Strike Action

Another misconception in foreign press, specially German, is that it’s all fault of the previous “New Democracy” party. It’s true that they lost any control of the deficit. But the big debt was done in the decade 1980-1990 by the socialists, along with continuous deficits.

To give an example, last month we paid off a bond of the 80s, with face value of 1 bln euro, that had something like 17% interest and we paid it now for something like 55 bln euros. These are absurd numbers, but the socialists were getting loans on absurd terms.

It is interesting that, despite the obvious state of the Greek economy, the critical votes to decide their financial survival were split absolutely along party lines. And the Greek people are upset that their standard of living hasn’t been maintained; a standard of living it appears that they couldn’t afford to enjoy in the first place.

Pardon me for saying so, but on foreign media, the story is sold in a simple manner, since people deep inside like simple stories, cliches and stereotypes.

Greek people are divided in various groups and are upset for the same, but also for different reasons.

Political parties positions (only those in parliament):
– Socialist ruling party: They went on with “bail out mk.1 plan”, which failed, and now will proceed with “bail out mk2”, which will also fail. The leader is a populist caught with the hot potato in his hands, he tried to do some things, did reduce the deficit by 5% in a year, but with cutting mainly wages-pensions, while leaving untouched the interests of many unions and the pubblic sector, which are the priviledged sectors of his party. This policy brought deep recession, 200.000 new unemployed in the private sector in 1 year and 20% of small enterprises to shut down. Because he was TOO socialist (he is actually the President of Socialist International) to start the cuts from the public sector (who is unproductive), he didn’t really open the “closed” (aka protected) professions, he didn’t reduce the “state”. As a matter of fact, the strictly state expenses increased compared to before the crisis…

The sad thing is that the IMF/EU “controllers” let him go on with that policy, which is something that i can’t explain…

Politically he is wavering, in June he practically resigned as PM in order to form a coalition goverment with New Democracy, only to change his mind a few hours later, after members of his family and party convinced him not to do so. Of course this has signed his political end, as a PM that resigns and un-resigns in one afternoon, can’t lead a party for long. In fact, the next day he appointed the ex greek minister of Defence as minister of economics, his arch-rival for the party leadership in the last years and the goverment is effectively going on with the political capital of the minister of economics. Papandreou has extinguished his political capital.

– New Democracy (so called conservative) opposition party: It didn’t vote the “bail our mk.1 plan”, asking for a plan that would also bring growth, voted in favour of most of the individual laws afterwards. Voted against the new bail out plan again this time, will vote in favour of individual laws, but has raised the flag of “re-negotiating” the plan if they take power. My personal opinion is that if they had been in the place of the socialists, they would have done the same, but they let the socialists take all the heat, while they collect the anger to win the next (probably anticipated) elections. The leader is also a populist one and i fear an even more dangerous, because he has trapped himself in a position that cultivates to the people high expectations about a “miraculous re-negotiation”, which i doubt can be done. Also, his party lacks members of big experience to rule effectively the country in crisis. I consider the leader desperate to become PM, who would do anything to achieve that.

– Small right wing party (Laos): Has voted in favor of “bail out mk.1” as “bitter medicine”, now to save its electoral strength voted against “bail out mk.2” with the excuse that “we gave the gov a chance, they blew it, we can’t trust her again, we need to go to elections”. Populist leader.

– Small leftist party (SYRIZA): Party that has raised much talk and clash in Greece as is often accused to be on the side of anarchists that burn Athens. In fact, its parliament members always run to Courts to bail out anarchists or to defend arrested left wing terrorists. Their position is basically this: We go to the Europeans and demand another viable plan , unless they want us to default and explode on their face. The leader is a relative young fellow, selling populism even in the hour of crisis.

– Comunist Party (KKE). Their position is very simple: “This debt isn’t of the people, we don’t recognize it, it needs to be written off”. And they all lived happily ever after.

Both the SYRIZA and KKE present their positions as an alternative to the bad, austerity measures. Meaning, they actually sell to the people, that with their method, the standard of living won’t go down…

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Reasons to be upset:
– The former New Democracy goverment, hid the deficit. They went to elections saying the deficit was 6% and the former PM was actually saying that “the US crisis found us armoured and we suffered much less damage than other countries”. It is characteristic, that this man, to this day, has not said a single word nor did he apologise for anything. He now sits at the back rows of the Parliament (like a student who wants to chat during school class), never asks to talk and the last we saw of his was in the voting for “bail out mk.2”, where he said “Waiter, send me a salad and gyros with everything on”.

http://www.youtube.com/watch?v=QLG2rWcsYYw

Out of his party, nobody is prosecuted for the economic disaster.

