an unprecedented refugee crisis their local economies will receive a severe blow as local prices rise sharply. Mykonos, Naxos, Paros, Rhodes, Santorini and Skiathos will become the first six islands to lose their VAT rate subsidies as part of Greece’s bailout package. The islands will see their VAT rates move to the national level of 6%, 13% and 23% this week. The current subsidised rates are 5%, 9% and 16%.

Other islands will likely lose their VAT rate reductions in June 2016 and 2017. This includes Lesbos where they are running out of space to bury the dead refugees washed up on their beaches. With the local cemeteries on the island now full bodies are instead kept in restaurant freezers and in a refrigerated shipping container, paid for by a British woman. The container, parked behind the morgue, currently holds the bodies of 60 people — just some of the people who have washed up on the shores of Lesbos since Oct 28th. Officials say that the refrigerated container only offered a temporary solution as the morgue filled up. That, too, is now filled with bodies, and at present at least 20 children remain unburied.

Around 340,000 refugees and migrants — about four times the number of residents on the island — have passed through Lesbos this year. And as the number of new arrivals has skyrocketed, reaching an average of 7,000 people daily by early November, the number of deaths at sea has gone up as well. Nearly 100 drowned off the coast of Lesbos in the past week alone, prompting authorities to call a three-day period of mourning.


 

Soon the squeeze on the Greek people will accelerate as the Troika insists on the tightening the restrictions on home foreclosures. The restrictions in place so far have kept home repossessions to a minimum, which is one of the reasons that the social impact of the crisis is not always immediately visible in Greece. However, if the creditors get their way only those living just above the poverty line (14,000 euros annual income for a couple) and with a property valued at less than 120,000 euros will enjoy protection. If this is implemented, it could have a dramatic effect driving tens of thousands out of their homes and into destitution.

The Greek government seeking an agreement on foreclosures that would shield about 70 percent of homeowners. Auditors from the International Monetary Fund, the European Commission, the European Stability Mechanism and the European Central Bank say the Greek limit is overly generous and are seeking a stricter framework that would only cover the most vulnerable. At the moment the Syriza government is signalling that it isn’t willing to reach a compromise with adverse affects for social cohesion and public revenue, even if that means risking a temporary deadlock in the negotiations with its creditors. Prime Minister Alexis Tsipras intends to escalate the matter of protection from foreclosures to political negotiations, if needed, while the government won’t allow the sale of distressed mortgages to foreign hedge funds, according to Athens officials.

The EU led creditors are also pressing for a new pension reform plan later this year. Greek pensions have been cut numerous times since the first bailout began in 2010 but they remain the financial lifeblood of many Greek families. Over the last couple of years, an annual survey carried out by the Small Enterprises’ Institute of the Hellenic Confederation of Professionals, Craftsmen & Merchants (IME-GSEVEE) has indicated that pensions are the main source of income in almost half of Greek families. The average basic pension currently stands at 714 euros per month and the average supplementary pension at 169 euros.

The details of the pension reform plan will not be known for a few weeks yet, but all indications point to anyone retiring in the coming years only being able to claim a basic state pension of less than 400 euros per month, while those taking home a retirement pay of more than 1,000 euros at the moment can expect a new round of cuts as well. The pension measures if implemented will have a dire economic impact on millions of Greek families.

If the EU plans to vastly extend the scope of forced foreclosures (which means evicting tends of thousands of families from their homes) and slash spending on pensions by more than 28 billion euros per year (or almost 16 percent of GDP) are implemented then Greece and people face further impoverishment and suffering. None of these measures will promote economic growth and without growth recovery none of Greece’s debt mountain will be paid off.

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