Government adopts extraordinary measures to tackle economic crisis

The effects of the global economic recession on the Greek economy reached a crisis point in early 2010, when the country was found to be on the brink of bankruptcy. As a result, the government has taken extraordinary economic measures to reduce both the deficit and debt. New legislation has had a direct impact on the income of public sector employees, thus arousing the anger of the trade unions, which responded with strikes and demonstrations.

Budgetary situation of Greece

According to official statistics, as announced by the Ministry of Economy and Finance (Υπουργείο Οικονομίας), Greece is in a grave budgetary situation, as reflected by the following estimates:

• the budgetary deficit amounts to 12.7% of gross domestic product (GDP) (€30 billion);

• the debt of the central government exceeds 120% of GDP while the debt of the general government exceeds 113% of GDP;

• annual expenditure on interest has now exceeded €12 billion;

• the primary regular budget expenditure increased during the last three years by 50% (€20 billion).

Government measures

In this fiscal context, the Greek government promptly introduced budgetary measures to save resources by cutting back on expenditure and increasing tax revenue. The measures that have been announced brought into effect some of Greece’s commitments to its European partners, as stipulated under the Stability and Growth Programme, and have been approved by the European Council of 16 February 2010.

The ultimate goal of the adopted measures is to reduce the budgetary deficit by four percentage points in 2010 – that is, from 12.7% to 8.7% of GDP and, through further adjustments during the period 2011–2013, to 2.8% of GDP by 2012.

Main provisions

The relevant Law No. 3833/2010, which was passed by an urgent session of the Greek Parliament (Βουλή των Ελλήνων), was justified by reference to specific constitutional provisions – including Article 25(4) of the Constitution on citizens’ duty for social and national solidarity and Articles 106(1) and (2) on the establishment of social peace and the protection of public interest.

As regards industrial relations in the public and wider public sector – encompassing public corporations and local authorities – the provisions of the new law specify the following:

• cutbacks in the earnings of all persons employed in the wider public sector – that is, by 12% in entertainment expenses and all allowances and compensation, by 7% in earnings (ordinary earnings, compensation, all types of allowances) and by 30% in Christmas, Easter bonus and leave pay. However, allowances relating to marital status, career advancement, job hazards and the holding of master’s degrees are exempt from these cutbacks;

• a ban on the stipulation of salary increases for employees in the public and wider public sector through collective agreements or individual agreements between the employee and the employer;

• a 30% reduction in the maximum limit of overtime afternoon hours for employees and salaried persons in the public sector, public entities and local authorities;

• the suspension of new jobs and appointments in the wider public sector, with the exception of those in education, health and safety;

• the introduction of a ratio of one hire to five departures for permanent employees and for those with indefinite-term private law employment contracts – although a ratio of one hire to one departure is to be established for the health, safety and education sectors.

In addition to the direct charges imposed on public sector employees’ income, indirect taxes are to be imposed on all of Greece’s salaried employees. This is to be realised mainly through increases in the value-added tax (VAT) rate for all three categories of products – namely, from 19% to 21%, from 9% to 10%, and from 4% to 5%.

Trade union opposition

The trade unions immediately opposed the new measures announced, claiming on the one hand that the adopted arrangements are socially unjust given that employees are not responsible for the soaring budgetary deficit. At the same time, they insisted that the provisions will not contribute to the attainment of the objectives set because the contraction of employees’ purchasing power entails a decrease in consumption and demand, thus, in the medium term leading to further recession in the Greek economy.

In addition, there is a widespread fear that such measures will be expanded in the private sector through a legislative act, as occurred in 1985. The trade unions believe that such a move will only intensify the dire financial situation of Greece. Thus, the private sector trade unions are urging people to take part in the repeated strikes and demonstrations of the public sector unions. Meanwhile, public opinion has strongly questioned not only the necessity of taking such budgetary measures but also the likelihood of their success. In further developments, the implications of the Greek government’s request on 23 April 2010 for a substantial aid package from the European Union and the International Monetary Fund (IMF) remain to be seen.

Apostolis Kapsalis, Labour Institute of Greek General Confederation of Labour (INE/GSEE)