Other benefits have been cut by more than 18 per cent.
Some 40 per cent of the population say they will not be able to meet their financial commitments this year.
Unemployment has risen 160 per cent so that 3.5 million employed people now support 4.7 million unemployed or inactive Greeks.
Of the 3 million people constituting Greece’s labour force, 1.4 million are jobless.
Of the 1.4 million jobless only 10 per cent receive unemployment benefit and only 15 per cent any benefits at all. The rest must fend for themselves.
Of those employed in the private sector 500,000 have not been paid for more than three months.
Contractors who work for the public sector are paid up to 24 months after they provide the service and pre-pay the sales tax to the tax office.
Between 2008 and 2014 small and medium-sized companies reduced their workforce by 29.3 per cent and their output (in value added terms) by 40.2 per cent.
Half the businesses still in operation throughout the country are seriously in arrears with their compulsory contributions to their employees’ pension and social security funds.
In 2013 36 per cent of the population officially lived at risk of poverty or social exclusion. That percentage is on the rise.
Household disposable income has contracted 30 per cent since 2010.
Healthcare expenditure was cut by 11.1 per cent between 2009 and 2011 alone, with significant rises in HIV infections, tuberculosis and stillbirths.
Could any of these bleak statistics, which documented our nation’s conversion into a wasteland, be seen as a sign of improvement? Or do they perhaps explain the Greek voters’ inability to spot their country’s supposed economic recovery?
Greek-covery?
Nonetheless, in December 2014 the government and the troika were adamant: their success story was true and the economy was showing clear signs of green shoots. They even coined a neologism: Greek-covery. But manufacturing output, which in 2011 had fallen by 4 per cent and in 2012 by another 15 per cent (equal to the entire loss of manufacturing output during Britain’s Great Depression), had registered a small upturn in 2013 but in 2014 had started shrinking again. Meanwhile, industrial production during 2014 was down by 3 per cent and net investment was negative.6 As for employment, although the minimum wage had fallen by a world-beating 40 per cent, making Greece the land of dreams for the world’s neoliberals, full-time employment continued to decline, precarious employment rose by a smidgeon and overall hours worked fell.7 So what evidence could there possibly have been to make this claim?
Partly, it relied on a peculiar set of statistics. Technically, real income – economists’ jargon for income adjusted to take into account the changing price of goods – was up. But this was a mirage created by a dramatic decline in prices, which made purchasing power appear much stronger but took no account of the countervailing and overriding costs of massive debt. Appendix 1 provides a full debunking of this nonsense.
Mainly, it relied on the fact that by 2013 Greece had become a surplus nation, meaning essentially that its exports exceeded its imports, suggesting an overall improvement. Since 2010 the troika had been promising the Greeks that the silver lining to the cloud of wage cuts would be a growth in exports, as the reduction in the costs to business within Greece would increase its competitiveness. By the end of 2014 the troika and the government were on an I-told-you-so spree, along with the foreign media, financial newspapers, government and EU economists. ‘Greece posts first current-account surplus for many decades,’ they trumpeted.
Had they considered the last time Greece posted a trade surplus, they might have understood that the situation was actually awful. This was in 1943, under the Nazi occupation, when Greeks could not afford to eat, let alone import goods from abroad, but still managed to export a few oranges, a few apples and the like. In 2014 the economic collapse had produced a similar state of affairs. The sorry reason for our current account surplus was that the deepening recession had crippled imports, while exports of goods were flat despite the massive reduction in labour costs.8 A cause for mourning had been spun as a reason to celebrate.
The reality was evident everywhere. Even when the government put Greece’s remaining family jewels up for sale, there were either no takers or only those of the shady variety. When, for example, the national lottery was put on the market, the highest bid came from a consortium whose ways I would come to know all too well after assuming the finance ministry: having paid a pittance for the state’s only cash cow, they then demonstrated its remarkable capacity to prey on hopelessness to the full. Even worse was the sale of the state gas monopoly, in which only Mr Putin’s favourite conglomerate, Russian giant Gazprom, showed an interest. Hours before the sale’s announcement, Gazprom decided not to meet the tiny asking price after all, with their spokesperson citing the deflationary spiral ravaging the Greek economy as the reason for withdrawal. How could they pay even today’s price when it might be worth only half that tomorrow? they asked.
Real estate, a fairly safe investment in normal times, fared just as badly. The site of the old Athens airport at Hellinikon is a prime plot: more than twice the area of London’s Hyde Park, it is located next to the most upmarket suburbs of Athens on the coast of the Saronic Gulf with its turquoise waters. And yet only one bidder appeared – and demanded as a condition of their bid that the state invest almost as much money in the site’s development as they were offering.
