Sizzling in their own Greece (update)
Greece is a financial basket case. And Greeks are mad as hell about it. I can understand both their anger and their concern. But despite the pundits on the left who say otherwise, their condition can be explained fairly easily:
But the beauty of Greece’s looming default is that it is a totally straightforward story of uncontrolled public spending and the determination of governments to run up impossible debts.
That’s it. That’s all. What has made Greeks so mad is government has lied about it all along.
No really. And not just one, but many of all stripes and persuaions. Cheap accounting tricks, double books, whatever you want to call it, Greek governments have been playing fast and loose with the truth:
Since getting on the euro in 2001, the Greek government has apparently been fudging its budget statistics, a practice countenanced by both conservative and socialist governments. To its credit, the current government kicked the current crisis into high gear when it released a deficit-to-GDP number of 12.7 percent — double the previously announced figure, and by far the highest in Europe.
And the truth will make you go bust – which is precisely where the country is headed without a bailout. Upon learning that their government has been running two sets of books as well as running up exorbitant debt – debt it can’t afford or pay back – and that big changes and cuts were coming under an austerity program, millions of Greeks took to the street:
“All of us are angry, very, very angry,” bellowed Stella Stamou, a civil servant standing on a street corner, screaming herself hoarse, a block away from where the bank had been set alight.
“You write that – angry, angry, angry, angry,” she said, after participating in one of the biggest ever rallies to rock the capital since the return of democracy in 1974. “Angry with our own politicians, angry with the IMF, angry with the EU, angry that we have lost income, angry that we have never been told the truth.”
Well I can understand the anger, but unfortunately Ms. Stamou is part of the problem. Fully one-third of all Greeks work for government. And I’ve never seen government produce anything except more government – which is precisely what has happened. The government sector has grown while the productive sector has been taxed. The problem is there wasn’t enough money – ever – to pay for the lifestyle to which Greek workers had grown accustomed.
“For 30 years the Greek people have been held hostage,” said Periandros Athanassakis, 48, a garbage collector in Piraeus, the port near Athens. “Those who stole the money should pay.”
It’s not clear who the protesters think “should pay” but they know someone should and it isn’t them.
Unfortunately even if they protest from now until doomsday, it is them – those protesting their innocence – who will pay because they are the ones stuck with the bill. All the screaming, shouting, rock-trowing and fire-bombing in the world won’t change that.
What’s to come? Well, reality. And with reality, some pretty tough conditions with which Greece gets a loan:
The new measures include an increase of two percentage points in the value-added sales tax, which is now 19 percent; a further increase in the fuel tax; increases of 20 percent for alcohol taxes and 6 percent for cigarette taxes; a new tax on luxury goods; and a 12 percent cut in supplements to wages for civil servants, Mr. Petalotis said.
They also include a 30 percent reduction in the bonuses given to civil servants as holiday pay, which amount to two additional monthly wages, he said.
Now you read through that description of the measures that have to be taken and tell me who has benefited from government’s shady accounting and profligate spending. No wonder Ms. Stamu and Mr. Athanassakis are in the streets and angry. They should only be paid for 12 months work instead of 14? Their supplements to wages are going to go down 12%? Whose idea is that?
Those that are going to bail them out, of course – and they don’t like it one bit.
Additionally it appears their jobs are on the line as well as government considers divesting itself of some properties:
The government will accelerate privatizations (€ 2.5 bill. budgeted for 2010) and may change its mind regarding majority ownership by strategic (foreign/EU) investors of types of assets / industries that have been protected under the existing social /political model, including utility/infrastructure, transport or special state (monopoly) assets. Examples might include the railway company, water distribution companies, the electricity grid or the power company (PPC), as well as the soccer betting company (OPAP), gambling Casinos and the remaining stake in Hellenic Telecom (OTE), which will probably be sold to Deutsche Telekom. Other interesting candidates for privatization might include airports and seaports and enhanced PPP/PFI models will be considered for infrastructure investments.
In other words, state run industries will be privatized and my guess is this means competitive wages – matched to private industry. Not government wages pegged to, well, nothing.
All of this is just too much for Jeff Kaye at FireDogLake who cries:
So goodbye living wages, goodbye state-run utilities, transport, and telecom.
Yeah, “goodbye”. They’ve worked out real well in government hands so far haven’t they?
Oh, and when is a “living wage” not a “living wage”?
When you can’t freakin’ afford it!
Next? A rousing rendition of “California, here I come”.
UPDATE: It should be kept in mind that Greece is simply the tip of the European insolvency iceberg:
Virtually every country in the EU spends more than it takes in and has made long-term fiscal promises to an aging work force that it can’t keep. A little over a year ago, economist Jagadeesh Gokhale, writing for the National Center for Policy Analysis, produced a pithy – and scary – summation of the fiscal challenges faced by Europe. Don’t read it if you have trouble sleeping.
“The average EU country,” he concluded, “would need to have more than four times (434%) its current annual gross domestic product in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”
In other words, Europe would have to have the equivalent of roughly $60 trillion in the bank today to fund its very general welfare benefits in the future. Of course, it doesn’t.
Things haven’t changed much since that study was done. So suppose they don’t put aside all that money. What then? By 2035, Gokhale reckons, the EU will need an average tax rate of 57% to pay for its lavish welfare state.
Today, Greece is only the tip of a very large iceberg. Portugal, Spain, Italy and Ireland together owe $3.9 trillion in short- and medium-term debts, an amount larger than their combined GDP, estimated last year at $3.3 trillion.
California would need half a trillion in the bank to cover it’s state pension promises right now and of course we know about the trillions upon trillions necessary to fund the future promises of Social Security and Medicare which aren’t even close to being available. Europe will most likely get to its end much more quickly than we will, but not by much, unless drastic changes in entitlements are made and made soon.