Protests Expose Fault Lines in Greece's Surprise Recovery
The fault line in Greece’s unprecedented return to favor with investors runs the length of 5-7 Nikis Street in Athens.
There, in front of the six-story Greek Finance Ministry, a dozen or so of the 595 cleaning ladies set to lose their state-paid jobs staged protests almost daily at being added to the 27.5 percent of Greeks who are unemployed. The women were watched over by helmeted, baton-carrying riot police, among a group of security personnel due for a bonus next month.
“They picked on us because they thought we wouldn’t speak up,” said Dimitra Manoli, 52, a mother of two who made 500 euros ($687) a month cleaning the tax office in the port of Volos, 320 kilometers from Athens. “They thought we would just go away, but we won’t. We can’t.”
The shrinking of Greece’s state employment machine slashed 8.75 billion euros from the public payroll, removing a hurdle to further international aid and ushering a return to capital markets in coming months. Yet beneath the headline figures, most of the 200,000 former state workers retired or were short-term contractors while the roster remains bloated with staff whose jobs-for-life are protected by the constitution.
“The burden sharing has been extremely uneven,” said Jens Bastian, a former member of the European Commission’s Greek taskforce. Monthly unemployment bulletins “speak a terrifying language about who has had to do the heavy lifting,” he said.
Between December 2009 and the end of 2013, Greece’s wage bill fell to 15.75 billion euros from 24.5 billion euros as salaries were cut and capped. During that time, the number of subway workers, garbage collectors and teachers drawing a state salary declined to fewer than 700,000 from 900,000.
Yet most of the job losses came from voluntary departures and not renewing fixed-term contracts, Bastian said. There were 67,568 non-permanent employees at the end of July 2013 compared with 183,000 in December 2009. Of the nearly 693,000 permanent staff, 80,000 have left, according to Bank of Greece data.
“The demand for a national plan to overhaul the country is imperative,” Kyriakos Mitsotakis, the son of a former prime minister who is in charge of administrative reform, told parliament on March 12 as Manoli and her co-workers jeered outside holding up brooms and mops. “Public administration can’t be excluded from such a plan. It’s ‘the sick man’ which to a great degree led us to today’s crisis.”
Evidence is building that Greece’s economy is pulling out of its death-dive toward collapse, a six-year recession that wiped 25 percent, or 50 billion euros, off gross domestic product and pushed the country to the brink of exiting the euro.
A stock and bond rally is fanning Prime Minister Antonis Samaras’s hopes of following Ireland back to international bond markets just two years after Greece forced losses on bondholders in the biggest debt restructuring in history.
Greek 10-year yields are down to 6 percent. While still double Ireland’s, they are half of what they were a year ago. Finance Minister Yannis Stournaras said last week Greece plans to sell bonds by the end of the first half of 2014.
Samaras, 62, had declared victory in talks with international creditors on March 18 to release more bailout money. Of the 2.9 billion-euro budget surplus before interest payments Greece extracted over the past year, 500 million euros will be provided to 1 million needy Greeks, he said at the time.
From outside his central Athens shop selling Samsonite suitcases and “Greek, not Chinese” leather handbags, Theodoros Zouridakis, 63, says the issue is debt, projected at 177 percent of GDP this year, not the surplus.
“These politicians will be gone tomorrow but the debt remains,” he said. “Samaras can’t talk to me about a primary surplus. What’s a surplus if you have 1,000 euros a month, not enough money for food, no medicine. Reality is no one is buying fish and meat in the market.”
A survey of Greeks from GPO for Mega TV showed 61 percent in favor of Samaras’s proposals on the surplus. The same number objected to the hand-out happening before European Parliament and local elections due in May. Twenty-one percent said they didn’t believe there was a primary surplus to distribute.
Samaras’s redistribution to security forces, families and people without welfare insurance comes after the far-right Golden Dawn eroded support for his New Democracy and allowed anti-austerity party Syriza to overtake in some polls.
Early on March 31, Samaras’s coalition majority went down from three to two seats in parliament as he fought for support for the latest batch of economic reforms demanded in return for international funds, ranging from rules on how banks are recapitalized to how long fresh milk can sit on store shelves.
“There’s an issue of fair distribution,” said Filippos Sachinidis, a lawmaker with Samaras’s coalition partner Pasok and a former finance minister. “If on average the economy has lost 25 percent, that’s not the case for everyone. The person who’s unemployed has lost 100 percent.”