Meanwhile, the Samaras government and the international financial press were waxing lyrical over the success of the great recapitalization of the Greek banks effected by the second bailout. And yet in February 2014, months after the money had been received from the troika, asset management company Blackrock reported that the banks were so full of non-performing loans that they required yet more cash. By June 2014, with Schäuble running out of patience with the Samaras government, the IMF was leaking that an extra €15 billion was needed for the banks, a significantly larger sum than the roughly €11 billion left in the kitty from the second bailout loan. By the end of 2014, with Greece’s second bailout running out of time and cash, and the government facing another €22 billion of unfunded debt repayments the following year, the troika could have been in no doubt that a third loan was necessary. In other words, the IMF and Dr Schäuble knew full well that a third bailout loan would be required at the same time as the Samaras government was insisting that, were it to be returned in the next general election, there would be no such loan.
The fairy tale of an emergent recovery – or the promise that one was around the corner – was the perfect definition of one of my favourite English phrases: adding insult to injury. But why add insult? Was the injury not enough? There is an answer, and it is not pretty.
On 21 January 2015, four days before election day, I was on the phone to Jamie Galbraith sharing my deepest fears. Initially, the Greek-covery nonsense had been a strategy to win the election, but now Samaras and his ministers were resigned to losing it, they were redeploying the recovery fairy tale to prepare the ground for winning the blame game instead. By pretending that the third bailout loan was not necessary, when the truth became apparent that it was they could argue that it had only become so as a result of our government’s negotiating stance. Indeed, from the troika’s perspective having a Syriza government introduce the third bailout was politically perfect as it would absolve them of the devastation they had been causing since 2010. All pain thereafter, including the rolling-over of unsustainable debt and new austerity measures, could then be blamed on Syriza’s reckless attempt to confront them – and on one person in particular.
Jamie agreed that if our nerve wavered during the negotiations I would be in trouble, but he was certain that Alexis would remain steadfast till the end. Having been caught up in the electrifying moments at Thessaloniki in June 2013, when the three of us had addressed enthusiastic crowds together, Jamie did not share my doubts in this area, and, with only a few days before the polls opened, we needed all the confidence and enthusiasm we could muster.
Moreover, it was my belief that for years Wolfgang Schäuble, Germany’s finance minister, had favoured Grexit but had been repeatedly frustrated in this ambition by Chancellor Merkel’s opposition. I would not have been surprised if Wolfgang saw a Syriza government determined to clash with the troika as providing him with the ideal opportunity to convince Merkel that it was time to throw the Greeks out of the eurozone. The risk for him was that Syriza might fight to the end, with Mario Draghi and Merkel ultimately relenting and giving Alexis a fair deal. To Wolfgang Schäuble that was the nightmare scenario, as it would open the way for the Spaniards, the Portuguese, the Italians and any other European people to re-establish some control over their economic lives.
The buck would stop with me. But what was the alternative? An historical accident had given us a rare chance to do right, speak truth to power, and work to bring a genuine recovery to our wasteland. It would have been unforgivable to turn it down.
Gree-sterity
While our troubles were legion, the troika had its fair share too. The IMF had been uneasy from the very beginning, dragged into the mire of Bailoutistan by a European leadership for whom the French banks and their personal ties to Germany’s leadership mattered more than the fund’s internal rules and cohesion. Since 2011 the IMF had been making noises that debt relief was essential, had unsuccessfully sought a common front with Athens against Berlin in 2012, had let the cat out of the bag in June 2013 by stating that the Greek banks’ 2012 recapitalization had been grossly inadequate and inept, and as late as May 2014 had issued a report that ‘debt sustainability remains a serious concern’ – polite language for saying that it was at catastrophic levels.9 After years of spectacular analytical and predictive errors, the IMF’s analysts – indeed all the troika’s officials with some economics training – had finally realized that the very basis of their Greek programme was flawed, making it impossible to implement.
Appendix 2 provides a full explanation of the IMF’s flawed analysis, but for a simple demonstration of the self-defeating nature of austerity, take a look at Figure 2.
The horizontal axis depicts the extent of practised (cumulative) austerity over the five years that followed the credit crunch up until just before Syriza’s victory.10 Germany’s total austerity amounted to 2 per cent, Italy’s 3 per cent, Portugal’s 5.4 per cent, the UK’s 6.3 per cent, Spain’s 6.8 per cent, Ireland’s 9 per cent, and Greece’s 18 per cent. The vertical axis, meanwhile, shows the cumulative growth in national income during the same period. Very clearly, the greater the austerity the lower the growth in national income.11 Greece’s position at the bottom right-hand side of the graph is enough to tell its heartbreaking story.
