Greece: if austerity doesn’t work… Try more austerity!

by talos*
Sun Jun 12th, 2011 at 08:34:52 PM EST

A government of accountants. In fact, a government of accountants working for foreign banking interests and against anything that might remotely legitimize them as a Greek government: The new medium-term programme for the Greek economy is out, and it is a monster that combines new onerous indirect tax hikes, new direct taxes on the poor and the middle classes (those that cannot avoid taxation), possibly the largest and most rapid privatization programme in the history of the world, and gigantic public expenditures cuts.

This is Socialism for the 21st Century – bankster collaborator style…

Kathimerini: Cabinet approves fiscal plan, new tax hikes:

During a lengthy session the Cabinet approved the new austerity scheme, which seeks to raise via tax hikes and public spending cuts close to 6.5 billion euros this year. The plan runs to 2015, by which time the Greek government hopes to have saved almost 30 billion. Athens hopes that this will be enough to secure a second bailout that will reportedly be worth between 90 and 120 billion euros.

Although the details of the midterm plan will not be known until it is submitted to Parliament, sources said that one of the key measures will be an additional income tax, that will apply retroactively. Taking advantage of the fact that 2010 tax declarations have not yet been processed, the government will impose an extra tax of between 2 and 4 percent on incomes from last year. The supplementary tax will last at least until 2015.

Property tax will also increase. Currently, homeowners with properties valued at under 400,000 euros by the tax office are not taxed. However, the threshold will plummet to 200,000 euros under the new measures.

A rise in taxes on vehicles with large engine capacity is also on the cards, as is a rise in value-added taxes for restaurants and cafeterias. One issue that appeared to remain unresolved was whether the duty on heating oil would be increased so it matches the tax on gasoline.

And the sell-out will be extensive:

The international lenders cannot be not convinced just by OTE development and ask for tenders for large public companies within June. Government officials note that gas company DEPA is next in line, however conditions have changed, as two separate privatizations are expected to take place.

The first one refers to the privatization of DEPA as a trading company, with a stake of 32% to be sold, although sources reveal that the full package owned by the Greek state (65%) may be for sale….

…As regards the privatization of Hellenic Gas Transmission System Operator, it could attract the interest of banks, investment and pension funds, allowed by the European legislation. These investors do not obtain control of the networks, although they eye stable and relatively high yields.

The Greek government has already appointed advisers for the sale of DEPA, while Finance Minister Giorgos Papakonstantinou said on Tuesday that the privatization of Hellenic Petroleum within 2012 has been decided.

The government plans to proceed with announcements in the coming days, while it attempts to launch several tenders. It attempts to finalize the issue of the sale of four Airbus aircrafts, promote the renewal of mobile telephony licenses, the sale of Casino Mont Parnes and announcement of an impressive and non-disputable package of real estate assets.

The postal service, the Postal Bank (the “healthiest” of Greek banks by far, according to last year’s stress-tests) the state lottery and football pools operator (all, profitable enterprises) are also on the list… And this, at a moment that the Greek stock-market is predictably tanking, means that these assets will be bought at fire-sale prices…

And that is not all:

Over the next few years, the civil service, which employs about 700,000 [Comment: more like 650.000 which is something like 15% of active work force], will be reduced by a quarter, Mr. Papaconstantinou said, adding that the ratio of one new hire for every five departures would become one for 10.

The minister also heralded cuts in Greece’s spending in the military sector, which accounts for about 4 percent of gross domestic product.

The new taxes outlined by the minister include a graded “solidarity tax,” ranging from 1 to 4 percent according to income, with an additional 3 percent tax on the income of civil servants. That money is to go toward an emergency fund for the swelling ranks of the unemployed, currently at 16 percent [Note: Yes. At the same time unemployment benefits will be slashed by up to 30% if I understood the plans correctly].

The incomes of civil servants have already been reduced up to 20 percent over the last year [Note: more like 30%, and that is probably an undercount], but the fact that their jobs are permanent puts them in a privileged position, the minister said.

“They don’t face the same risk of unemployment as those in the private sector,” he said.

An emergency tax will also be imposed on the owners of large properties, yachts and swimming pools, the minister added… [Note: in fact the emergency tax will affect mostly small owners and home owners (~80% of the population), since the threshold for the tax is reduced to such levels that most homes will qualify for the tax. I have seen no statements that it will affect large estates more]

… In an apparent nod to opposition parties that have vehemently opposed new tax increases, Mr. Papaconstantinou said the government was considering submitting a new tax bill in September that would cut sales and corporate taxes. [Note: Yes, the Minister is slashing even the lowest pensions and increasing heating oil taxes while entertaining the idea of lowering the taxable threshold by as much as 50%, while at the same time the corporate rate will be reduced. That’s what this is all about eh?]

“We invite other parties to join a debate on this,” he said.

The value-added sales tax paid by restaurants and cafes is set to go up this autumn to 23 percent from the current 13 percent.

…But how did the previous patch of austerity snake-oil fare? Well (as was predicted at the time by not quite radical analysts) not very impressively, in fact they were quite a disaster:

GDP is sky diving, worse even than, rather morbid already, expectations:

Gross domestic product tumbled 5.5 percent in the first three months of this year, the official numbers showed, far more than an earlier flash estimate of 4.8 percent.

Emilie Gay, an economist at Capital Economics, said that bodes ill for Greek attempts to meet targets for cutting the budget deficit which the international lenders have prescribed.