– The current PM Papandreou, is yet another populist fraudster. He is only good when speaking to foreign press, as he appears a gentle, calm, mild tempered leader who bears the cross of his country. Well, yes, but he is also the man, that as opposition leader, was sabotaging through strikes of his powerful unions any attempt of the previous goverment to make new pension law, privatizations, etc.

Here Papandreou on the streets againt pension reform. Now, since he stopped the previous gov from doing a milder one, he had to do a much worse one:

http://2.bp.blogspot.com/_zJBHXtUG-pQ/S_WOcn0ou1I/AAAAAAAACJ4/i4GlIu59nC0/s1600/PAPANDREOY.jpg

Here Papandreou with the unionists of the water public enterprise of Thessaloniki where the unionists had gifted him a T-shirt with “not for sale” on, when the New Democracy goverment wanted to privatize. Now he has to sell it himself. Oh the irony!

– There are people, who are upset because the goverment still now doesn’t want to change things that SHOULD change. Nobody has been fired from the public sector and 200.000 lost their jobs in the private sector, who is the one that actually produces wealth. In theory they liberated closed professions that should bring 1% increase to GDP. But they are pseudoliberalizations really and i am amazed that the IMF/EU officials don’t do anything about it. The problem is, that the socialist party is the one mostly responsible for the way that the public sector (dis)functions in Greece and the tolerance towards unionists, that this policy is so deeply rooted within them, that it’s like expecting Hitler to dismantle the SS. Only with the gun on their head will do it. And since they don’t do that, the private sector pays the price, plus more taxes to the usual tax victims and VAT increased and special tax increases, that kill the economy even more. In fact, they raise the taxes, but don’t collect more money, because they ‘re strangling the economy.

– There are people that are angry because the current PM won the elections with the slogan “There is money!”, while it has been revealed that he knew the real condition of the economy and at the same time he was in contact with Strauss-Kahn , he was still giving some raises (i think to farmers?), only to come up later and shout “hello world, the previous gov was hiding the deficit, we found it. Oh and there is no money”.

– There are people, that combined with the above point, believe that this goverment has no legitimate mandate to govern, as they were elected with promices of raises and they ended up with unprecedented cuts.

– There are people that are angry because they believe the “easy solutions” of the opposition parties and believe that the other parties would give them a better solution (or utopia).

– There are people whose interests are threatened and don’t want to.

– There are people that still haven’t realised what has happened and refuse to face reality.

– There are people that are angry with foreign press, that presents a blown out reality of the average Greek, by taking as example the exeptions rather than the rule (ex. the average Greek doesn’t get pension at 50, doesn’t get 2000 euro pensions, doesn’t lay on the sun , etc, but that’s what makes foreign press more happy, as traditionally a bit of spice gives life to an article and people feel better about their own woes when they have someone else to despise).

– There are people who were paying taxes regularly and are angry because they are fed up to be those who always get axed again and again, while others get a free pass once more. To give an example, it is well known, that out of free professionists, 7 out of 10 declare less than 8000 euros income. And only now the gov decided to do something about them, making them pay 300 euros this year and 500 euros from next year plus something that may add by using some “criteria” (house, car, swimming pool). But in substance, the reduction of the deficit by 5% was done, once more, by squeezing those who were paying taxes (those on salary and pensioners). The economic ministry actually messed up the last years tax policy so badly, that this year, they have to pay back money to the usual tax evaders. Major failure , which again amazes me that passed through the “OK” of the EU/IMF “experts”.

– There are people who are angry, because they are asked to do sacrifices, but there is no way out of this. The “bail outs mk1 and 2”, buy time, but, combined with the deep recession, increase the debt to levels that they are not sustainable. So one gets angry and says “so why shouldn’t we default now, instead of 3 years from now that we ll have 100 bln more debt?”

– There are people that say “i prefer a quick hard pain with immediate default, than a long pain which leads again to a default”.

– There are unemployed people that are angry and have nothing to lose.

– There are the conspiracy theory fans that believe that our PM organized all this with foreign speculators, in order to loot the country.

– Everyone is angry because no politician will go to jail.

The goverment has also been tragically inadeguate in explaining to the population exactly the situation and why the alternatives presented from the opposition aren’t the correct ones.

