• The Medium-Term Fiscal Strategy in Greece Tracing Ruptures and Indicating Tendencies in the Memorandum Policies

  • By Giannis Balabanidis | 27 Oct 11 | Posted under: Greece , Contemporary Capitalism
  • In what follows we will analyse the general impact of Memorandum policies adopted one year ago and that of the measures introduced by the Medium-Term Fiscal Strategy Law this summer. Given the fact that both the Memorandum recipe as well as the Medium Term measures provide the framework within which public policies will be developed over the next five years, a thorough analysis of both is essential in order to conceptualise the deep-seated changes that Greek society is undergoing.

    There is no alternative: Towards an authoritarian democracy

    The law outlining the Medium-Term Fiscal Strategy programme’s implementation was passed by a plenary session of Parliament on June 29. The very fact that the Parliament ratified the law after an urgent debate, instead of following the regular parliamentary procedures, and a roll-call vote to avoid MP leaks, indicates a clear authoritarian turn in its operation. Moreover, outside Parliament, Syntagma Square was occupied by a multitude of citizens protesting the measures imposed by the Government and the EU/IMF. By the time the law was passed, riot police were ordered to evacuate Syntagma Square. What followed was a violent attack by the riot police on the protesters, accompanied by an extensive use of teargas. The combination of these two elements of authoritarian rule indicates that the country is entering a stage of overt political crisis.

    The vast majority of the Greek people has now realised that the Memorandum was neither inevitable nor necessary and most importantly that alternative political solutions for exiting this structural crisis still exist both at the European and national level, solutions that deal with the crisis without atdestroying the basis of social cohesion. Evidently, the Greek government has reached the limits of its democratic legitimation, and it is now unable to continue blackmailing the electorate with false dilemmas such as “either we vote for the Medium-Term Strategy or we go bankrupt”. That is why it is resorting to violence in order to quell social upheaval and is bypassing Parliament in order to evade democratic deliberation on the new austerity measures. Trapped in a dead end, Prime Minister Georgios Papandreou made spasmodic attempts at reversing the negative climate. These included an unsuccessful appeal to the right-wing opposition to form a coalition government, a government reshuffle of no real importance and a couple of suggestions to hold a referendum in the fall to appease the ever growing social discontent. With all of this, Greek society is challenged to prevent the transformation of this particular political crisis into a wholesale crisis of the democratic regime.

    Government policies without economic efficiency,social justice or future perspective

    Both the Medium-Term Strategy and its implementation measures received a marginal parliamentary vote on the grounds that they were absolutely necessary, since they would secure the application of the IMF/EU bailout plan and thus prevent the country from defaulting. However harsh the new austerity package will be, one thing is certain: Memorandum policies, whatever form they assume, will not tackle the initial problem – the public debt crisis. A closer look at the statistics proves this point. Despite large cutbacks in salaries and pensions in 2010, inflation remained at 4.7% with the initial prediction being at 1.9%! The first version of the Memorandum predicted that the required fiscal measures for the bailout amount to 9.65 billion Euros. The 2011 budget added 3 billion Euros to this, only to revise it in the middle of the current fiscal year to 6.7 billion.

    Setting the Memorandum’s false promises aside, one has to focus on the political logic lying behind the new measures. The latter’s primal aim is to cut the public deficit from 10.5% of GDP down to 1% in 2015. This fiscal adjustment will be achieved, according to the plan, by reducing public expenditures rather than increasing public revenues. In 2015 public revenues are expected to be 43% of GDP, from 38% in 2009, and public expenditures at 44%, from 54% in 2009. Taking into account that 9% of the latter goes to interest rates, then net public expenditures are at around 35%, partly verifying the IMF scenario, which predicted a level of Greek public expenditures around 30% in 2020. However, this level of public expenditures blocks any developmental perspective and excludes the prospects for establishing a modern European-style welfare state.

    On the other hand, it is noteworthy how little attention is paid to the issue of public revenues. The issue of tax evasion is a striking illustration of this. The Medium-Term Programme, for instance, does not contain any provisions dealing with tax evasion for 2011 and 2012, while those for 2013 are much less than expected. Only 3 billion Euros are allocated to combat it, while the real level of tax evasion is estimated at approximately 12 billion annually. In a similar vein, the programme provides only 1.3 billion Euros to deal with contribution evasion in social security financing, when the shortfall is estimated at 9 billion annually.

    Overall, we see a tax policy that promotes social injustice and further aggravates the existing social inequalities. Directed mainly at indirect taxation, the adopted tax policy protects large enterprises and shifts the burden onto the shoulders of the middle classes and wage workers, thus enlarging the class of “working poor”. The direct/indirect taxation ratio, being 42-58% in 2004, rose to a skyrocketing 40-60%, a ratio unique in Europe. On the contrary, capital tax has been reduced from 40% to 20% and is expected to fall to 15%, even though many studies have demonstrated no direct relation between the decline of capital tax and the increase of private investment.

    The most impressive fact, however, is that even if all the measures instituted by the Medium-Term Programme were applied to the letter, their main goal would still remain unreached. Greece’s public debt is expected to climb from 127% of GDP in 2009 to 160% in 2015 – or 140% on the proviso that the sell-off of public utilities is successful.

    Welfare and social justice: two species threatened with extinction

    Inside Memorandum’s Greece, one can observe two main tendencies in terms of social policy. On the one hand, poverty and deprivation are blossoming, with the former increasing by 5% in the 2009-2010 period, as a result of the “fiscal adjustment” promoted by government policies. On the other hand, we witness the novel phenomenon of “jobless development”. The unemployment rate climbed, according to official statistics, to 28% in 2011. This is a clear indication that any attempt at recovery in the context of Memorandum’s policies excludes rather than promotes employment, driving the most dynamic strata of the population to the social margins. Another victim is the welfare state, since the instituted policies aim at the commodification of the health and social-security services. Not only is the welfare state condemned to fiscal strangulation, but also its policies are gradually substituted by a bipolar model including on the one pole “philanthropic” and on the other market institutions.

