Austerity: Lessons from Greece

Yesterday, the UK’s triple A credit rating was downgraded citing sluggishness in the British Economy which they expect to continue into the latter half of the decade – at least 2016.  The austerity measures in the UK are only just starting to bite; with major changes to the benefits system planned in April, ongoing and compounded cut to public service and the piecemeal privatisation of key services such English health and education.  Cameron attempted to spin this downgrading as a wake-up call about how serious Britain’s debt issue is and as an endorsement of his austerity strategy to repay it, however the lessons of Greece tell a very different story.

Greece had endured three major rounds of austerity, punctuated by minor ones every couple of months.  The number of austerity measures which have been implimented run into the thousands – but the key themes of raising taxes, cutting public sector provision, reducing public sector employment as well as reducing benefit and pension entitlements run throughout.  All in all it has caused havoc in Greek society, as people find themselves unable to provide themselves with the basics of shelter food, healthcare and education.

The tax system is a living testimony to the idea that only little people pay taxes.  Tax revenue in Greece is a cat and mouse game.  The taxes are so unfair and so draconian that ordinary people feel well within their rights to dodge them.   One way is through “under the counter measures” –  from the illegal cigarette vendors who adorn every street corner, the small shop owner who rings up reduced prices with a nod and a wink to the increasing reliance on casual and undeclared labour.  Alternatively there is the more legitimate “tax dance” as people change their consumption habits in response to government measures – large apartments can be rented in Greece for very little money, as they are unpopular due to the new square footage property taxation, which must be met by the landlord if a tenant cant be found.  The heating oil tax, saw people switching to electricity consumption to keep warm in the winter, but when an additional tax on that was levied, people have resorted to illegal logging to keep warm.

The minimum wage in Greece is now just €586pcm (approx £500) gross, with under 21s being paid just €511 (approx £450) – with no state support for low pay until 65, and substantial reductions in entitlements to disability benefits.  Only 10% of those who previously received such continue to do so.  The unemployment rate is now 27% and is expected to continue to rise; among the young, the rate is over 60%    Access to unemployment benefit of €359 (approx £320) is strictly limited and only available to those who have worked for a minimum period in the last twelve months, excluding many youth who have been unable to find a job since leaving education.  There are no additional benefits available – rent and bills as well as their associated taxes must be paid from this sum.  Although the cost of living is slightly cheaper in Greece than in the UK, other than rent, the difference is not that substantial.

The 13% cuts in health provision in 2011 compounded by a further 10% cut in 2012, with more planned this coming year have seen a health catastrophe in Greece.  Diabetics have run out of insulin because the hospitals cannot afford to buy more, children are going un-vaccinated, HIV rates have soared as drug clinics closed at the same time as addiction rates have rocketed as people look for temporary relief from the misery, cancer sufferers can no longer access chemotherapy unless they pay for the required drugs upfront, leading to untreated cancers becoming commonplace.  Public spending on medicine has halved in the last two years, and a number of drug companies have now stopped supplying to Greece because of unpaid bills.  Basic medical supplies, such as gauze, syringes and sterilising equipment are in short supply.  Shortages of basic hygiene staples such as gloves, gowns and anti-bacterial cleaning fluid has led to a rise in hospital acquired infections as overworked staff move from one patient to the next without observing basic rules of hospital sanitation.

In education things are little better, with 55% cuts to the public school system 2,000 schools have merged or closed, while those remaining open cannot afford heating, meaning that children sit in classrooms wearing outdoor clothing.  The lack of schoolbooks have seen educational materials distributed through photocopies and computer disks as schools.  A plan for higher education will see three entire universities closed and almost 100 higher education departments shut their doors, while those remaining open are merged and downsized.

The whole infrastructure of Greece is creaking under the strain.  Government departments – massively downsized in a time when more and more people are relying on state support and additional taxes have added to paperwork demands – are grinding to a halt.  Schools and hospitals are struggling to function on reduced staffing, The transport system, which has seen strikes across every sector in the first two months of this year is increasingly unreliable.  And with this breakdown has come a sense of national humiliation, which has fed the rise of the far right, who are now commanding upwards of 20% in the polls, have a substantial base within the police and are gaining traction within other state services such as hospitals and schools.

Yet none of this has actually done anything to alleviate the problems that it was ostensibly supposed to solve.  At the start of the crisis, Greek debt was 120% of GDP, it is now 175% and predicted to rise to 189% by the end of 2013.  160,000 businesses have gone bust together with the high levels of unemployment has shrunk the tax base of the economy.  The total value of Greece’s economy has contracted by over 20% in the last three years and it is expected that this will contract by a further 5% this year.  The recessionary impact of the policies of the first memorandum were underestimated massively – some suggest that the overall effect has been up to four times what the IMF formally predicted.  Yet, there is no end in sight to the misery, everything is expected to get worse – more unemployment, higher debt ratios, a smaller economy.

The austerity being imposed on Greece is ideological, it is not designed to actually tackle the structural problems of the Greek economy – all that it is doing is to exacerbate them, but it serves as a warning to other states to ensure that their obligations are met, or they too will end up in the same situation.  The bankers must be fed, even if this leaves ordinary people starving on the streets.

Iceland chose the unthinkable alternative – it told the bankers to fuck off, nationalising the heavily indebted banks while refusing to take responsibilities for their liabilities and launching criminal investigations into its instigators.  The immediate effects were severe – households lost savings, unemployment rose and businesses went bust, but the overall aim of the government was to protect its people from financial reckless, and the worst problems were over within 6 months. The destitution being seen in Greece never materialised in Iceland, despite its similar size and similar problems  Its economy is now growing at an average of 3% and is now able to borrow on the international markets at a lower rate of interest than Greece and many other of the heavily indebted nations of Europe.

The downgrading of the UK economy is a direct result of the Cameron enforced austerity programme, which is having exactly the same effects of depressing demand and contracting the economy as austerity in Greece is doing.  The idea that this is being done out of fiscal necessity is a bald lie. It is an ideological attack designed to prop up the power of the bankers and lend authority to international financial wisdom.  The narrative that the crisis in the West is caused by generous public spending and social security systems is not bourne out by the evidence.  This is a classic Marxian crisis, a feature of capitalism that cannot be avoided – the defenders of capital present the ideology as “common sense” but contrasting Iceland and Greece demonstrates that there is no economic wisdom in austerity – that it multiplies the economic problems it is supposed to solve, while creating a never ending spiral of social misery.

Greece cannot hold – capitalism in Greece is simply bust.  Continuing along the path of the IMF and ECB enforced austerity will simply see more of the country’s assets transferred into private hands, as its people suffer.  Eventually capitalism will collapse, the question is what will replace it.   The political centre ground is collapsing even quicker than the economy, while both the far right and the radical left grows.  It is becoming a battle of ideology, of fascism verses radicalism.  When capitalism fails, its preference is for fascism, when the market can no longer impose discipline by hegemonic stealth, the state must step in to provide overt discipline; when power structures cannot be maintained through financial means, overt kyriarchial narratives can provide a temporary maintenance of differentials until capital can regroup.

Fascism, of a kind not seen in Europe for over 50 years, is a real threat in Greece.  A humiliated populace drawn to nationalist narratives which provide an alternative to global capitalism is vulnerable to the fascist threat.  This is where austerity leads – not just to the soup kitchens, but to the gas chambers.






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