Greeks Brace for Losses as Papandreou Debt-Cutting Odyssey Enters Year Two
Greek Flag Flying
Eirini Vourloumis/Bloomberg
Greek and European Union flags fly outside the Bank of Greece headquarters in Athens.
Greek and European Union flags fly outside the Bank of Greece headquarters in Athens. Photographer: Eirini Vourloumis/Bloomberg
April 21 (Bloomberg) -- Holger Schmieding, chief economist at Joh Berenberg Gossler & Co., talks about Greece's austerity measures and risks from the European sovereign debt crisis. He speaks with Mark Barton on Bloomberg Television's "On The Move." (Source: Bloomberg)
Damaged Bank of Greece Logo
Eirini Vourloumis/Bloomberg
A damaged logo of the Bank of Greece hangs outside the bank's headquarters in Athens.
A damaged logo of the Bank of Greece hangs outside the bank's headquarters in Athens. Photographer: Eirini Vourloumis/Bloomberg
Greeks Gird for Losses, Debt-Cutting Odyssey Enters Year Two
Kostas Tsironis/Bloomberg
Protesters raise a Greek flag decorated with 'For sale' stickers outside the parliament building during a public workers strike in Athens.
Protesters raise a Greek flag decorated with 'For sale' stickers outside the parliament building during a public workers strike in Athens. Photographer: Kostas Tsironis/Bloomberg
Georgios Kakaboukis, 87, has survived the Nazi occupation of Greece, a civil war, a military coup and martial law. He can deal with Prime Minister George Papandreou cutting his Easter holiday pension bonus.
“Some people, these younger ones, haven’t lost anything at all,” said Kakaboukis, a retired civil servant, while waiting in line to see his doctor at the state welfare office in the Athens suburb of Neos Kosmos. “Greeks have learned to yell, raising their fists in protest while the other hand is stretched out for handouts.”
It’s been almost a year since Papandreou traveled to the remote island of Kastelorizo on April 23 to tell Greeks they needed to grab the financial lifeline from the European Union and International Monetary Fund. Evoking Homer’s Odyssey, the Socialist premier said he had “charted the waters” and “knows the way to Ithaca,” the home of the mythological hero Odysseus.
Greeks are realizing that the journey to financial health is only just beginning. A year of spending cuts and tax increases has failed to tame the euro-region’s second-largest deficit and the government is pushing for more austerity. Record bond yields signal investors’ bets that Greece will capitulate and restructure a debt forecast to peak at 159 percent of gross domestic product next year.
With unemployment set to exceed 15 percent this year, and the country’s central bank saying the economy may shrink more than its 3 percent forecast, the third year of contraction, Greeks are girding for more losses. Last week, Finance Minister George Papaconstantinou announced cuts covering the next five years, targeting schools, hospitals, and public transit.
‘Won’t-Pay’ Movement
Wages and pensions have already been reduced for the 768,000 state workers and the bonus payments were eliminated. The deficit-cutting drive that was a condition of 110 billion euros ($160 billion) in aid has left hospitals without supplies, forcing closures. Higher public transit fares have sparked a “won’t-pay” movement on buses, trains and toll roads.
Athina Eleftheriou, 50, is fed up with Papandreou.
“We should throw him in the sea and let him find his own way to Ithaca,” said Eleftheriou. Sales at her central Athens store selling silks imported from India have fallen by half, as have her prices, while sales taxes have risen, she said. “Nobody asked the Greeks about this.”
Yiannis Constantinidis, 57, Eleftheriou’s husband, says Papandreou’s policies are squeezing small businesses and forcing people to dodge taxes, worsening the situation.
Growing Disenchantment
“He’s taking 45 percent of profit, 23 percent VAT and indirect taxes and there’s nothing left,” he said. “He’s forcing us into a position where we can’t pay.”
The couple represents Greece’s fastest growing political group: the disenchanted. Polls show Greeks increasingly unhappy with both Papandreou’s Socialist Pasok party and the main opposition New Democracy led by Antonis Samaras.
Thirty percent of the 1,005 Greeks surveyed by Kapa Research between April 11 and April 14 said they were undecided about who they would vote for if elections were held now. Pasok garnered the support of 21.7 percent; New Democracy of 20.1 percent.
More than half said their greatest fear was a major cut in their household income. The second-greatest was a bankruptcy of the Greek state, according to the poll.
Papandreou and Papaconstantinou are sticking to the plan, rejecting default and saying the economy needs to be overhauled to avoid wasting their efforts. “Restructuring holds huge dangers for Greece’s economy, Greek banks, households and businesses,” Papaconstantinou said yesterday. “I leave out the issue of what will happen in the rest of the European Union.”
Buying Time
The bailout was designed to give Greece room to cut a budget shortfall that soared to 15.4 percent of GDP in 2009, the EU plan foresees the country returning to markets for financing in 2012, an eventuality bond yields are signaling isn’t likely to happen. The deficit is targeted to fall to 7.4 percent this year and to within the EU’s 3 percent limit in 2014.
The yield on the country’s 10-year bond was 14.8 percent yesterday, about 600 basis points higher than when Papandreou asked for the aid a year ago. Borrowing costs for two-year Greek bonds exceed 22 percent, more than 10 times what Germany pays.
Echoing the pre-bailout dynamic, ratings companies have kept up the pressure on Papandreou, lowering the country’s creditworthiness to junk status. Meantime, tax evasion, slumping growth and corruption are undermining his efforts.
Missing Target
Government revenue grew 5.5 percent in 2010, compared with a targeted increase of 6 percent. The government initially forecast a 13.7 percent increase and was forced to reduce the goal twice as increases in value-added taxes and levies on alcohol, tobacco and fuel failed to generate enough income.
Greeks were asked to pay bribes of between 150 euros and 7,500 euros for surgery in public hospitals, with payments to doctors to facilitate the process ranging from 50 euros to 1,500 euros, according to data presented by the Greek chapter of Transparency International and posted on its website.
Total bribes paid were an estimated 632 million euros last year, about 0.3 percent of the economy, the report said.
Plans to cut the state’s stakes in the phone, gambling and power companies have reignited union dissent, with the country’s biggest groups calling a general strike for May 11, days before Papandreou takes his five-year plan to parliament for approval. His majority in the legislature has fallen to 156 of the 300- seat chamber. That’s down from 160 after his election in October 2009 as lawmakers broke ranks.
Toughening Rules
As the EU pushes through legislation to toughen punishment of governments that breach the bloc’s budget-deficit and debt limits, Socialist politicians say the EU must avoid pursuing punitive policies.
“The weaker economies will go through a period of blood, sweat and tears,” says Udo Bullmann, a German Socialist member of the European Parliament. “The leaders there have to be able to offer something to their people. They have to be able to say ‘you get something more from Brussels than sanctions.’”
Kakaboukis, the pensioner, says Greeks are well aware of their failures, referring to bankruptcies in 1843 and 1893. Default wouldn’t be the end of the story, and would spread to other countries, he said.
“Bankruptcy isn’t just a word,” he said. “Bankruptcy, restructuring, these are terrible things. We will all fall in the sea together.”
To contact the reporter on this story: Maria Petrakis at mpetrakis@bloomberg.net
To contact the editor responsible for this story: James Hertling ay jhertling@bloomberg.net
Rate this Page