From the Crisis, Into the Crisis

Concessions

The Greek crisis was most recently on the agenda of the March 10 EU summit. At that meeting, Greece was able to extract a relaxation of the conditions for the emergency credit, needed to have avoided national bankruptcy in 2010. The crisis credit provided Athens by the EU and the IMF amounted to 110 billion Euros. Brussels prolonged the period of repayment from three to 7.5 years. Athens, in addition, was able to negotiate a reduction of one-percent in the interest rate, down to five percent. Thanks to these more advantageous conditions, Greece will be able to save six billion Euros, declared Greece's Prime Minister, Giorgos Papandreou.[1]

Privatizations

As always, Brussels' concessions came with strings attached. Athens had to obligate itself to impose even more austerity measures and extensive privatizations - demands raised repeatedly especially by Berlin. On the eve of the Brussels summit, Chancellor Angela Merkel laid out, to the Europe Committee of the German Bundestag, under which conditions Berlin would be in agreement to grant "German support" to Greece.[2] Athens would have to sell public property and undertake extensive privatizations, if it is to be granted a lower interest rate for its EU credit. The privatization program, being demanded by Berlin and Brussels is supposed to bring Athens' national budget 50 billion Euros by 2015.[3]

Risky

The chancellor defended these concessions in the boulevard press with the argument that it is dangerous to insist on rapid repayment. "If we (...) had insisted, it would have only led to new turbulence."[4] Numerous hardliners in Berlin have criticized this concession sharply. Volker Wissing, for example, the FDP's finance political spokesperson, announced resistance to the extension of the repayment period. "Again buying time, without a perspective of a solution, does not instill confidence," said Wissing.[5]

No Consolidation

At the same time, Greece is developing into the classic example of a country that is being driven into a renewed debt crisis through its repeated austerity programs' dismantlement of social welfare measures and cutbacks in government spending. The cutbacks, forced on the Greek population by Brussels and Berlin, have done absolutely nothing to consolidate their national budget. In spite of a comprehensive social overkill, which has repeatedly provoked hefty protests, the Greek budget deficit was at around nine percent of its GDP at the beginning of this year, even though a national deficit of 7.4 percent was the objective for 2011. This has resulted from the drop in state income, which, at the beginning of the year, was 9.2 percent less than one year earlier. At the same time, the state's expenditures, in spite of all of the cuts, rose by 3.3 percent.[6]

Recession Spiral

The government's sinking income from taxes has actually been caused by the serious recession Greece is now suffering, with 2011 probably being its third year. In May 2010, the Greek parliament passed a ruthless austerity program aimed at lowering the budget deficit from around 14 percent in 2010 to 2.6 percent by 2014. The program contained proposed cuts of some 30 billion Euros - or eleven percent of the annual economic activity. In Greece, this has set an economic vicious circle in motion, where the austerity measures have led to a reduction of domestic demand - leading to the perpetuation of the recession. The continued loss in government income in taxes makes, in its turn, even more austerity measures necessary. These conditions make a budget consolidation nearly impossible. It is already predictable that due to the continued recession, this year's target of coming down to 7.4 percent will not be reached.

Downward Spiral

Over the past few months, the recession in Greece has been becoming even more acute. The Greek social economic product has already been shrinking for nine quarterly periods. During the last quarter, the country registered a drop of 6.6 percent of its GDP, in comparison to the same quarter the preceding year - a negative record in recent economic history. During the first quarter of 2010, the Greek economy dropped only 0.7 percent, in the second quarter - the EU's crisis measures were already getting started - the drop was already at 5.1 percent and during the third quarter of 2010 the downward spiral was at 5.7 percent (always in comparison to the same quarter one year earlier).

Drops in Wages

This serious collapse of the economy has - in interaction with the cuts in government spending - led to a serious regression in wage levels. During the third quarter of 2010 alone, real employee salaries in Greece sank by an enormous 11.02 percent in comparison to the same period the preceding year. The crisis, which is becoming more dynamic, is also leading to a rapid rise in unemployment. Greece's rate of unemployment was already - in November 2009 - at a double-digit 10.6 percent. In November 2010 the Statistical Office in Athens recorded unemployment at 13.9 and in December 2010 at 14.8 percent - an increase of nearly one percent within the course of one month.

Retailer Crash

The collapse in the domestic demand, brought on by the recession and the austerity measures, is also taking on dramatic proportions. Retail sales in Greece dropped in December 2010 in comparison to the previous year by a breath-taking 19.2 percent, marking also the most serious slump in the recent economic history of the country. In comparison to March 2008 - the eve of the economic crisis - Greek retail sales have even sank 27 percent. This too is accompanied by dramatically sinking tax resources, propelling the state even deeper into the crisis. As a matter of fact, the Greek state's composite debt at the end of 2010 was at 340.2 billion Euros, representing a level of indebtedness at 248.3 percent of the Greek GDP. At the beginning of the crisis, Greek national debt was "only" at about 125 percent of its GDP.

Beneficiary

The threat of a new Greek debt crisis explains the marginal concessions toward Athens, to which German Chancellor Merkel declared her agreement - against resistance from members of her own coalition government. With these concessions, Berlin is seeking to prevent the looming "new turbulence" in the Eurozone, because of Athens' implementation of the drastic cutbacks imposed by Germany. In the intermediate term, sales from the public sector, within the framework of the announced wave of privatizations, are supposed to prohibit a new budgetary emergency in Greece. It will not be the Greek nation, but, more than anyone else, the companies - probably also German - that will be the main beneficiaries, of this forced privatization. They will be able to purchase what had previously been Greek public property, that Greece now is forced to sell.

[1] Bessere Konditionen für Kreditrückzahlung an die EU; www.griechenland.net 14.03.2011
[2] Papandreou trifft Sarkozy - Merkel über Griechenland-Krise; www.griechenland.net 11.03.2011
[3] Streit um Privatisierungspläne in Griechenland; www.nzz.ch 18.02.2011
[4] Merkel fordert längere Tilgungsfrist für Griechenland; www.focus.de 10.03.2011
[5] FDP gegen längere Tilgungsfristen für Griechenland; www.naanoo.com 09.03.2011
[6] Griechenlands Defizit schnellt auf neun Prozent; www.spiegel.de 11.03.2011