Union-backed report urges policy rethink

In September 2012, the Labour Institute of the Greek General Confederation of Labour presented its annual report on the Greek economy and employment. The report evaluated policies implemented from 2010 to 2012 and their impact on the Greek economy, wages and labour relations The report concludes that the policy of internal devaluation has not led to the recovery of the economy. Instead the economy is going through its fifth consecutive year of recession.

Background

A union-backed report on the Greek economy has questioned the government’s current austerity measures. The Annual Report by the Labour Institute of the Greek General Confederation of Labour (INE/GSEE) evaluated the economic policies implemented by the government between 2010 and 2012.

It says the policies have so far failed, despite the optimistic initial predictions of the European Union (EU), the International Monetary Fund (IMF) and the European Central Bank (ECB), the three institutions together commonly referred to as the Troika. The authors of the report have challenged the country’s leaders to come up with a new mix of economic policy and to review the growth model. It also urges the creation of conditions for productive economic reconstruction and structural competitiveness.

Austerity measures

The austerity measures of the Second Memorandum of Understanding, included in the Medium-Term Fiscal Strategy 2012–2015 approved in June 2011, were prepared by the Troika and the Greek government without first assessing the negative effects of the First Memorandum of Understanding. The aim of the measures was to save €6.5 billion in 2011 and €22 billion over the period from 2012 to 2015. Of these savings, €11.7 billion were to be made in 2013 and 2014.

According to the authors of the new budgetary framework, the implementation of Memorandum 2 – with measures and targets corresponding to those of Memorandum 1 – was, among other things, necessary for the regaining of market confidence, for long-term debt sustainability and for strengthening the competitiveness of the Greek economy.

The new INE/GSEE report points out that the recession is prolonged, there has been an explosive growth in unemployment, a reduction in consumption, and uncertainty over the reduction of the deficit. The deficit was €17 billion in 2011, €15 billion in 2012, and is predicted to be €11.5 billion in 2013. The report also points out that the national debt does not appear likely to fall below 150% of gross domestic product (GDP) in 2012, and it is predicted that it will reach €409 billion (200% of GDP) in 2020, and 120% of GDP after the private sector’s debt restructuring.

The authors of the INE/GSEE report say that the government is reducing the debt by concentrating on increasing the tax burden on employees and pensioners, and reducing salaries, pensions and social benefits. Instead, they say, it should focus on fighting tax evasion,

According to an Organisation for Economic Co-operation and Development (OECD) report in June 2012:

The real income of the Greek citizens in 2011 suffered a significant decrease by 25.3% due to the total charge which they suffered because of the budgetary adjustment.

Course of the economy

The INE/GSEE report says the main feature of fiscal developments in Greece, during the period of implementation of the policy of internal devaluation, is the repeated adjustment of targets. These are accompanied by new measures that exacerbate rather than improve the fiscal condition of the country.

The report points out that the fall of 25% in domestic demand during the years 2010–2012 brought the level of demand down to 2000 levels.

In the four-year period from 2009 to 2012, private consumption cumulatively recorded a decrease of 18.8% compared with 2008. As a result, it is estimated that by the end of 2012 private consumption will approach 2003 levels.

The decrease in GDP in the three-year period from 2009 to 2011 amounts cumulatively to 16.7% compared with 2007, while, if the current policy is pursued, the total cumulative fall in GDP will reach 22% in December 2012.

The increase in labour productivity, which amounted to approximately 6% cumulatively during the four-year period from 2005 to 2008, has receded since 2008 due to the recession. It decreased by a total 5.6% during the four-year period from 2008 to 2011. As a result, by the end of 2011 it had returned to 2003 levels.

Recent estimates suggest that the debt-to-GDP ratio will reach 163.2% in 2012, down from about 165% of GDP in 2011, while it is expected to increase to 167.3% in 2013.

Rising unemployment

In 2010, unemployment stood at 628,000, around 12.6% of the working population, and in 2011 it rose to 877,000 (17.7%), according to data from AMECO Eurostat. In 2012, the European Commission estimates that unemployment will reach 952,000, while ΙΝΕ/GSEE estimates unemployment will be 1.2 million, or 24% of the workforce.

Unemployment rates are particularly high among young people; 52.8% among the 16–24 age group, and 42% among those aged 29 and under.

