The Greek experiment

 
Demonstrators in Athens (27 March 2014) A nationwide strike is due to take place in Greece this week

Greece remains Europe's laboratory; an economic experiment.

In the past week the country's minister for European Affairs, Dimitris Kourkoulas, was quoted as saying: "We have lost 25% of our GDP since 2008... we have been in seven consecutive years of recession. This has never happened in modern history. Even in the Great Depression of 1929, the American economy was in recession for just three years."

An anniversary approaches: Nearly four years ago, Greece was bailed out.

It was never meant to happen. Under the treaty setting up the eurozone, countries were protected from having to take on the debts of others.

It was, in all but name, a no-bailout clause. But back in April 2010, Greece could no longer fund itself and the survival of the eurozone was at stake. So rules were ignored. Over time Greece received two bailouts, receiving loans of 240bn euros (£200bn; $325bn).

All of this came at a price of harsh austerity.

Greece had to slash wages, pensions, prune the public sector and raise taxes in order to make its economy competitive inside a monetary union.

Salaries were cut by around 30%. For teachers the reduction has been closer to 40%. As wages fell, the economy slumped. Many Greeks resisted, seeing this as an assault on their way of life with a policy "made in Berlin" and carried out by Brussels. On one day of Greek protests the police fired over 2,000 rounds of tear gas.

Which brings us to this week.

On Wednesday, there will be a nationwide strike - by some estimates the 36th since 2010. On Friday, German Chancellor Angela Merkel visits Athens.

Last time she made the journey 4,000 police were deployed to protect her from demonstrators, some of whom mocked Mrs Merkel by dressing in Nazi uniform.

Poster from October 2012: "No to 4th Reich" Protesters held up anti-Nazi slogans during Angela Merkel's October 2012 visit to Athens
'A new Greece'

This time, we are told, it will be different.

Weariness and resignation have set in and the Greek economy now has its cheerleaders.

Competitiveness is up. The deficit has fallen. There is a primary current account surplus, excluding debt repayments.

The markets have taken a shine to the Greek banks.

Growth of 0.6% may re-emerge later this year.

Prime Minister Antonis Samaras talks of a big step being taken towards "a new Greece". Certainly he has a case, but all of this has been bought with deepening inequality and poverty.

So while Europe's leaders speak as if the crisis is past, a succession of reports tell a different story. A recent survey by Roman Catholic charity Caritas portrays the social fabric at breaking point.

"What we are seeing is growing inequality and the appearance of a whole class of new poor," says the charity's social policy officer Artur Benedyktowicz.

Another report says that 44% of Greeks had an income below the poverty line last year. A quarter of the population are at risk of poverty. Unemployment remains stubbornly close to 28%. There are fewer Greeks employed than at any time in the past 33 years.

Only last week the Greek parliament agreed further austerity measures - including the sacking of 11,000 public sector workers - in exchange for the latest tranche of bailout money.

The leader of the Greek opposition Alexis Tsipras accused the finance minister of being "the key administrator of a death contract against the Greek people".

The government says the last of the cuts have been announced.

Greek PM Antonis Samaras Prime Minister Antonis Samaras says a big step has been taken towards "a new Greece"

And yet it is worth casting a glance at Greece's debt-to-GDP ratio. It is at an unsustainable 175%.

The target is for public debt to be 124% of GDP by 2020.

German Finance Minister Wolfgang Schaeuble concedes that Greece may yet need a third bailout, and no debt restructuring comes without a price. Athens is hoping that it can use its lower deficit to open negotiations on reducing its debt burden.

So the Greek experiment - to save the single currency - is unprecedented in modern times.

The improving statistics should not be ignored or discounted but neither should the new poor, a lost generation, the thousands of Greeks who have left for Australia and Canada. That, too, is part of the Greek story.

 
Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    +6

    Comment number 23.

    @7 You Aint Seen Me Right
    ..who on earth thought it was a good idea to tie all the currencies of several countries together on a single day and expect the economies of said countries never to change in relation to each other ?

    So why did no one in the EU work it out that it was bound to fail ?
    //
    It hasn't failed for those who conceived it & run it. Untold power, riches & no accountability.

  • rate this
    +40

    Comment number 22.

    The EU remains a risky experiment. The sooner GB are out of this federal Europe the better

  • rate this
    +3

    Comment number 21.

    As regrettable as it is, Marx is being proved right in the modern era, the longer capitalism goes on the more instability there will be.

    The global economy is a facade built on a mountain of debt - countries in debt themselves are 'bailing out' Greece.

  • rate this
    +6

    Comment number 20.

    Must feel great being part of an 'experiment'.

    More concerned by bbc non-coverage:
    4/4/14: 250k demonstration against “austerity” scam in Brussels.

    http://rt.com/news/water-cannons-brussels-protest-405

  • rate this
    +6

    Comment number 19.

