“ The puzzle of European integration: Will Greece be the first piece to fall through?”

1. “The puzzle of European integration: Will Greece be the first piece to fall through?” MaricaFrangakis NicosPoulantzas Institute

2. Section 1 - The ‘puzzle’ of European integration;Section 2 - The case of Greece; brief historical overview, profiling of the economy, the social situation, the bail-outs, the private sector involvement and the political process; Section 3 - The impact of austerity in Greece; the current outlook Section 4 - Some thoughts on alternatives

3. EU: An ill-fitting puzzle • Inherent deficits in European construction: social, environmental, democratic • Euro architecture reflects belief in ‘free’ market as arbitrator of social and economic relations; financial deregulation • Fiscal co-ordination = fiscal discipline; SGP • Narrow ECB mandate • Wage moderation : main convergence tool • Crisis has exacerbated EU deficits • Fiscal view: austerity as the cure to the crisis • Imbalances view: adjustment goes both ways

4. Fiscal profligacy all around?

5. Average Labour Unit Costs indices for non-core and core countries (2000=100)

7. The Greek saga - Brief historical overview • 1950-1973 - ‘growth at any cost’, based on ‘social compromise’, tolerating various tax digressions • 1980s - beginnings of the welfare state; former national champions nationalised, with the state taking over their liabilities; sluggish growth, high inflation & a worsening of public finances. • 1990s - 2000s - Joining the eurozone, strategic goal; manufacturing and agriculture – fell further behind; privatization & market liberalisation deepened financialisation of the economy • Public finances ‘massaged’ through derivatives with the help of Goldman Sachs

9. Profiling the Greek economy – Basic Indicators 2002-2006

10. Ranking of the Greek economy in EU27; EU17 (2002-2006) • Growth rate 9th; 4th • Growth rate/capita 11th; 4th • Domestic demand growth 8th; 5th • HICP 6th; 3rd • Employment 8th; 6th • Unemployment (% of labour force) 6th; 3rd • Labour productivity 11th; 4th • Real LUC 9th; 5th • Gen. Government expenditure (% GDP) 12th; 9th • Gen. Government Revenue (% GDP) 16th; 12th • Interest expenditure (% GDP) 2nd; 2nd • Public Deficit (% GDP) 2nd; 1st • Public Debt 2004-2006 (% GDP) 2nd; 2nd • Trade balance (% GDP) 3rd; 2nd • Current account balance (% GDP) 3rd; 2nd

11. Cost of government produced and government funded goods and services (% GDP)

12. Employment in general government (% labour force)

13. Structure of general government expenditure by function 2008 (%)

14. The social situation in Greece • Catching-up country: average per capita income fell from 89.2% of former EU15 in 1980 to 72.3% in 2000; it increased until 2009, when it reached 84%, only to decline again to 74.4% in 2011, going back to the level of the early 1990s • Share of wages in GDP also fell from 69.3% on average in 1981-1990 to 61.7% in 2001-2010. Distribution of income is highly unequal: income of top 20% 5 times greater than that of bottom 20% • High rate of poverty: in 2010 27.7% of population at risk of poverty or social exclusion; Greece: poorest country in the eurozone and 7th poorest in EU27. • Social transfers & benefits do not ameliorate the situation significantly

15. Crisis management – Bail out I 2010-13 • Loan of €110 billion, of which €80 bn intergovernmental loans by the eurozone countries & €30 bn by the IMF; • Until February 2012, €73bn disbursed. Of this, approx. 64% used to repay bonds and loans that matured between May 2010 - December 2011; Greek banking system has received €23bn through the HFSF • 3.5% interest rate; maturities of 15-30 years; grace period of 10 years. • Strictly conditional on implementation of harsh austerity measures • Disbursement to be made in 13 tranches, each conditional on a review of fiscal developments.

