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Athens is on Fire, but the Flames Are Not New…

May 6, 2010
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It seems the moussakka is hitting the fan in Greece, as protests against government austerity measures led to the death of three ‘private sector’ workers. The austerity measures were put in place in exchange for an unprecedented $146.5 billion bailout from the European Union and the International Monetary Fund. Estimates of the number of public (and some private) workers participating in the strike ranged from 15,000 to 30,000.

Yes yes, it’s all quite crazy, but hold up, let’s slow things down a bit and break it down. First of all, something had to be done, and I’ll get to that in a minute. So the protesters, for the most part, have to accept that as fact. The system was not working, and it’s no one’s fault but the Greeks themselves.

But the reality is actually very very bad, and I know this because contrary to popular belief in many European circles, these problems are not new, and the solutions proposed by the European Union and the International Monetary Fund are not new, but is in fact a tried and tested formula of castrating the power of civil society (i.e. ‘the power of the people’).

First, let’s have a quick rundown of what exactly the government is proposing…

PAY CUTS: basically, the government is planning to freeze the salaries of all public sector workers, with some pay cuts also being implemented.

PENSIONS: the new changes will prevent early retirement. They will also be adjusted so that the minimum number of years someone will have had to have worked will rise to 40 years, rather than 37.

TAX REFORM: VAT will rise, as will taxes on alcohol, fuel and cigarettes. There will also be a clamp-down on tax evasion.

PRIVATIZATION: Finally, the government is also looking to reduce the reliance of the Greek economy on the public sector, and is looking to “grow the private sector”. This sounds very exciting, except practically speaking it means a lot of privatization.

Conclusion: The cuts are ‘necessary’, but not the complete story.

The thing is, this sounds pretty crazy, but let’s explore this a bit further. For example, the average age of retirement in Greece is 61, but realistically speaking, it is not uncommon for public sector workers in Greece to retire in their 50s. Also, the pay cuts in the public sector are coming about following several years of continuous increases in pay, with salaries rising by an average of 30% since 2006.

Finally, anyone from Greece will tell you that a large proportion of Greeks simply don’t pay taxes. And no one really questions it. Tax evasion is costing the government at least 20 billion euros a year. TWENTY BILLION EUROS. I know!

So before we go anywhere, a little scolding is in order. To the wonderful people of Greece, yes, you can riot and claim that this is against democracy (where, as every Greek person will remind you, democracy was FOUNDED, etc.), but you’re forgetting one thing. A large angle of democracy was ‘no taxation without representation’, and quite frankly, I’m sorry but you can’t have your cake and eat it too. If you’re not willing to reach down into your pockets and pay for it (through taxation, not corruption), then you shouldn’t be allowed to have your say. Simple.

But the thing is, this formula of shrinking the public sector, haven’t we seen it before? More specifically, haven’t countless economists rallied against them back in the nineties, back when they were referred to pompously by the Chicago School as ‘the Washington Consensus’?

Let’s quickly recount the Washington Consensus again…

  • Fiscal policy discipline;
  • Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  • Tax reform – broadening the tax base and adopting moderate marginal tax rates;
  • Interest rates that are market determined and positive (but moderate) in real terms;
  • Competitive exchange rates;
  • Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  • Liberalization of inward foreign direct investment;
  • Privatization of state enterprises;
  • Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
  • Legal security for property rights.
  • Sounds kind of familiar, doesn’t it?

    My own country was subjected to the Washington Consensus back in the early ’90s. And you know what? We rioted. Of course, we didn’t riot nearly as hard or as long as the Greeks have done, but that’s because, growing up in an authoritarian regime, we weren’t filled with false promises of our own self-worth, and no one was there to stroke our egos and falsely inform us that our opinion was worth anything. So after a bit of grumbling and rioting, we were forced to STFU and deal with the austerity measures.

    A few years later the government implemented some more, harsher austerity measures on us. What did we do this time? Nothing. Absolutely nothing. Not even a peep. And you know why? Because by that time, even that tiny bit of human impulse to speak out against injustice was zapped from us. And there is no doubt that a large reason for that were the austerity measures themselves.

    When austerity is implemented while corruption is rampant, as it was in my own country, and as it is so obviously in Greece, what develops is a strong and powerful elite– think of them as the bastard children of Mugabe, Berlusconi and Sarkozy. This elite, who were at the right place at the right time the government decided to decentralise political and economic power under the guise of ‘transparency’. What happens is that this power, initially at the hands of the so-called public sector, which despite being bloated and in desperate need of reform, maintained its transparency by still being ‘public’, is dissolved quickly and abruptly into the murky waters of the ‘private’ sector, where street cats hiding behind dumpster eat away until we have the ‘fat cats’ of tomorrow.

    So Greece, go ahead and riot, but make sure you’re doing it for the right reasons.

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