Too early for good news from Greece
Ministers' claims that the economy has "turned a corner" don't bear up to scrutiny.
"Greece has turned a corner" is the general message Yannis Stournaras, the Greek Finance Minister, has been trying to spread in the past few months. Not only "The IMF has praised improvements to Greece's much-maligned tax collection procedures," as the Greek media have been reporting lately, but also, as Stournaras said, "Greece could return to international debt markets by next May." This same line has been at play since late last year, when the Bank of Greece Governor Giorgos Provopoulos stated in an interview with the Financial Times that the worst is over. "Greece could return to the markets in 2014," Stournaras went on. "We've turned a corner".
The international media have tried their hand at this, with Reuters columnist Hugo Dixon writing in his piece The Gloom Around Greece is Dissipating:
Athens now seems on course to achieve 'primary balance' this year. In other words, it will not have a budget deficit before interest payments. That means it probably will not have to implement another round of austerity next year, so the economy will not be struggling against that obstacle.
One might notice there is a quite big maybe in there, standing out. In the same spirit, Yannis Stournaras commented last week in an interview with NET that "this year we managed to make up for two thirds of the fiscal gap, without cutting pensions". Again, Stournaras seems to only be speaking about part of the money Greece will need within 2013 in order to avoid cutting deeper into pensions and public spending, while at the same time admitting that 2013 will be a very difficult year. His view is that unemployment will start falling in 2014.
There are several problems with this, and the unavoidable question arises: is Greece really doing better or is Stournaras simply spinning a positive vibe to soothe the markets and maybe help Merkel and co. look good ahead of the German elections in September? The first issue here would be a whopping €8.2bn the country owes to private companies and contractors. Greece has only managed to make its overall finances look good by stopping payments towards the domestic market. Part of the bailout funds will have to be used in order for this debt to be paid off, but a sense of "too little, too late" is in the air as this delay has strangled many businesses in the past 3 years. A "possible return to the markets" is more like a "necessary exit" as bailout funds run dry next April and additional aid looks unlikely to arrive. Any issues we might face on the road there, lie exclusively with the coalition's financial strategy.
The government's decision to increase taxation on heating oil did not only leave many Greeks unable to heat their homes last winter, but also caused general revenue from taxes to drop by €291m, after consumption fell by 68.7 per cent. Since the beginning of the year, due to this and other tax hikes, tax revenues were lower than the targets set by the government and the Troika in the first three months of 2013.
The most terrifying prospect Greece faces in the next few months though, is the devastating unemployment. Overall unemployment in Greece is now 27 per cent while it goes up to 28.7 per cent in certain regions. In the 18 to 25 age group, unemployment stands at a staggering 64 per cent. To give some perspective, unemployment stood at 21.9 per cent last January, and has more than tripled since the crisis began in 2008. It is likely that it will touch 30 per cent by the end of the year, despite the cuts in wages that now sees those making the minimum wage earning no more than €440 per month after taxes.
It is easy to assume that in his statement, Yannis Stournaras means that unemployment will start falling once it reaches the dreaded 30 per cent. This does little to comfort Greeks. Despite the numbers the government chooses to stress in order to support its position of "light at the end of the tunnel", the very real problems of unemployment, dwindling consumption and political instability are felt by ordinary Greeks. New cuts in wages and pensions are still on the table if Greece doesn’t achieve a primary surplus this year or if, let's be honest, this primary surplus is achieved on shaky grounds and new taxes await within the year.
We've yet to see the Greek government clash and cut its ties with the Greek oligarchs that have refused so far to pay their fair share of the burden. Ship-owners still enjoy scandalous tax-exemptions, while the same people who often found themselves facing charges for cheating the state out of millions (and still owe tens of millions according to the data released by the ministry of finance) appear to still be in business with the ruling New Democracy party. This only stands proof that the government will opt to put even more of that burden on the backs of those already finding themselves in dire position because of this unwillingness.
The ruling coalition and the Troika's spin dominates public discourse in Greece. According to a recent report, the government takes up 63.4 per cent of the time allocated to political parties, while the Troika and its representative’s statements take up 57.2 per cent of the rest. This may be helpful for the financial climate to improve at a superficial level and to make Angela Merkel and Wolfgang Schauble look good while elections draw near (a courtesy Schauble looks unwilling to grant Greece), but it does little in the way of truth.
A harsh summer that will bring hikes in electricity bills will find Greeks once again in discomfort, this time battling the predicted heatwave without access to air-conditioning. Health issues will inevitably arise. And that's only one part of the problem. No matter how much the Greek government wants us to believe things are bound to get better, it does to little to help those who actually need it: the people. If only wishful thinking and PR could replace reality…
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