16. Crisis management – Bail out II 2011-14 • €130 billion loan from eurozone & IMF; Greek banks to get €25 bn through the HFSF • Additional fiscal austerity measures • Priority given to debt servicing payments; segregated account • ‘Enhanced and permanent presence’ of the Task Force already set up under the first bail-out agreement • Obtaining political assurances from the leaders of the two major political parties • Reservations about the holding of national elections! • PSI to reduce value of GGB by 53.5% = 30% of debt; will absorb 72% of bail out II (Euro 93.5 bn)

17. Private sector involvement (PSI) • ‘Voluntary restructuring’ of Greek government bonds (57% of total debt) to be governed by English law – • Investors to absorb 53.5% reduction in the nominal face value of their bond holdings; to exchange 31.5% for new government bonds ranging from 11 to 30 years & a further 15% to be paid out through short-term securities issued by the EFSF; also GDP linked securities; • The coupon on the newly issued bonds will gradually increase from 2% to 4.3% by 2042. • Collective Action Clause to be included in new bonds • Debt equal to €197 bn – 57% of total Greek debt - is being exchanged for a new loan of €156 bn!

18. Crisis management – The political process • According to the OECD Better Life Index, 44% of people say they trust their political institutions, lower than the OECD average of 56%. The lower than average turnout in the elections is a further indicator of the low public trust the Greeks have in their government • Such trust has been eroded by the management of the crisis both by the Greek political ruling class and by the European elites. • The democratic legitimacy of the “technocratic” government was openly questioned and the pressure for elections mounted • Massive shift towards the radical left

19. The shift in the electorate’s political preferences 2009 – 2012 (% share of votes)

20. 17-6-2012 elections: Seats/party (left to right) Communist Party (12); Radical Left Coalition (71); Democratic Left (17); PASOK (33); New Democracy (79+50 ‘bonus’); Independent Greeks (20); Golden Dawn (18)

21. Running faster to stand still? The Greek experience of austerity • Fiscal consolidation – Over the period 2010-2014, fiscal austerity measures are expected to amount to over 30% of GDP, 54% of which is going to come from expenditure cuts and 46% from increases in revenue. • Labour market reforms – Employment protection and worker rights under attack (min. wage, collective agreements, etc.) • Structural changes – Privatization programme, expected to raise €35 billion by end-2014 and €50 billion by end-2017; market deregulation (energy, road transport, regulated professions); reform of pension system

22. Greece is in its fifth year of recession

24. Sectoral economic activity indicators (year-on-year change %)

25. External trade deficit (% GDP)

26. Structure of exports by type and destination (%)

27. “… avalanche of serious environmental losses” (World Wildlife Fund Greece 8th Annual Review) • Econ crisis used as an excuse for the weakening of environmental legislation and policy; • Illegal buildings legalised without any assessment as to the implications; • 95% of Green Fund resources (national environmental fund established in 2010) to be absorbed by gen govt budget; • Natural public land sold or leased under obscure rules and pre-existing illegal land uses de facto legalised; • Impact assessment and permit regulations for Natura 2000 areas being cut • Exemption from Environmental Impact Assessment of legislation for infrastructures - eg waste management

28. Current outlook

29. Comparison of forecasts of selected economic indicators 2012 – 2013 (const. 2005 market prices, annual % change and level)

31. Some thoughts on alternatives • The narrative needs to be altered • A more just distribution of income and wealth necessary • The ECB must become a lender of last resort for governments and not just for private banks.. • Austerity needs to be replaced by a programme of economic restructuring over a long time period • Public investment, that is ecologically and socially sustainable, needed to kick-start the economy • The role of public services needs to be reinstated. • Financial policy reform should be given new impetus • The deterioration of worker rights and of the conditions of the labour market must be halted and reversed

32. What about Greece? • Firstly, a change in narrative - The debt audit campaign, a good starting point. • Secondly, some breathing space - The Greek economy needs to start growing again. • Thirdly, the domestic problems can only be dealt with by the Greek social and political forces themselves • Fourthly, the Greek austerity experience already feeding into the European collective mind • Overall, need a policy that is European in reach & Greek in origin – ie explicitly dealing with the idiosyncracies of the Greek economy

33. To conclude … • If what is happening at the moment goes on for much longer, life may become so unbearable for the Greeks, that, albeit a traditionally pro-European people, they may opt for default and most probably exit from the euro. Greece may be the first piece of the puzzle to go. • This is going to be unfortunate both for the Greeks and for the rest of Europe in a long-term perspective