The Weekend Economists travel the Yellow Brick Road, November 14-15.

[Demeter]

29. The Disaster of Greek Austerity

By Evita Nolka, a Greek political scientist, holder of a MSc. in Strategic Studies and International Politics from the University of Macedonia. Her current research interests include the European financial crisis in the Mediterranean region

http://triplecrisis.com/the-disaster-of-greek-austerity-part-1/

Sticking with Austerity

For six years now Greece has lived under unprecedented austerity policies demanded by its lenders and accepted by a succession of governments. The social and political reality created by austerity was sharply shown by two events that occurred on the same day in October.

• First, a report on poverty and social exclusion in Greece was released by Eurostat, the European statistical service, indicating that, in 2014, 22.1% of the population lived in conditions of poverty, 21.5% were severely materially deprived, while 17.2% lived in families with very low work intensity. Altogether, 36% of the population faced one or more of these terrible conditions. The percentage was 7.9% higher than in 2008.
  
  
• Second, the Greek parliament approved a new piece of legislation imposing further austerity measures as demanded by its creditors – primarily the EU and the IMF – to meet the terms of Greece’s recent, third, bailout agreement. The new package involves cutting 14.32bn euros of public spending, while raising 14.09bn euros in taxes over the next five years. The measures will affect primarily private-owned businesses, homeowners and employees close to retirement.

Austerity policies were first adopted in 2010 as a “solution” to the economic crisis that burst out in 2009-10. Severe cuts in public spending, deep reductions in wages and pensions, enormous tax increases, and a stripping back of labor protections have sought – presumably – to stabilize the economy and gain the confidence of financial markets. In practice the measures have plunged the Greek economy into a prolonged recession that has had the disastrous social implications outlined by Eurostat. Unfortunately, the current Greek government, formed by the left-wing SYRIZA party, appears determined to keep the country on the same path.

The Crushing Burden of Unemployment

In the course of the recession the Greek economy has shrunk by more than 25%. At present more than one in four of the workforce is currently unemployed (one in two among the youth), and more than one million jobs have disappeared. The prospects for improvement, given the third bailout, are dim at best...

Brain Drain

Since the unemployment rate for people with tertiary education is current just under 20% – the highest in the world – it is no surprise that more than 200,000 young Greeks have already left the country in search of better opportunities abroad...

Collapse of Production

The austerity policies have also led the country’s productive sector to near collapse. The decline in industrial production after 2008 reached a staggering 35%. Industrial production in Greece is currently below 10% of its GDP...

“Reality has shown that the austerity measures applied across Europe are not the most effective response to the crisis”, says Costas, a civil engineer from Patra, the third largest city of Greece in the southern region of the Peloponnese. Costas is 45 years old and a former member of SYRIZA, the current governing party

“No other country in the Eurozone has had to impose such far-reaching austerity programs”, he says, “and I just don’t see how the Greek society can sustain the burden of yet another bailout”.

The policy is simply not working even on its own terms. After five years of austerity and three bailout agreements, Greece’s national debt currently amounts to 320bn euros – it is right where it was in 2010. But the ratio of its debt to GDP has shot up to 174%, and it is projected to rise to 200%. The country’s destroyed economy would never be able to sustain this huge volume of debt.

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