The worse, is that, they don’t have a plan out of this. They execute a plan to the degree they can, while they themselves admit that it won’t bail out Greece… An ex minister with the goverment party voted “yes” to the “bail out mk2” while saying “between a knife and a gun”, i choose the knife. This is the reality. Greece doesn’t have a chance in hell to avoid default even if follows the plan to the letter. Unless something changes from the side of the EU. Something that will allow growth or at least a market-friendly agreement with the creditors for a debt restructuring. Until this doesn’t happen, people will grow more and more angry, because they don’t understand why they have to follow a path that leads back to default, only with bigger debt this time.

a standard of living it appears that they couldn’t afford to enjoy in the first place.

This is something very relative… Before this crisis has begun, i had written in this forum, that Greece is a country with poor economy, but not so poor citizens. At least a part of them wasn’t… Greek deficit closed on 2010 at 24 bln euros. Greek tax evasion is with modest estimates at 25 bln euros (others put it at 40 bln). Meaning, if there wasn’t tax evasion, deficit would be zero. But part of the tax evasion, is also due to the “black economy” fueled in big part by the almost 2 mln immigrants, most of which are illegal and “don’t exist” for tax purposes. This is yet another mistake made by the greek leftism, since it allowed in 2002 , through Dublin II Treaty, to become the human dumpster of the north Europeans and in the last years, we get 155.000 new illegal migrants per year, who fuel and make grow the black economy even more. And the state now has both the Greeks tax evaders and the hordes of migrants who evade taxes to deal with. Ironically, the greek state was collecting more taxes in 2000 than they did in 2009 or 10 or 11.

The other sure thing, is that Greece, exactly due to the socialist policies made in the 80s and onward, doesn’t produce the wealth that it should if it was a “normal” country.

Now the average Greek has a reduction of standard of living of about 30%, with final stage of 40%. The problem is that this is distributed unevenly. The rich are barely touched, since they evade taxes anyway. The lower class is striken to oblivion and the middle class is now dying, becoming the new lower class. Basically Greece is living at bankruptcy conditions. The only difference is that the official declaration hasn’t come yet and that instead of happening once and for all, it is taking some time to arrive to the finish, at the cost of increased debt.

My own position on this is:
1) I supported the “bail out”, despite being pessimist and subsequently positive that it won’t work to the intended purposes.
2) I still think that the price to pay for increased debt, is maybe worth it, to make structural changes. Although if the gov continues with “half-ass” ,as the Americans would say, changes, i will may have to review that.
3) I also think that we did need to give to the EU banks some time to cover their arses.
4) I won’t support anymore this program when i see that there is no reason at all anymore to wait before defaulting. We started with debt at 120%, at 2014 it will be at 160% and with the best scenario, it will stay so for a couple of years and rise to 200% afterwards. We are talking of adding another 300 bln euros of debt to the country. This is madness. Sometime soon Greece will have to tell our European friends: “Friend, let’s leave the lies alone for a minute and let’s talk honestly. This bail out sends Greece back to debt jail in a darker cell. Do you want to help us restructure our debt in a friendly and less painful way with our creditors or not?” And if they say no, default.

This professor is a Marxist, but on the specific subject, he is correct. Once you see that your debt is unsustainable, you have to restructure. Or suffer even worse default.

http://www.youtube.com/watch?v=b4OOsowEANk

The greek goverment is running out of political time. Last year they were sayin “In 2011 we will go out in the markets”. They were saying “we are beginning to exiting the tunnel”. Nobody buys that anymore. And people aren’t living in the 1800s. Nowdays they can understand what’s happening.

5) The best thing that Greeks politicians could do, is form a “unity” goverment with non politicians as ministers. Because politicians always weigh the political costs. The best way for Greece to make reforms, is with technocrats, not politicians. But they are too power hungry to do so. That’s why ancient Athenians were sending their politicians to exile! They knew the drill!

6) The privatization plan that predicts 50 bln is a joke. It predicts selling one public enterprise every 10 days. Even if that was doable, who will buy all that? Not to mention that many talk of high treason, since the stock market has dropped so low, that it will be like selling everything for a fifth of their real value.

Conclusion: Unless something is done to give the population a perspective that this will lead to a definitive solution of the debt somehow, Greece will explode well before 2014. I will be surprised if the current goverment will make it up to the end of the year.

Actually I’ve found the graphic I was looking for that shows the deficit for all years since 1946.

http://www.guardian.co.uk/news/datablog/2010/oct/18/deficit-debt-government-borrowing-data#

Interesting article! I agree with what you say about the party-political arguments, although as the article states:

It seems that all the political parties have faced their fair share of debt through the years – as if the economic climate has its own life independent of who is managing it.

