Last night there was a key vote in the Greek Parliament. That is an opening sentence that could have been written far too often in recent times as she has been plunged into economic turmoil. Unfortunately the sense of deja vu was reinforced by the fact that there was an ongoing General Strike taking place. Also the television cameras of the world’s media were able to catch a few pictures of bottle and stone throwing, although I would be interested to hear from Greek readers how realistic an image that gave or whether it was isolated. Adding to all this was yet another austerity package which in another familiar theme was labelled “the last one”.
What was this austerity package composed of?
It was composed of some 13.5 billion Euros of additional measures. If we look at her likely Gross Domestic Product for 2012 these measures will represent some 5% of it and by the time they are employed in a shrinking economy in 2013 and 14 they will represent an even higher percentage than that. These are savage measures for a country which has already had more austerity than it can take or cope with.
The bill covered a lot of measures but let me give you a flavour of them. From Kathimerini
The legislation sees the retirement age rising from 65 to 67 pensions between 1,000 and 1,500 euros being cut by 5 percent, those between 1,500 and 2,000 by 10 percent, and those over 2,000 by 15 percent. Christmas, Easter and holiday payments will be scrapped. Lump sum payments for people who enter retirement will be cut by up to 83 percent, depending on the sector.
Also there were wage cuts too.
Civil servants will lose their Christmas, Easter and holiday payments. …There will also be pay reductions for ministry staff, local authority workers, employees at the National Intelligence Service and the country’s president.
Added to this were cuts in “special salaries” given to judges and indeed workers at Greece’s central bank where I gather 40 have resigned. I was intrigued to see reports that the Bank of Greece has 3000 employees as for example in its latest accounts the Bank of England has 1800.
Whilst the measures on what might be called “fat cats” are no doubt welcome there is a fundamental problem with all this. If such austerity measures were working Greece would be the strongest economy in the world would it not? After all she has had several doses of the medicine already. This leads me to the catch which follows from the number below.
The retail trade volume index, including automotive fuel, decreased by 9.2% in August 2012 compared with August 2011.
So we see that domestic demand according to the latest data is very weak and this comes on the back of domestic consumption by households falling by 4.6% in 2011. As “compensation of employees” or wages for short fell by 9% in 2011 weak domestic demand in 2012 is hardly a surprise is it? But the brains trust responsible for policy will now by its measures give wages another downwards push which will push domestic demand even lower as we move through 2013 and 14.
Approximately 11 billion Euros of austerity will be applied to an already shrinking economy in 2013 which could easily mean that 2013 is the worst year yet for the Greek economy.
The European Commission sticks its head in the sand
You might think that some real humility would be displayed following this.
The contraction is expected to extend into 2013, a sixth year of recession, and its main drivers remain broadly unchanged.
Er,well exactly! After all the original documentation for the “rescue” for Greece forecast growth of 1.2% in 2012. But never fear the official tendency to forecast a recovery regardless of any evidence for it is still there.
The turning point of the recession is expected in the second half of 2013, leading to moderate GDP growth of 0.6% in 2014.
And even more unbelievably in the circumstances we were told this.
with the unemployment rate at around 22% in 2014.
What is the unemployment rate now?
In a coincidence of timing the latest unemployment numbers for Greece have been released as I have been typing this. So let us investigate them.
Unemployment rate in August 2012 was 25.4% compared to 18.4% in August 2011 and 24.8% in July 2012.>
So not only is it much higher than the forecast we can see that it is rising and even more sadly that it is rising quickly. If we put it another way.
Unemployed increased by 351,666 persons (a 38.4% rate of increase) compared with August 2011 and by 23,442 persons compared with July 2012 (a 1.9% rate of increase).
Perhaps the European Commission will explain to us exactly how this will convert into an improvement by 2014.
Employment is a signal
Regular readers will be aware of my theme that employment and changes in its level has been at times a leading indicator in the credit crunch era so let us examine it too.
The number of employed decreased by 327,658 persons compared with August 2011 (a 8.1% rate of decrease) and by 36,597 persons compared with July 2012 (a 1.0% rate of decrease)
So if it does continue to have some power of prescience I am afraid that the future does not look bright at all.
We can also compare the level of employed to the combined totals of the inactive and the unemployed. If we do so we see this.
The number of employed amounted to 3,726,663 persons.The number of unemployed amounted to 1,267,595 while the number of inactive to 3,375,297.
So the number of employed is only 80% of the other two categories combined or 44.5% of the total. This is getting ever harder to sustain as the numbers get ever weaker. Two years ago (August 2010) the ratio was 52.6% and in many ways this is a useful measure of the economic catastrophe that has been inflicted on Greece.
I have to confess I looked at these numbers with some trepidation and it turns out that I was right to do so.
in August 2012 the total Building Activity (private-public), in the whole country-which is calculated on the basis of the number of issued in the whole country -amounted to 1,210 . This figure corresponds to 265.5 thousand m2 of surface and 1,186.7 thousand m2 of volume, reflecting respectively a 48.2 % decrease in the number of building permits, a 37.3 % decrease in surface and a 27.5 % decrease in volume, compared to the month of 2011.
We have seen all of this before where rose-tinted forecasts of the future and promises that this is the last set of measures are used to get Greece to agree to more austerity. It was only on the first of this month that I wrote about the rose-tinting of forecasts and how they have proved to be so,so wrong and what do we get? Another set of fantasies.
In return for this Greece will get some 31.5 billion Euros of bailout cash from the troika but the sad fact is that the vast majority of this will keep her in the mess she is in and in fact help to deepen it as her debt burden continues to rise. I think that her “rescuers” have in fact become jailers.
What can she do? I have three immediate suggestions.
1. Leave the Euro
2. Default on a substantial portion of her debt
3. Completely change her political class who have in effect sold her out
Sometimes one gets odd allies in a campaign but here is European Commissioner Ollie Rehn quoted by Kathimerini on Greece’s debt burden.
There is no denying that it is increasingly unsustainable without further measures designed for reducing debt