That Greece needs to adjust there is no doubt. The question, however, is not how much adjustment Greece needs to make. It is, rather, what kind of adjustment. If by ‘adjustment’ we mean fiscal consolidation, wage and pension cuts, and tax rate increases, it is clear we have done more of that than any other country in peacetime.
- The public sector’s structural, or cyclically adjusted, fiscal deficit turned into a surplus on the back of a ‘world record beating’ 20% adjustment
- Wages fell by 37%
- Pensions were reduced by up to 48%
- State employment diminished by 30%
- Consumer spending was curtailed by 33%
- Even the nation’s chronic current account deficit dropped by 16%.
No one can say that Greece has not adjusted to its new, post-2008, circumstances. But what we can say is that gigantic adjustment, whether necessary or not, has produced more problems than it solved:
- Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day
- Unemployment skyrocketed to 27%
- Undeclared labour reached 34%
- Banks are labouring under non-performing loans that exceed 40% in value
- Public debt has exceeded 180% of GDP
- Young well-qualified people are abandoning Greece in droves
- Poverty, hunger and energy deprivation have registered increases usually associated with a state at war
- Investment in productive capacity has evaporated.
Our alleged backtracking on ‘pension reforms’ is that we have suspended the further reduction in pensions that have already lost 40% of their value when the prices of the goods and services that pensioners need, e.g. pharmaceuticals, have hardly moved. Consider this relatively unknown fact: Around 1 million families survive today on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit. Cutting that one, solitary pension is tantamount to turning a family into the streets.
In other words an enormous chunk of the country’s households (Greece has 11M inhabitants) are a “breadwinner” away from ending up in the streets. It’s no wonder that extreme right and left groups are so strong in Greece.