Anna Visvizi is a political and economic analyst and associate professor at the American College of Greece (DEREE).
"Although on 2 October a draft budget for 2013 along with further fiscal consolidation measures worth €14.5 billion were presented to the troika of Greece’s creditors, as the days filled with meetings between the government and the troika pass, no agreement on the final design of the new “savings’ package” is in sight.
In this way, it seems highly improbable that the new set of fiscal measures will be discussed during the Eurogroup meeting scheduled to take place in Luxembourg on 8 October.
It becomes also increasingly unlikely that the decision on the disbursement of the next tranche of financial assistance for Greece of the value of a €31.2 billion will be taken during the EU summit of 18-19 October.
Accordingly, the decision on the so-far hypothetical question of whether Greece will be granted more time to deliver on its commitments will have to be postponed.
The measures of the total value of €14.5 billion to be implemented over the period 2013-2016 that the Greek coalition government has been working on since June consist roughly of cutting expenditures by €11.5 billion and raising additional revenues worth €3 billion.
The bulk of the expenditure-reducing measures, valued at €7.5 billion, includes horizontal cuts in salaries, pensions, and other financial employment benefits.
The remaining €4 billion, in line with the government’s proposal, are to be saved from expenditures reduction in the health sector (€1.5 billion), defence (€650 million), education (€184 million), state-owned enterprises (€519 million), and restructuring of the public sector (€1.22 billion), mainly via reducing the operational expenses of several ministries.
The major line of disagreement between the troika and the government is defined by the issue of how imminent and how feasible the proposed measures are. That is, the troika insists on measures that are measurable and implementable instantly, such as wage and pensions cost reduction rather than measures of unknown impact on the budget such as reduction of operational expenses.
As government officials spent their days negotiating with the Troika in Athens, Greek Prime Minister Antonis Samaras seeks to gain support for his country's cause among the key EU-level players. Indeed, a remarkable shift in attitudes towards Greece has taken place across Europe since June, with the major leaders openly expressing their recognition for the fiscal consolidation efforts implemented in Greece since 2010.
This laudable change of approach to Greece notwithstanding, the new set of austerity measures needs to be examined against the daunting projections of a GDP slump of 7% for 2012 and a corresponding reduction of the GDP size to a mere €200 billion (against €193 billion in 2005 and €208 billion in 2006).
The point here is that the efficiency of the new measures, especially in view of restoring Greece’s fiscal balance as well as of creating an opportunity to push Greece on the path of growth, remains questionable.
Contrary to what several commentators say, the problem in the way the crisis in Greece has been addressed over the last couple of years is not that austerity and growth cannot be reconciled.
Evidence from the successful transformation process in Poland suggests that austerity and growth can be reconciled if they are complemented by the necessary country-specific structural reforms. In Greece the problem is that the burden of fiscal adjustment over the last couple of years has been shifted towards the private sector and – as a result of excessive taxation – government revenues decreased.
At the same time, due to a lack of effective expenditures’ reducing measures, an expenditure drift took place over the period 2010-2012. Since simultaneously no effective structural reforms aimed at liberalisation of the product, services and labour markets were implemented, the possibility of balancing the negative impact of the fiscal adjustment measures was cut at the source.
Today, irrespective of the change in the government in Greece, misconceptions about the state of the Greek economy and about the causes of the crisis continue to influence the way the crisis is dealt with at home and abroad.
As such, these misconceptions and half-truths about the Greek economy overshadow the real causes of the crisis and prevent the possibility of addressing them.
As a result, the twin-malady of the Greek economy - the bloated public sector resembling the bureaucratic systems specific to communist countries and a degree of state intervention in the economy that recalls the worst experiences of étatism - continue to crowd out private agents from the economy rendering growth in Greece unlikely.
Clearly, the change in government does not imply a change in policies implemented. In the Greek case, three issues contribute to that.
First, in a path-dependent manner the current government cannot withdraw from agreements and commitments of the previous Greek governments as regards the fiscal adjustment programme and the policies upon which it is built.
Second, the current Greek government, possibly due to its coalition structure and shaky social foundations, does not seem to be willing to recognise the degree to which the twin-malady of the Greek economy ruins the country’s prospects.
Accordingly, rather than turning the sword of fiscal adjustment against the inefficient, highly unionised and deficit-bearing public sector, once again the government chooses to hit mainly the private economy via increases in taxation concealed by the rhetoric of fighting tax evasion.
Third, the way the crisis in Greece is approached by Greece’s European and international partners is reflective of their continuing unwillingness/inability to see through the situation in Greece and to identify the real causes of the Greek predicament.
Rather than encouraging deep structural reforms, the key EU-level actors seek quick-fixes in the form of “savings”, easy scapegoats and the least possible political cost for the decisions concerning Greece they suggest.
In the circle of experts and analysts, with few bright exceptions of course, the discussion on Greece is delineated by questions of restoring its competitiveness and fighting tax evasion. As much as internal devaluation bears some merits and tax evasion is not welcome, the over-reliance on hand-steering rather than on market forces (which would be the outcome of deep structural reforms in Greece) is doomed to be counterproductive.
As time passes and the real causes of the crisis in Greece remain unaddressed, the situation in Greece is more fragile than ever. The society is exhausted with the never-ending talk of fiscal measures that bear no tangible results.
The fiscal adjustment measures, by disproportionately burdening the private sector, polarises the society between those securely employed in the public sector and those who – due to the government’s inaction vis-à-vis the public sector – lost (are about to lose) their jobs in the private sector. Unemployment soars.
The resulting social fragility fuels the rise in popularity of the radical left and right. As the success of the fiscal adjustment programme in Greece is at least uncertain, and so is the future of the coalition government, today’s Greece resembles a barrel of gunpowder ready to explode."