So if we can’t rely on the ‘economic weather’ to be fine…..we’re better-off always carrying an umbrella! 😀

It is interesting that, despite the obvious state of the Greek economy, the critical votes to decide their financial survival were split absolutely along party lines. And the Greek people are upset that their standard of living hasn’t been maintained; a standard of living it appears that they couldn’t afford to enjoy in the first place.

It does seem that all governments are operating the same rational as the individual does these days; buy on credit even though it ends up costing more. I suppose the question we should all be asking is who gets more for their money; a man constantly in debt or a man never in debt?

GA. After 164 posts on this subject, what would YOUR solution to this problem be?. Wise Old Owl;). ObiOne Canobie.

Jim.

Lincoln .7

I can see how it works with private pensions but not state pensions, and I thought for a minute that you were suggesting that interest from government debt somehow helped pay state pensions. I suppose the irony is that the state is effectively funding private pensions too.

I’m not sure I’m too comfortable with the analogy of long-term government borrowing being like a mortgage; it is only a mortgage if it reduces over time and all gets paid-off eventually. If the government always has debt, the debt stays the same or increases then it’s a credit-card (irrespective of the favourable rates of interest). The great advantage being, for most governments, is that they get to spend on credit and the next government gets to pay the bills (or spend more and leave it to the next government and so on)!

Actually I’ve found the graphic I was looking for that shows the deficit for aall years since 1946. Interestingly it shows that prior to the 2008 crash the largest deficit occurred in 1993. Kind of blows some of the party political arguments away somewhat.

http://www.guardian.co.uk/news/datablog/2010/oct/18/deficit-debt-government-borrowing-data#

I believe it’s something to do with governement bonds/gilts. I’m no expert so relied on news reports for this so it could be wrong! I was thinking this could fund private sector rather than public sector pensions.

I think it’s to do with gilts / bonds which the government sell to banks which provide interest and then the money back. I think only the local government scheme is invested, the rest are funded by contributions and government funds.

Ironically buying government debt is one way of funding pension schemes from the interest accrued!

You’ll have to run that one by me again?

Say I pay money into a private pension scheme; my pension company uses that money to buy government debt that pays interest thus boosting my pension.

A teacher pays money into a state pension scheme; the state pension scheme uses that money to buy government debt that pays interest thus boosting the teacher’s pension?

How does that work? What is achieved by the government lending itself money? Or is the idea to buy the debt of other countries? :confused:

I consider my hands well and truly slapped for being so sloppy with my terminology! 😀

Sorry – wasn’t my intention!;)

I wonder what has (or will) cost the taxpayer more, interest on long-term government debt or the bailout of the banks?

That’s where the discussions get lost in the party political arguments. You’ll often see the debt referred to as “like a credit card” and everyone is supposed to think how appalling, we’re racking up appalling amounts etc. etc. However due to how the debt is structured, Britain has quite a long repayment term on its debt – more like a mortgage. That’s one of the key differences between us and the other Euro countries like Greece.

Most countries operate with a debt (indeed the bastion of free enterprise the US tends to operate with a massive debt burden). Ironically buying government debt is one way of funding pension schemes from the interest accrued! Unfortunately the current government have an agenda and glossing over these facts is quite a convenient way to push that through.

Sky High – the difference is in what you spend the money on. There is a train of thought that in a recession government spending should rise as it cushions the blow with social security payments and stimulus packages. If you look at the latest ONS figures you’ll see government borrowing has been increasing – a good year or so since the election. Whilst they seem hell bent on destroying those things that make a respectable society the question has to be asked what are they spending the money on??

It’s also important to distinguish between debt (long term borrowing) and deficit – the difference between tax income and spend.

I consider my hands well and truly slapped for being so sloppy with my terminology! 😀

I wonder what has (or will) cost the taxpayer more, interest on long-term government debt or the bailout of the banks?

The £850 billion figure that you quote is a staggering figure and it doesn’t surprise me that UK banks needed a bigger bailout than any other European country; London is one of the great financial centres of the world and yet the UK isn’t one of the European countries receiving a bailout from the European Central Bank or the IMF to save our banking system.

When people complain about the bailout of the banks I’m sure they don’t appreciate the tax revenue generated by the banking sector; I don’t have figures to hand but it was of the order of £40 billion per year. Yes, the drop in tax revenue hasn’t helped government debt but we should remember where much of that tax revenue came from.

“deficit – the difference between tax income and spend.”

And that, as you rightly point out is the key phrase but you omitted a small but crucial point. If your salary goes down but you do not reduce your spending your overdraft will rise. You can soften the blow by borrowing but then you have pay that back inclusive of interest.That is exactly what happened on the grand scale – government revenues went down but they continued to spend and in fact increased the spending thereby producing the spiralling deficit to which you referred.

