The Greek Parliament passed a second round of austerity measures today, amid mass protests outside the Parliament building. The protests include extending taxes to minimum wage workers, cutting government employee salaries, along with other spending cuts. The ruling Greek Socialists voted virtually en masse for the measure, securing a 155-138 vote. Just one Socialist, Panayiotis Kouroublis, voted against it, and he was expelled from the party as a result.
The proposed tax hikes and spending cuts have been deeply unpopular with the Greek public.
A nationwide 48-hour strike is under way and violent clashes are continuing in the streets of the capital, Athens [...]
Mr Papandreou says his austerity plan is the only way to get Greece back on its feet.
“We must avoid the country’s collapse at all costs. Now is not the time to step back,” he told deputies.
Fear tactics basically got this one passed. The EU and the IMF threatened to withhold bailout payments until this vote passed, meaning the Greek government would have defaulted on their debt within weeks. The story today about risks to money market funds in a default may have clinched it.
In addition to the austerity measures, Greece is “selling the family silver,” putting airports, ports, railways, motorways, sewage works, national energy companies, banks, and the national lottery up for sale in a privatization push they hope will net 50 billion euros. However, private equity firms turned up their noses at the first offer of sale. Perhaps they’re looking for discounts, or they want to change the rules of hiring and firing even further in an effort to break the unions.
Nobody is really saying that this privatization and austerity push will improve the economy in Greece. That’s not the issue at hand. They passed the bill because it was the stick-up demand made by their creditors. As a result, we can expect the economy to only get worse in Greece. The last round of austerity both harmed the economy and led to a LARGER budget deficit, as tax revenues fell. Tax collection is the major problem in Greece, not spending, incidentally. So you can increase as many taxes as you want, but unless you put together some credible measure to collect them (and instead, state agencies that do the tax collection have been gutted, so that’s not happening), they will be ineffective. So if this austerity follows the same track, we’ll be right back here next year, with Greek still at risk of default, and the country’s citizens materially worse off. European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy’s ludicrous joint statement, which includes the line “The country has taken an important step forward along the necessary path of fiscal consolidation and growth-enhancing structural reform,” is just not credible.
There’s a final vote tomorrow on implementation of the austerity and privatization programs, but if the main bill passed today, we can expect final passage tomorrow as well.