    The key phrase is "so the rules were ignored".
    Exactly, that's the big problem with the EU, rules.
    Rules which aren't adhered to.
    Selective application of rules used to punish a particular country when it suits the EU gov't.
    Membership rules blatantly ignored in relentless eastwards expansion of the EU
    It should be one set of rules for all, applied consistently/fairly - but that will never happen.

  • rate this
    +14

    Comment number 18.

    The problem is that Greece does not have facility to devalue its currency. That means that those with savings before the crash still have their full monetary value. So those with savings are not being robbed to finance the shortcomings of the previously profligate.
    Not so in the UK where those with savings have been fleeced via quantitative easing and almost zero interest rates.

  • rate this
    +3

    Comment number 17.

    You cannot over-estimate the importance of economic and social inclusion in any sustainable recovery - and this goes beyond basic Keynesian principles. Cutting to the extent that Greece has will cause irrepairable damage for generations, beyond the immediate impact of reducing the deficit. Mass unemployment and huge cuts to education and welfare will disenfranchise two generations.

  • rate this
    +3

    Comment number 16.

    Greece demonstrates like nowhere else the utter failure of the austerity programme. A primary surplus (i.e. a continuing and growing deficit feeding a growing debt and debt ratio) and a .6% growth rate does not signal any meaningful recovery. The damage done will last a generation. Where would Greece be now had they withdrawn from the Euro when they had the chance & where would the Euro be now?

  • rate this
    +6

    Comment number 15.

    "7 years of recession... no bail out rules were ignored..." and there are still those that think that remaining in the EU let alone adopting the EURO is still a good idea?
    It's time to wake up and smell the coffee...

  • rate this
    +3

    Comment number 14.

    Surely the real Greek experiment was how long can a nation make a national sport out of tax-evasion and corruption yet fund massively generous public sector wages and pensions with borrowed money? Greece had no problem with the EU when its loans were underwriting the new subways, airport (of which 1bnE is unaccounted for) and Olympics infastructure.

    A few LESS strikes might help too.

  • rate this
    +99

    Comment number 13.

    "Greece remains a risky economic experiment".

    CORRECTION: The Euro remains a risky economic experiment. And it's a few riots away from total failure.

  • rate this
    +7

    Comment number 12.

    The experiment is with the euro and the eu not with Greece and the drachma. The last two were already around in ancient times the first 2 have lasted for barely a few years and prob won't last much longer the way the experiment is going...

  • rate this
    +6

    Comment number 11.

    At its root the cause of Greek woes and many other countries' debt crises is over-zealous socialism.
    Help, support and welfare are no longer for the truly needy - they've become a life-style choice.
    Left wing governments exacerbate this problem by inflating public sectors to buy votes. Make hard work pay - simples.

  • rate this
    +76

    Comment number 10.

    Nobody has been asked if they want a political union in Europe.

    Those pensioners who got to vote here in the early 1970's were asked if they wanted to join a Common Market.

    Those of us who have not had any say in the matter are sick-and-tired of the way the EU has developed into an elite club in Brussells, run by career bureaucrats.

    We do not need it to trade.

  • rate this
    +14

    Comment number 9.

    Kind off serves them right. Ok I feel for the people but the Greek Gov fixed the figures to join the EU and euro.
    Second mistake was the EU's for allowing them to stay when it became a fix had taken place.

  • rate this
    +3

    Comment number 8.

    Firs it was hubris, proudly spending vast amounts of money they did not have, then it was nemesis, a crashed economy. Hopefully Greece will now find catharsis.

    They should know all about his. The words are Greek.

  • rate this
    +50

    Comment number 7.

    The entire EU was an economic experiment; and it's failed miserably.

    Because who on earth thought it was a good idea to tie all the currencies of several countries together on a single day and expect the economies of said countries never to change in relation to each other ?

    Surely this is basic economics ? So why did no one in the EU work it out that it was bound to fail ?

  • rate this
    +3

    Comment number 6.

    Any system built on borrowing more than you make in the hope future generations will foot the bill, including the interest, is deeply immoral. Got that the Benefits system, Gordon Brown, petty socialists, the BBC, the Royal Family. Greece maybe the word but Britain can supply a whole sentence.

  • rate this
    +35

    Comment number 5.

    If ever a country should leave the impoverishment of the Euro, and even the EUSSR, it is Greece. I hope the exit, before nationalism takes hold. Perhaps the UK's inevitable leaving will inspire many of the languishing Mediterranean states to escape the failed Euro experiment.

  • rate this
    +24

    Comment number 4.

    The most worrying aspect of all this is the EU willingness to ignore it's own rules citing the greater good or necessity. They seem to forget that many in many countries referenda were won in part or wholly because of the presence of those rules. Yet the EU continues to base its legitimacy on those same referenda. I wonder how long before democratic elections are disposed of for the greater good.

 

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