The puzzle of European integration: Will Greece be the first
piece to fall through? Marica Frangakis Nicos Poulantzas
Institute
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Section 1 - The puzzle of European integration; Section 2 - The
case of Greece; brief historical overview, profiling of the
economy, the social situation, the bail- outs, the private sector
involvement and the political process; Section 3 - The impact of
austerity in Greece; the current outlook Section 4 - Some thoughts
on alternatives
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EU: An ill-fitting puzzle Inherent deficits in European
construction: social, environmental, democratic Euro architecture
reflects belief in free market as arbitrator of social and economic
relations; financial deregulation Fiscal co-ordination = fiscal
discipline; SGP Narrow ECB mandate Wage moderation : main
convergence tool Crisis has exacerbated EU deficits Fiscal view:
austerity as the cure to the crisis Imbalances view: adjustment
goes both ways
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Fiscal profligacy all around?
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Average Labour Unit Costs indices for non-core and core
countries (2000=100)
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The Greek saga - Brief historical overview 1950-1973 - growth
at any cost, based on social compromise, tolerating various tax
digressions 1980s - beginnings of the welfare state; former
national champions nationalised, with the state taking over their
liabilities; sluggish growth, high inflation & a worsening of
public finances. 1990s - 2000s - Joining the eurozone, strategic
goal; manufacturing and agriculture fell further behind;
privatization & market liberalisation deepened financialisation
of the economy Public finances massaged through derivatives with
the help of Goldman Sachs
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Profiling the Greek economy Basic Indicators 2002-2006
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Ranking of the Greek economy in EU27; EU17 (2002- 2006) Growth
rate9 th ; 4 th Growth rate/capita11 th ; 4 th Domestic demand
growth8 th ; 5 th HICP6 th ; 3 rd Employment8 th ; 6 th
Unemployment (% of labour force)6 th ; 3 rd Labour productivity11
th ; 4 th Real LUC 9 th ; 5 th Gen. Government expenditure (%
GDP)12 th ; 9 th Gen. Government Revenue (% GDP)16 th ; 12 th
Interest expenditure (% GDP)2 nd ; 2 nd Public Deficit (% GDP)2 nd
; 1 st Public Debt 2004-2006 (% GDP)2 nd ; 2 nd Trade balance (%
GDP)3 rd ; 2 nd Current account balance (% GDP)3 rd ; 2 nd
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Cost of government produced and government funded goods and
services (% GDP)
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Employment in general government (% labour force)
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Structure of general government expenditure by function 2008
(%)
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The social situation in Greece Catching-up country: average per
capita income fell from 89.2% of former EU15 in 1980 to 72.3% in
2000; it increased until 2009, when it reached 84%, only to decline
again to 74.4% in 2011, going back to the level of the early 1990s
Share of wages in GDP also fell from 69.3% on average in 1981-1990
to 61.7% in 2001-2010. Distribution of income is highly unequal:
income of top 20% 5 times greater than that of bottom 20% High rate
of poverty: in 2010 27.7% of population at risk of poverty or
social exclusion; Greece: poorest country in the eurozone and 7 th
poorest in EU27. Social transfers & benefits do not ameliorate
the situation significantly
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Crisis management Bail out I 2010-13 Loan of 110 billion, of
which 80 bn intergovernmental loans by the eurozone countries &
30 bn by the IMF; Until February 2012, 73bn disbursed. Of this,
approx. 64% used to repay bonds and loans that matured between May
2010 - December 2011; Greek banking system has received 23bn
through the HFSF 3.5% interest rate; maturities of 15-30 years;
grace period of 10 years. Strictly conditional on implementation of
harsh austerity measures Disbursement to be made in 13 tranches,
each conditional on a review of fiscal developments.
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Crisis management Bail out II 2011-14 130 billion loan from
eurozone & IMF; Greek banks to get 25 bn through the HFSF
Additional fiscal austerity measures Priority given to debt
servicing payments; segregated account Enhanced and permanent
presence of the Task Force already set up under the first bail-out
agreement Obtaining political assurances from the leaders of the
two major political parties Reservations about the holding of
national elections! PSI to reduce value of GGB by 53.5% = 30% of
debt; will absorb 72% of bail out II (Euro 93.5 bn)
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Private sector involvement (PSI) Voluntary restructuring of
Greek government bonds (57% of total debt) to be governed by
English law Investors to absorb 53.5% reduction in the nominal face
value of their bond holdings; to exchange 31.5% for new government
bonds ranging from 11 to 30 years & a further 15% to be paid
out through short-term securities issued by the EFSF; also GDP
linked securities; The coupon on the newly issued bonds will
gradually increase from 2% to 4.3% by 2042. Collective Action
Clause to be included in new bonds Debt equal to 197 bn 57% of
total Greek debt - is being exchanged for a new loan of 156
bn!
