Europe Greece and the euro
Toil and trouble
The government gets its latest austerity measures through, but only just
Greece’s fragile coalition government only narrowly averted disaster on November 7th when it won parliamentary approval for a drastic new austerity package. The package scraped through with 153 votes to 128 in the 300-member house.
Antonis Samaras, the prime minister, made the best of it, saying that “Greece has turned a page.” Meanwhile furious anti-austerity protesters outside parliament hurled stones and Molotov cocktails at police in what has become a grim ritual.
The debate over the latest austerity measures, the toughest yet, had turned angry even before lawmakers studied the 500-page “poly-law” before them. Presenting the four-year programme to parliament’s economics committee, Yannis Stournaras, the finance minister, fended off attacks from Syriza, the leftist opposition party, pointing out that if it were voted down Greece would lose a desperately needed 31.5 billion euro($40 billion) slice of its bail-out funding, would default on its next debt repayment and would surely then make a disorderly exit from the euro.
Mr Stournaras had gradually given ground over four months of negotiations with the “troika” of the European Union, the European Central Bank and the IMF on the package to be implemented in 2013 and 2014. Greek proposals for cuts in government operating costs were rejected as unrealistic. So they were replaced by “permanent” spending reductions, code for slashing salaries and pensions.
Many elderly Greeks’ worst fears were realised when the law was unveiled. The biggest chunk of savings next year, about 4.6 billion euro, comes from reducing pensions, starting with a 5% cut for those on a modest 1,000 euro a month. “It feels as if the troika has selected the old for special punishment,” commented Constantina Athanassakis, a 70-year-old retired hairdresser.
Salaries of better-paid public-sector workers such as central-bank employees, university teachers, judges and hospital doctors, will also be cut. Salaries at public-sector corporations are being reduced by 35% and capped at 5,000 euro a month, which means take-home pay of just 2,900 euro for bosses and fewer perks. Some cuts will be backdated. Next year’s budget assumes the economy will shrink by another 4.5%, but local economists predict that a collapse in spending by cash-strapped consumers could lead to an even bigger fall.
Antonis Samaras, the centre-right prime minister, promises this will be the “last and final” round of cuts. But Greece’s creditors are not so sure, given the poor record of all Greek governments on reform. The economy is not expected to start growing again before 2015. Few observers expect the government to keep to its new timetable of cutting 110,000 civil-service jobs by 2016. The privatisation programme has been disappointing. With Greece looking politically unstable and facing two more years of recession, it will be hard to attract foreign investors.
It does not help that Mr Samaras’s three-party coalition is increasingly fragile. His centre-right New Democracy party is expected to stay loyal at the next parliamentary test, approving the 2013 budget this weekend. Fotis Kouvelis, leader of the small Democratic Left, has also pledged to back the government. But his decision to abstain from the vote on November 7th has undermined his credibility with Mr Samaras. Mr Kouvelis could soon face a leadership challenge.
Many observers also believe that Evangelos Venizelos, leader of the PanHellenic Socialist Movement (Pasok), may be unseated. Mr Venizelos’s reluctance when serving as finance minister to investigate the so-called Lagarde list of 2,000 Greeks with bank accounts in Geneva has annoyed many in his party. Several former ministers think they could do a better job of rebuilding Pasok’s popularity, which is at an all-time low of around 6%, according to the polls. Yet if Pasok fragments, the government risks losing its majority—and the prospect of a Grexit will loom yet again.