Samaras began scaling back the state payroll by shutting broadcaster ERT in June last year, a move that led to the departure of Democratic Left from his coalition in protest.
The government promised to eliminate 15,000 jobs outright to the end of this year. It put 25,000 positions in a reallocation program, which includes Manoli, who has been a cleaner for 16 years. Under the plan, people in that group must accept any job offered them or face dismissal.
Greece now hires one new government worker for each five retiring. One outcome of the still-generous retirement arrangements for civil servants is that “it shifts the financing burden to the social security funds whose resources are already stretched,” said Bastian, who works as an independent economist based in Athens.
The pension system was overhauled in 2010, one of the first targets by the International Monetary Fund, the European Union and European Central Bank, the troika overseeing Greece’s bailout and rehabilitation. After Greece raised the retirement age and limited some payments, funds have since been hit by the restructuring of Greek sovereign bonds and the economic slump, which has exacerbated non-payment of contributions.
Greece’s adoption of the euro in 2001 meant that the country’s spending on interest fell to 5 percent of GDP in the mid-2000s from 11.5 percent in the mid-90s, according to the IMF in June. Those savings were “more than swallowed up by increased spending on wages and pensions,” it said.
Governments since the end of the military junta in 1974 struggled to force through changes to pensions or labor markets to make Greece more competitive. Politicians traditionally promised different groups jobs and perks to ensure support.
Almost 10,000 clerics are paid by the state, exempted from the cuts and reassignment mandated by the troika.
Civil servants in permanent positions have their jobs protected by the constitution, with the only loophole being if government agencies are abolished. Their unmarried or divorced daughters received their deceased parent’s pension, a payment that at times could reach 4,000 euros a month. That benefit was cut entirely in September last year.
The public sector is “bureaucratic, ineffective, corrupt and inept with only a minority exhibiting the exact opposite traits,” said John Sfakianakis, chief investment strategist at Riyadh-based investment company MASIC, who was born in Greece. “Overhauling the public sector in Greece is an essential component under any meaningful economic reform project.”
Zouridakis, the store owner, agrees.
“Ninety percent of civil servants should have been gotten rid of,” he said. “Millions from the private sector lost their jobs. The cleaner on 500 euros a month isn’t the problem.”
The imbalance of job losses between private and public workers is reflected in Greece’s struggle to mimic labor market changes in countries like Spain and Portugal that have made them more competitive and export-driven.
Greece is 91st in in the World Economic Forum’s competitiveness ranking this year, the lowest of any EU country. Portugal, which is set to exit its bailout program this year, is rated 51st. Greek public institutions rank 102nd and an inefficient labor market continues to hold back Greece from emerging from the crisis, the WEF said.
Then there’s the question of efficiency. Walk into a municipal office in Greece and people are busy filling in forms by hand on both sides of the desks. At so-called KEP centers set up in the late 1990s to aid Greeks in negotiating the tangle of paperwork, Greeks wait in line for staff using as many as four stamps to validate a statutory declaration.
Mitsotakis, the minister charged with implementing the changes, scrapped a perk in September last year allowing civil servants to take six extra days off a year if they worked at computer screens for more than five hours a day. He said the leave, introduced in 1989, “belongs to another era.”
Ministries have also been weeding out false and double pensions. In another case, increased inspections found the entire staff of one government agency had been receiving overtime pay even while on holiday, Mitsotakis told parliament on Feb. 11. One Interior Ministry employee had been absent without an officially recorded reason for more than two years.
“Our state has become smaller, but we can say with certainty that it has not become better,” Mitsotakis said. “One of the reasons for the crisis was that we aimed to live like Europeans without having a European state.”
The antiquated system, apart from falling short of the key issue of effectively collecting taxes, also failed to adapt promptly to the bailout conditions.
An analysis by the Brussels-based Breugel research group in February concluded that “conditionality” for the Greek bailouts became increasingly detailed as the troika realized that implementation wasn’t working. It was in part because of a “weak and dysfunctional public administration,” it said.
Belgian and Dutch experts are working on tax administration, while the Germans are helping with changes to the health-care system. More than half of the European technical assistance is focused on tax collection, public financial management and reform of the central administration, according to the taskforce’s latest report on March 11.
Manoli, the cleaner, shrugs when asked about the fiscal achievements, and the appearance of a primary budget surplus. Her 32-year-old daughter has lost her job and has now moved back in with her for support.
“If I leave all my bills unpaid, I will also have a surplus,” she said.
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