The number of people in employment in 2008 and 2009 was about 4.8 million, while in 2011 it was only 4.4 million. This report attributes this decrease to the rapid decline in production.

Falling wages

Over the past few years, in a number of European countries, the level of the minimum wage has either been frozen or its rate of increase has slowed. Greece is the only EU country where, since February 2012, there has been a drastic nominal reduction of the minimum wage by 22%. For workers under the age of 25, the reduction was as high as 32%.

More specifically, the minimum gross monthly salary, which was €751.39 during the second half of 2011, fell in February 2012 to €586.08. For young people under the age of 25 it was €511.

This reduction was imposed by an Act of Cabinet, despite the fact that, at that time, the last three-year National General Collective Labour Agreement 2010–2012, concluded in 2010 by all the social partners, was still in force. According to that agreement, as from July 2012 the minimum wage should have been increased in line with the average euro zone inflation for 2011, which was 2.6%.

This reduction in the minimum wage, according to the INE/GSEE report, has had the effect of dragging down levels of unemployment benefit, illness and maternity allowances, pensionable salaries and overtime pay. The minimum wage has also suffered a further devaluation due to the imposition of additional tax burdens on, for instance, income and property.

The purchasing power of average earnings per employee decreased by 7.5% in 2010 and by 6.1% in 2011. It is expected to fall by a further 7.6% by the end of 2012.

Compared with the 15 most developed countries of the EU, during 2010–2011 average earnings in Greece fell to 74%, down from 84% in 2009. Average earnings are expected to fall further to 68.5% of the EU average by the end of 2012, reaching 1993 levels.

Industrial relations

The changes taking place in labour relations in Greece have been rapid. During the first stage (that of fiscal adjustment), they are integrated in the policy of internal devaluation, and in the second stage (privatizations), they have brought about a serious and violent shake-up in labour relations and the shrinkage of labour and social rights.

More specifically, the report summarises the following ‘neoliberal’ measures taken during 2010 and 2011.

• The reduction of public sector employment by establishing a ratio of 1:5 and 1:10 between recruitments and retirements, and by indirect forms of dismissal such as the labour reserve and pre-retirement job availability.
• Dismissal of workers made easier for employers;
• New regulations to strengthen flexible and precarious forms of employment;
• Legislative interventions that have had an impact on the system of collective bargaining, such as the reduction of the minimum wage by ministerial decree despite previous agreements between the social partners, the freezing of increases and the abolition of allowances, the suspension of the expansion of the implementation of sectoral and profession-related agreements, and the reduction of the grace period;
• The reduction of pay for overtime and surplus work:
• Wage decreases, the reduction of the minimum wage and the abolition of the 13th and 14th month’s salary for civil servants and pensioners.

The authors conclude that post-crisis Greece is being used as an experimental tool to test changes planned for the wider European labour market. The object, say the report’s authors, is to create a Chinese-style cheap labour force of skilled workers in the countries of southern Europe.

Proposals

Against the ‘dead end’ of the current policies of ‘internal devaluation, austerity, unemployment and controlled bankruptcy’, the INE/GSEE report proposes policies giving priority to the redistribution of income, to the creation of new jobs through increased public and private investment, to employment and to the strengthening of the welfare state.

The report refers to the need to establish a new growth model, and a modern plan for the economic and social reconstruction of the Greek economy.

In this context, the report highlights Greece’s need to come up with a new mix of economic policy and to review the growth model. It also needs to create the conditions for productive economic reconstruction and structural competitiveness. The report says emphasis should be put on research, technology, innovation, quality, the production process, the quality of products and services, income and high quality labour relations.

From this perspective, the real dilemma for exiting the crisis is not austerity or bankruptcy, which involves the country in a vicious cycle of long-term deadlock. Instead the choice is recession or growth.

It proposes taking effective economic, social and redistributive measures to stop current policies prolonging economic deadlock and recession.

Commentary

The Annual Report of INE/GSEE is trying, in a documented way, to emphasise the failure and the deadlock of economic policies imposed on Greece through the Troika’s Memorandums. It is attempting to stress the dramatic social impact – including skyrocketing unemployment and poverty – and to put forward alternative proposals for economic and social development and the productive reconstruction of the country.

Penny Georgiadou, Labour Institute of Greek General Confederation of Labour (INE/GSEE)