Greece: Social democratic government passes austerity budget

By Markus Salzmann
30 December 2009

Last Sunday, the votes of the ruling social democratic party, the Panhellenic Socialist Movement (PASOK), enabled the Greek parliament to pass an austerity budget calling for the deepest cuts since the end of the military dictatorship in the 1970s.

Although Finance Minister Giorgos Papaconstantinou will not publicly announce details of the budget until next month, its essential features are already known.

Prime Minister George Papandreou has declared the government’s intention of—among other things—reducing the budget deficit to the Maastricht limit of 3 percent of the gross domestic product (GDP) within four years. The budget provides for a new deficit of 9.1 percent of GDP in contrast to 12.7 this year.

Greece has a national debt of more than 300 billion euros. This should be brought under control by 2012 at the latest, Papandreou said.

Public servants earning more than €2,000 a month will have to forgo pay rises in the future. Moreover, pay increases for all state employees will be reduced by a tenth. The total budget for social expenditure is to be reduced by 10 percent in 2010—mainly through cost-cutting in the health service. This is to be achieved by increasing out-of-pocket expenses for medicines and reducing health coverage.

The precise number of public service jobs to be eliminated has as yet not been announced, but it can be assumed that many thousands of workers will be affected. A third of all international offices of the Greek tourism authority (EOT) are to be closed. Many state press offices will also close.

The “reform” agenda undertaken by the previous conservative government of Kostas Karamanlis will be resumed. School and university education will be extensively privatised and the social security system for the unemployed and the socially disadvantaged will be pared down, in line with the policy enacted in Germany by the former Social Democratic/Green government under Gerhard Schröder.

The European Union has set a tight schedule for the government in Athens to come up with precise details on the cuts. By mid-January, Greece has to submit a detailed stabilisation plan to the European Commission. The European Union and the European Central Bank have again warned Greece that they will provide no further credit to support the Greek economy.

In recent weeks, calls have increasingly been made in Brussels and numerous European capitals for Papandreou and his cabinet to implement radical savings and realign with the Maastricht criteria as quickly as possible.

But even if the budget’s austerity goals are met, the country will fail to reach the upper limit of the European stability pact’s target of 3 percent of GDP. In office since October, the government only recently announced that the budget deficit of 12.7 percent of GDP is twice as large as previously supposed.

The European Central Bank has urged Greece to improve its credit standing rapidly. Lorenzo Bini Smaghi, a member of the ECB directorate, told the Italian newspaper La Stampa, “In our opinion, Greece will have to introduce measures as quickly as possible to ensure that its government bonds will again receive an ‘A’ rating by the end of 2010.”

Major rating agencies recently reduced Greece’s credit rating. This will undermine the value of Greek government bonds and further increase the national debt.

The austerity program is being accompanied by pseudo-populist posturing about a crackdown on corruption. Papandreou has declared corruption to be “at the heart of the Greek problem” and declared that “either we do something about it or we go under.”

Karamanlis initiated such a campaign at the start of his term in office. Only a few weeks later, high-ranking government officials were involved in corruption scandals.

Papandreou himself comes from one of the biggest political dynasties in the country. His father and grandfather have both led the country. It was they who built up a smoothly functioning system of deceit, bribery and nepotism over almost 30 years in government. The current campaign is expressly intended to placate Brussels.

Although Papandreou’s policies are backed by the media, they are meeting with strong opposition from the population. Papandreou was able to defeat Karamanlis by a wide margin not least because he promised not to saddle the population with the cost of the economic crisis.

On December 17, a series of strikes and protests by workers in the public service sector took place in almost 60 towns and cities in Greece. The protests were organised by the All-Workers Militant Front (PAME) trade union, which is affiliated with the Communist Party of Greece (KKE), and supported by the Coalition of the Radical Left (SYRIZA).

The strikes were demonstratively not supported by the two largest unions in the country, the General Confederation of Greek Workers (GSEE), with 600,000 members in the private sector, and the Supreme Administration of Greek Civil Servants (Adedy), with 200,000 members in the public sector.

Both of these trade union federations chose to support of the austerity program shortly after PASOK entered the government and assured Papandreou of their intention of enforcing the cuts on the working population. They are in constant communication with the government and representatives of big business.

The Communist Party-affiliated union and its nominally “left” allies, for their part, are seeking to bolster illusions that the PASOK government can be pressured to drop its austerity program. They supported PASOK in the recent election as the “lesser evil” to Karamanlis.

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