The Greek government submitted a draft budget for next year that would only further increase the pain and suffering directed at the population, despite depression conditions. But the European leaders determining whether the fresh austerity plan is good enough to meet their conditions want even more pain, in the form of deeper wage cuts.
First, to the draft budget:
The draft budget spells out about $10 billion in spending cuts and savings for 2013. About one-quarter of that would come through reductions in civil servants’ salaries and social welfare benefits, and about 15 percent through cuts in spending on health, defense and local authorities, the government said. It also stipulates raising the retirement age to 67 from 65, but that is not expected to alter the bottom line in 2013.
The draft budget is expected to be revised significantly because it must be approved by the country’s troika of foreign lenders — the European Commission, the European Central Bank and the International Monetary Fund — before it can be submitted for a parliamentary vote.
The troika is insisting on further cuts in the public sector — including laying off public servants, a political third rail in Greece and other European countries — while the coalition government has been pushing back. The coalition, which consists of the conservative New Democracy, the Socialists and the smaller Democratic Left party, is asking Greece’s lenders for more time, saying such cuts are not politically or socially sustainable in the face of growing social unrest.
So here’s the plan. In the middle of a depression, Greece has agreed to cut wages, benefits and social welfare spending. But the troika wants more cuts, including layoffs. Those are the two options: pain and more pain.
Unbelievably, this draft budget would leave the government in SURPLUS for 2013 of 1.1% of GDP. That’s partially because GDP would continue to cascade downward; a 6.5% reduction this year and a 3.8% reduction next year. Unemployment would hit nearly 25% next year under this budget. The phrase you’re looking for is “impossibly cruel.”
The draft budget cuts aren’t enough for the far crueler troika, however. As The Guardian reports, the troika rejected €2 billion of Greece’s proposed spending cuts, and demanded “further cuts in wages and pensions.” So you have a group of international lenders who don’t live in Greece forcing the country’s democratically elected government into savage cuts to the public sector, literally taking money out of their pockets. The troika’s demands are completely unsustainable, but they don’t have to live under them, so what do they care.
This is known as “internal devaluation.” Greece cannot use their monetary policy to devalue their currency, given their presence in the euro. So they devalue through massive wage cuts, in the hope that this creates the same kind of export expansion and debt relief. But this is the most savage way to realize this goal, by essentially burning your own human capital.
Labor unions have already vowed new protests including a general strike. The non-mainstream parties outside the Greek coalition, Syriza on the left and Golden Dawn on the anti-immigrant right, stand to ultimately benefit.