I’d be interested to know what proportion of the deficit is down to ‘bailing out the banks’; it will certainly be tiny compared to the amount borrowed by the government each and every year to run the burgeoning social security of this country.
.

Quite a hefty chunk of it. The UK spent more on bank bailouts than any other European country. £850 billion pounds or £14,000 per person. You are correct in saying that some of this is likely to be paid back but it still requires borrowing. A further estimate suggested that this was around 30% of GDP. Not tiny

In terms of the overall debt (rather than the deficit) the main cause of government debt is a fall in the tax revenue. This was caused by the recession.

It’s also important to distinguish between debt (long term borrowing) and deficit – the difference between tax income and spend. The debt is running at similar levels to previous years, however it is the deficit that is causing more of the problem – and the bulk of the deficit was caused by the bank bailouts.

Essentially a hefty chunk of money was spent on the banks which has increased the deficit. References available to show I didn’t just make it up!

[QUOTE=Arthur Pewtey;1767741]Maybe so but the trigger for recession was primarily the credit crunch wasn’t it?

Arthur. Wasn’t it the Sub-Prime lending by the USA that initialy started the slide of the rest of the World into recession. B.T.W. How was it that Aus wasn’t affected?.

Jim.

Lincoln .7

GA – yes, I totally agree with your first sentence. Someone said “there are no easy solutions”. It is a cliche but it is true, largely because the causes are complex.

Beveridge, one of the last great political reformers would be appalled by the evolution of his original and brilliant idea. It never occurred to him that people would renounce the old and traditional ethos of hard work and provision for old age in favour of state dependency. He saw the welfare state living alongside the traditional values and both would be mutually supportive.

That they no longer are is one of the traqedies of the 21st century.

A large part of the UK national deficit is in part due the bailout of the banks.

I’d be interested to know what proportion of the deficit is down to ‘bailing out the banks’; it will certainly be tiny compared to the amount borrowed by the government each and every year to run the burgeoning social security of this country. Plus the ‘bailout’ was mainly in the form of loans and nationalisation; UK banks are doing well and the loans and nationalisations will most probably end being paid-back in full or profiting the exchequer.

Yes, sections of the financial sector needed bailing-out but this bailout will hopefully be temporary and lessons have been learned; the UK needs the banking sector, it is (and has been) paying billions upon billions into the exchequer for decades, it is the envy of the world and the UK could not afford the social security that we enjoy without it.

Arthur – One of the triggers, yes, but although I am no economist despite having studied it ,many years ago, recessions always have multiple causes, some of which are not home grown. And as you say no government has ever wilfully brought on a recession but often have contributed to it by their actions.

SH: I think that part of the problem is that people – politicians and pundits alike – are offering simplistic solutions to complex issues.

In today’s “gimme now” culture, we increasingly demand instant fixes for problems that originate from multiple sources and have taken decades to develop.

This resounds with the short-termism prevalent throughout British politics, where our leaders (and would-be leaders) will promise us the moon on a stick if that’s what it takes to secure another four or five years with their snouts in the trough.

So they peddle the line that it’s all their fault (whoever they happen to be at the time) but that Party X alone has the magic bullet that will put everything to rights.

It is nothing less than moral and intellectual dishonesty, but we fall for it time after time.

It has been said that, in a democracy, we get the standard of government that we deserve.

Looking at the UK over the last couple of decades, one can only marvel at the self-evident truth of this saying.

Maybe so but the trigger for recession was primarily the credit crunch wasn’t it? Do you really think that any government would deliberately send their own economy into recession?

Tornado – I have read your posts but am not sure if you have answered my question.

Arthur – it takes two to tango. No one was forced to overborrow, so the blame for the financial mess is on both sides. But that mess pales into insignificance next to the steadily increased government borrowing over the past few years.

A large part of the UK national deficit is in part due the bailout of the banks. Had the banks not required this bailout then perhaps we wouldn’t be having this conversation.
Perhaps I should have said “sections of the financial sector”.

believing we are still a rich nation shows how deluded some are

I don’t think I’m the deluded one. Look around you – this is not a poor nation – far from it. Yes the wealth may be a little skewed in its distribution but definitely not poor.

Oh and the government didn’t sell ALL of the gold reserves either. Some of the gold was sold on advice from experts when gold was decreasing in price. Three years after it was sold the price started to rise. Gordon Brown may have been a good chancellor but he wasn’t clairvoyant.