Figure 2: The degree of austerity is measured on the horizontal axis as the reduction in the government’s structural deficit as a percentage of national income. The vertical axis is nominal national income growth over the same period.
As Christine Lagarde would later tell me in person, the conundrum the troika faced was that there was now too much political capital at stake to admit their error.12 The day before the election, a financial journalist told me during a break from our interview that he thought it took a determined disregard for the truth to argue that Greece was recovering. I disagreed: ‘It is not so much that they do not want to tell the truth. They are panicking and making it up as they go along, keen to avoid treading on the toes of bankers first, Mrs Merkel later. Now they fear for their jobs if they tell the truth.’
And yet, as we were about to win that election, the troika, the media and the Greek government were debating not how to end this loop of doom but what level of austerity would suit their political agendas best: too little austerity would make a mockery of the troika’s incoherent arithmetic, too much would undermine the Greek-covery narrative and anyway be impossible to get through a sceptical parliament.13
This is why the people of Greece voted for Syriza, an acronym for the Alliance of the Radical Left. They had not suddenly fallen in love with the radical left, which had hitherto languished on the margins of power. They had no interest in jeopardizing any nascent recovery. They had no ambition to confront Brussels, Berlin, Paris, Frankfurt and Washington. They did not even mind making more sacrifices or tightening their belts further if this would work. No, they voted for us because they had had enough of making sacrifices that achieved nothing, enough of measures that sank them deeper in indignity, insolvency and despair while others celebrated their recovery. That is why we received the votes not just of radicals and factory workers, taxi drivers and farmers, but of decent conservatives, struggling business people, right-wing patriots and monks – from everyone in fact concerned, like Lambros the homeless man who had made such an impression on me, for those people who had not yet fallen into the hole waiting to consume them.
First contact
It was while I was running for election that Germany’s ambassador to Greece invited me to the ugly fortified embassy of the Federal Republic, a stone’s throw from Britain’s equally ugly mission and not far from the graceful neoclassical mansions serving as the embassies of Italy, France and Egypt. A tall, lanky man, the German diplomat treated me to a long and exciting afternoon. Pappas warned me that the ambassador had signalled to Alexis his clear dissatisfaction with the news that I might be appointed finance minister. If he had, it did not show. What did show was his eagerness to take my measure.
I found him intelligent and pleasant to talk to, though intense and bristling with ideas on what we should, and should not, do were we to win the election. Over the course of more than two hours, he inducted me into my forthcoming job with a simulated but comprehensive negotiation involving everything on Greece’s economic agenda: debt, taxation, banks, market reforms, privatization, labour markets. He clearly knew his stuff and did not hide his government’s attitude: in Berlin’s eyes, Greece had forfeited its sovereignty long ago, and its government would be treated as petitioners. But he also showed some understanding of Berlin’s complicity in the Greek disaster, with hints at a readiness to compromise that revealed his sympathy for the SPD (Germany’s Social Democratic Party).
The same day Pappas passed on to me a missive with some advice on what to do after we won office from Jörg Asmussen, a youngish man of some significance in the SPD. Asmussen had started his political career at the finance ministry under Wolfgang Schäuble during the turmoil of 2008, at which time a coalition of Merkel’s Christian Democrats and the SPD was in power. He had been the ministry’s point man in helping to save the German banks, a role that had given him kudos but also a front seat to witness the process by which Greece was incarcerated in its debtors’ prison. His services to the finance ministry were rewarded with a seat on the European Central Bank’s executive board, a position of immense authority for a young man with few banking credentials. In 2013, when his ECB stint ended, Asmussen returned to Berlin as a junior labour minister with a key remit: to introduce a minimum wage for the first time in Germany, a major reform that Chancellor Merkel had agreed with her SPD coalition partners, inciting the wrath of her own party.
The moment I heard that Asmussen had written to us, I pricked up my ears. He punched well above his official weight and was the man I had expected the troika to use as a feeler, a first contact between them and us. He was ideally suited to the role. This was a Social Democrat who had worked closely with arch economic conservative Wolfgang Schäuble as the German banks were collapsing, a man who had been at the helm of the ECB in 2012 when Grexit was on the cards before Mario Draghi put his foot down, signalling to Chancellor Merkel to take it off the table, and one of the very few people to have worked on the ECB’s Plan Z – the scheme by which Greece might be detached from the eurozone at minimum cost to the other member states. What I had not anticipated was that Asmussen would not be coming to us alone. Rather, he had written with the express purpose of introducing us to another functionary of even greater significance, Thomas Wieser.