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Crisis management The political process According to the OECD
Better Life Index, 44% of people say they trust their political
institutions, lower than the OECD average of 56%. The lower than
average turnout in the elections is a further indicator of the low
public trust the Greeks have in their government Such trust has
been eroded by the management of the crisis both by the Greek
political ruling class and by the European elites. The democratic
legitimacy of the technocratic government was openly questioned and
the pressure for elections mounted Massive shift towards the
radical left
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The shift in the electorates political preferences 2009 2012 (%
share of votes) 20096 May 201217 June 2012 New
Democracy33.4818.8529.66 SYRIZA (Radical Left Alliance)
4.6016.7826.89 PASOK (Panhellenic socialist movement)
43.9213.1812.28 Independent Greeks (split from ND) --10.67.51
Golden Dawn (fascists)--6.976.92 Democratic Left (split from
SYRIZA) --6.116.26 KKE (Communist Party)7.548.544.50 LAOS (extreme
right wing)5.63--
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17-6-2012 elections: Seats/party (left to right) Communist
Party (12); Radical Left Coalition (71); Democratic Left (17);
PASOK (33); New Democracy (79+50 bonus); Independent Greeks (20);
Golden Dawn (18)
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Running faster to stand still? The Greek experience of
austerity Fiscal consolidation Over the period 2010-2014, fiscal
austerity measures are expected to amount to over 30% of GDP, 54%
of which is going to come from expenditure cuts and 46% from
increases in revenue. Labour market reforms Employment protection
and worker rights under attack (min. wage, collective agreements,
etc.) Structural changes Privatization programme, expected to raise
35 billion by end-2014 and 50 billion by end- 2017; market
deregulation (energy, road transport, regulated professions);
reform of pension system
Structure of exports by type and destination (%) 20112010
Agricultural products 18.524.3 Raw materials3.95.6 Fuels28.79.8
Industrial products 45.957.4 Other3.02.9 Total100.0 20112010 EU
2751.664.0 Eurozone35.743.5 N. America6.25.1 Balkans14.817.1 M.
East & N. Africa 8.96.9 S.E. Asia3.61.5
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avalanche of serious environmental losses (World Wildlife Fund
Greece 8 th Annual Review) Econ crisis used as an excuse for the
weakening of environmental legislation and policy; Illegal
buildings legalised without any assessment as to the implications;
95% of Green Fund resources (national environmental fund
established in 2010) to be absorbed by gen govt budget; Natural
public land sold or leased under obscure rules and pre-existing
illegal land uses de facto legalised; Impact assessment and permit
regulations for Natura 2000 areas being cut Exemption from
Environmental Impact Assessment of legislation for infrastructures
- eg waste management
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Current outlook
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Comparison of forecasts of selected economic indicators 2012
2013 (const. 2005 market prices, annual % change and level)
EUOECDIMF 201220132012201320122013 GDP-4.70-3.00.5-4.80 Investment
(GFCF)-6.66.7-5.50.9-6.65.8 HCPI-0.5-0.31.10.2-0.5-0.3 Unemployment
(% labour force) 17.917.818.518.719.4 Gen. government balance (%
GDP) -7.3-4.6-7.0-5.3-7.3-4.6 Current account balance % GDP)
-6.9-5.3-6.3-5.4-7.5-6.7 Public debt (% GDP)
160.5164.2177.1179.7163167
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Some thoughts on alternatives The narrative needs to be altered
A more just distribution of income and wealth necessary The ECB
must become a lender of last resort for governments and not just
for private banks.. Austerity needs to be replaced by a programme
of economic restructuring over a long time period Public
investment, that is ecologically and socially sustainable, needed
to kick-start the economy The role of public services needs to be
reinstated. Financial policy reform should be given new impetus The
deterioration of worker rights and of the conditions of the labour
market must be halted and reversed
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What about Greece? Firstly, a change in narrative - The debt
audit campaign, a good starting point. Secondly, some breathing
space - The Greek economy needs to start growing again. Thirdly,
the domestic problems can only be dealt with by the Greek social
and political forces themselves Fourthly, the Greek austerity
experience already feeding into the European collective mind
Overall, need a policy that is European in reach & Greek in
origin ie explicitly dealing with the idiosyncracies of the Greek
economy
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To conclude If what is happening at the moment goes on for much
longer, life may become so unbearable for the Greeks, that, albeit
a traditionally pro-European people, they may opt for default and
most probably exit from the euro. Greece may be the first piece of
the puzzle to go. This is going to be unfortunate both for the
Greeks and for the rest of Europe in a long- term perspective