    One third of the total “fiscal adjustment” is to be achieved by a 9.3 billion Euro reduction in health and social security expenditures – nothing more but an ominous confirmation of the above mentioned developments. In this respect, the public pillar of the welfare system, without adequate financing, will offer second-rate means-tested services to those in need, the poor and socially excluded. The inadequate public provision will leave room for the development of a market pillar that will gradually substitute public services in the provision of health and social security.

    Another aspect of welfare state retrenchment is the employment policies promoted by the Memorandum. To no one’s surprise, the top priority of the instituted measures is the deregulation of employment relations. The new golden standard is the substitution of full-time labour contracts with part-time ones that promote further flexible modes of employment. This “flexicurity” model, imposed first on the private sector, is being hailed as a paradigm for the public sector as well, and its proliferation is just a matter of time.

    The systematic deregulation of public goods

    At the core of the policies pursued by the Memorandum and its concomitant measures lies the issue of the privatisation of public utilities and their respective infrastructures, together with the selling of public property. As we have mentioned above, these measures do not contribute in any way to the public debt problem, rather they endanger social cohesion. International experience demonstrates that privatisations coupled with an opening of the markets leads to social and peripheral inequalities and excludes large segments of the population from accessing elementary goods, such as electricity and water. Moreover, this combination enhances monopoly practices, marking a transition from national public monopolies to transnational private monopolies. Additionally, this general sell-off of public utilities creates a mechanism of wealth redistribution, since the yielded revenues usually end up in the hands of private investors, instead of enriching state budgets. Through privatisation the latter lose certain important revenues, especially if the utility under sale is profitable, while extensive lay-offs can be proved counter-productive, since they have a negative impact on taxation and on social-security contributions.

    Apart from public utilities, Memorandum policies deal a severe blow to the “core” public sector. The 30% target of public expenditures corresponds to the 1960s, when there was no democracy, and the state budget was rudimentary and did not correspond to the needs of a modern European state. Gradual degradation of the “core” public sector is pursued through a series of policies, namely mass layoffs of civil servants, the introduction of flexible modes of employment and the freezing of recruitment rates. Evidently, the measures are attacking labour rights in the public sector without adopting any measures towards bureaucratic rationalisation. The Middle-Term Programme points to a reduction of civil servants from 770,000, a number documented for 2010, and is at the EU average, 620,000, at best, in 2015. This means that there will be massive layoffs, through the Trojan horse of the reserve army of labour. We are thus heading towards an under-populated and under-financed public sector, unable to deliver quality services. These inadequacies will be confronted by a massive outsourcing of state services to the private sector, and as a result citizens will be transformed into customers without rights.

    The model of cheap, fast-track development

    Much ink has been spilled over the possibility of a new model of development as the solution to the Greek debt crisis. It is worth examining the terms by which Memorandum’s policies conceptualise this particular issue. Drawing on the Medium-Term’s macroeconomic predictions, one can assume that the main political aim is to reduce the 2015 GDP to the level of 2007! The fact that in the 2010-2015 period economic development is expected to be near zero, confirms the hypothesis that the Greek recession is a conscious political choice in the context of a permanent “internal devaluation” strategy. Given the global environment of economic instability, the attempt to get back on track through a boost in exports is doomed to fail. Noticeable also is the government’s incapacity effectively to mobilise the only available resource to fund the real economy: the National Strategic Reference Framework (NSRF). Clogged with clientele networks, government bureaucracy proved inadequate efficiently to allocate the NSRF’s European funds and is now asking for technical support from EU experts.

    At this point an important question arises. What is the authentic developmental choice that the government and the Troika are opting for? The answer lies in “fast-track” development. It all started in 2009 when the Parliament passed a bill now known as “Fast-Track Priority Licensing for Investors”. This new law accelerates the licensing procedure for investments and is mainly directed at energy, tourism, industry and advanced technologies. It goes without saying that the flexible criteria governing this licensing are running up against fundamental constitutional provisions which safeguard the environment. Moreover, they bypass all the institutional procedures which the public sector employs to assess investment projects.

    The “Fast-Track” Law paves the way for investors to break the rules of spatial and urban planning and to skip all the institutional controls in order to maximise their profits, without bothering about the social repercussions of their investment projects. In this respect, it is no accident that the Medium-Term Programme, apart from being a gargantuan programme of privatisations, stipulates a detailed plan for the sell-off of public land using methods such as long-term leaseholds of surface rights in public lands, including large parts of the coastal line. Another provision of the same plan offers a very low tax regime for large investments under “fast-track”, transforming Greece into a potential tax haven. This transformation is not a simple reaction to the current crisis, but a structural element of this novel type of “fast track” development. It goes without saying that this novel developmental strategy is not free of past political sins. The Public Property Exploitation Fund (PPEF), for instance, was created based on the consensus in the two larger political parties, Pasok and N.D under the auspices of LAOS, a small far-right political party. It is clear that PPEF, the steam-engine of the novel developmental strategy, is controlled by an intra-party consensus in order for the clientele allegiances between the political parties and private interests to remain intact.

    This article is based on the collective work “The Mid-Term Fiscal Programme and the Urgent Measures of its Implementation: Towards Greece of 2020”, compiled by the Research and Documentation Committee of SYRIZA’s parliamentary group. This work was completed with the participation of: G. Efstathopoulos, A. Kapsalis, B. Koumarianos, A. Kouros, S. Mamolia, G. Balabanidis, D. Papagiannakos, H. Papadopoulos and Th. Stathoulia.


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