“We expect the economy to contract by 5 percent this year. For us this means Greece will fail to meet its targets as it did last year,” she said

This slow motion bankruptcy, comes with its own set of positive feedbacks and is driving the unemployment rate to novel and dizzying heights

Yet as austerity has demonstrably brought the country and its society near collapse, what has the Prime Minister understood from all this? Not much. He is in denial: Greek PM: Choice is between austerity and default:

“We have taken a decision, that no Greeks should live through the consequences of a default and to change the country radically so that it is no longer under anyone’s supervision and can stand on its own feet,” Papandreou said in an interview with Sunday newspaper To Vima.

“Never in my life did I imagine that we would need to slash pensions in order for the state to continue to pay any pensions at all,” he added. “We chose the least painful of two options: one (is) difficult, the other — defaulting — is catastrophic.”

Predictably support for the Socialists is plummeting, even the opposition conservatives are near all time lows, and people protests are surging:

An overwhelming majority (87 percent) of those questioned said they believe that Greece is heading in the wrong direction and a similar percentage said they are unhappy with the standard of democracy and the quality of their lives.

According to Yiannis Mavris, Public Issue’s managing director, one of the way in which this unhappiness is manifesting itself is in people protesting against the country’s political system as a whole. The Indignant protests in Athens, Thessaloniki and other cities, where thousands of people have gathered every day for more than two weeks is a sign of this.

“Society’s rejection of the party’s of governance and the current generation of politicians is leading to widespread social mobilization,” he said. “Last month, social participation in all kinds of events and forms of protest more than doubled from 12 to 25 percent, which equates to about 2.2 million citizens.”

The socialists are at 27% in this poll, and the conservatives at 31% (both at or near historical lows), but note that this is a statistical projection, dividing up the undecideds between parties and ommitting the 40% who say that either they will not vote or spoil their ballots…

The funny thing is that the troika (along with the Greek Government) has come up with a new excuse for failure (something versatile enough to be used ad infinitum): Austerity measures were not adopted zealously enough, and society is resisting rape too loudly:

“After a strong start in the summer 2010, reform implementation came to a standstill in recent quarters,” the European Union, the European Central Bank and the International Monetary Fund wrote in a summary of their recent assessment of Greece’s efforts. The Associated Press obtained a copy on Thursday.

The three institutions, known as the troika, also cited “political risks” to the implementation of the budget cuts and privatization program in their findings, which were circulated among eurozone finance ministers Wednesday.

Those “doubts on the ability and the willingness of the Greek government and society to persevere in fiscal consolidation, and in restoring competitiveness” are the main reason Greece likely won’t be able to access financial markets again next year, leading to serious financing gaps, the troika concluded.

This is, as one can easily discern, an unfalsifiable statement, as there will always be in the real world a gap between the ideal economic perscriptions and their implementation – not to mention opposition of those they hurt the most. No matter how harsh the austerity imposed, the problem must be, according to such dominant wingnuttery, that it wasn’t applied efficiently enough – but next time it will! This is pretty much a large part of Greek Conservative and elite criticism of the government’s programme as well…

Nonetheless as mentioned above, Greeks are filling up the streets (in an “indignado” style facebook initiated protest) in such numbers that everyone is worried. The government is scared that its MPs will be too frightened of the crowd to vote for the austerity package (which incidentally extends well beyond the current government’s mandate and should therefore be voted by an extended majority – which it won’t, in yet another of a long string of parliamentary coups that have made institutional due process a joke). The crowds filling the streets are focusing on two dates: the 15th, the first day of a series of strikes and labor actions, in which the “indignados” will join with the labor unions, in what promises to be a very large protest; and whenever the government decides to bring the “medium-term programme” to parliament, a date it is pushing along, fearing exactly that the pressure on its MPs from a crowd of half a million (which is the unofficial target discussed at Syntagma) will make voting for the ECB mandated programme impossible for more than 7 “socialist” MPs, drowned in a Sea of People


Finally a couple of related items:

Michael Hudson’s latest: How Financial Oligarchy Replaces Democracy: Will Greece Let EU Central Bankers Run Riot Over Sovereignty?

Financial lobbyists seek to distract voters and policy makers from realizing that “normalcy” cannot be restored without wiping out the debts that have made the economy abnormal. The larger the debt burden grows, the more economy-wide austerity is required to pay debts to banks and bondholders instead of investing in capital formation and real growth.

Austerity makes the problem worse, by intensifying debt deflation. To pretend that austerity helps economies rather than destroys them, bank lobbyists claim that shrinking markets will lower wage rates and “make the economy more competitive” by “squeezing out the fat.” But the actual “fat” is the debt overhead – the interest, amortization, financial fees and penalties built into the cost of doing business, the cost of living and the cost of government.

When difficulty arises in paying debts, the path of least resistance is to provide more credit – to enable debtors to pay. This keeps the system solvent by increasing the debt overhead – seemingly an oxymoron. As financial institutions see the point approaching where debts cannot be paid, they try to get “senior creditors” – the ECB and IMF – to lend governments enough money to pay, and ideally to shift risky debts onto the government (“taxpayers”). This gets them off the books of banks and other large financial institutions that otherwise would have to take losses on Greek government bonds, Irish bank obligations bonds, etc., just as these institutions lost on their holdings of junk mortgages. The banks use the resulting breathing room to try and dump their bond holdings and bad bets on the proverbial “greater fool.”

In the end the debts cannot be paid. For the economy’s high-financial managers the problem is how to postpone defaults for as long as possible – and then to bail out, leaving governments (“taxpayers”) holding the bag, taking over the obligations of insolvent debtors (such as A.I.G. in the United States). But to do this in the face of popular opposition, it is necessary to override democratic politics. So the divestment by erstwhile financial losers requires that economic policy be taken out of the hands of elected government bodies and transferred to those of financial planners. This is how financial oligarchy replaces democracy.

*From the European Tribune

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