Guest Post: Austerity measures accelerated in Greece

The Greek government is introducing new austerity measures, aiming at raising €25 billion over the next four years.

The measures will concentrate on tax increases rather than cuts to social services, with an increase in road tax, the extension of excise duties to non-alcoholic beverages (it couldn’t happen here!), and an increase in VAT on certain items from 13 to 23 per cent. A number of public bodies will be abolished, and a restructuring of wages and conditions in the civil service will be undertaken.

The additional austerity measures aim to bring the country’s deficit to below 3 per cent of GDP, as required under the terms of a €110 billion EU-IMF bail-out. Simultaneously, a new series of privatisation of state assets has begun, which the government hopes will raise €50 billion.

Meanwhile Greek debt costs soared after the German Minister of Finance, Wolfgang Schäuble, came out publicly saying that a restructuring of Greek debts may be required and that “further steps” would be needed if analysis showed that Greece was unable to service its debts.

If there are doubts about the debt sustainability of Greece, something must be done about it,

– he stated, obviously forgetting that Ireland will definitely not be able to meet the commitments of two successive Governments.

In May 2010 both Schäuble and Merkel had proposed the “orderly” default of overburdened euro-zone states –

the possibility of a restructuring procedure in the event of looming insolvency that
helps prevent systemic contagion risks.

There is now a growing consensus that the Greek economy is in melt-down.

GDP is predicted to slump by 3 per cent in 2011, after a 4½ per cent decline last year. Analysts say that an increasingly restrictive fiscal policy has produced an economic situation in which the country’s debt is rapidly growing. And Cyprus might be dragged into the crisis, because of the dependence of its banks on the Greek market and their high exposure to Greece’s government bonds – up to 37 per cent of Cyprus’s GDP.

The Greek government is totally opposed to restructuring. The European Commission is also insisting that restructuring is not an option, while the president of the European Commission, Hermann van Rompuy, supported by the European Central Bank, has dismissed such talk as a “magical solution” that must be avoided.

The worry is that the move could not be isolated and would quickly entangle other heavily indebted peripheral economies. A member of the Board of the ECB, Lorenzo Bini Smaghi, warned that

the Greek economy would be on its knees, with devastating effects on social cohesion and the maintenance of democracy in that country.

In Greece a growing number of members of the governing PASOK party are publicly backing restructuring as an alternative to further austerity, with the public discourse openly considering the merits of a more thorough-going default. Some 55 per cent of the public support some form of restructuring, according to an opinion poll last week, while the idea of a “debt audit,” producing an assessment that separates legitimate debt from “odious debt,” which would be rejected, is gathering support.

The government rejects the concept as “science fiction,” which it said would lead to Greece being kicked out of the euro zone, even though membership is a provision of the Lisbon Treaty.

It’s not only Irish politicians who lie about the EU!

Irish people wouldn’t have to think too hard to work out why the resistance to “restructuring” emanates from sources such as the Commission and the ECB. Germany’s Commerzbank, France’s Crédit Agcricole and Belgium’s KBC, among others, still have significant Greek government debt holdings.

No wonder that the managing director of the IMF, Dominique Strauss-Kahn, has denied widely reported claims that his organisation supports a re-structuring of Greek debt. As Noonan says,

There’s no appetite for burning bond-holders.

People’s Movement · 25 Shanowen Crescent · Dublin 9 ·
087 2308330 ·  post  @ people . ie
This entry was posted in Accountability, Bankers' Bailout, Budget, Debt Default/Restructuring, Economy, Elections, EU, Geopolitics, ireland and tagged , . Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s