Very little, according to a recent Organization of Economic Cooperation and Development (OECD) report. In 2011, real wages before tax dropped by 25% in Greece (the next largest tumble, in Korea, was only 6%). Despite the fact that they trail behind their counterparts in several other European countries in terms of pay, Greek workers have also seen their income taxes raised as part of the highly unpopular austerity program being forced down the country’s throat by the European Union and the International Monetary Fund.
The program accompanies a debt deal signed with foreign creditors by the former Greek government in February. The parties that co-signed the deal, the Socialists and the conservative New Democracy Party, suffered massive losses in elections on Sunday, receiving only 32% of the vote. Less mainstream parties prospered due to widespread frustration and dissatisfaction, the Radical Left (known as Syriza) being the biggest beneficiary, due in no small part to its utter rejection of the harsh austerity measures. The New Democracy Party and the Radical Left have both had opportunities to extract a coalition government from the hung parliament, yet there can be no consensus on the issue of the severe cutbacks, which include firing public sector workers and slashing social programs. Those who signed the deal want to proceed with it; those who were elected on opposing it demand that it be modified or abandoned.
Today, the head of the Radical Left, Alexis Tsipras, wrote a letter to the European Union, the European Commission and the European Central Bank to “re-examine the entire framework of the current strategy” because the election results destroyed any “political legitimacy” behind the current austerity arrangements, as voters clearly repudiated those who negotiated it. This comes on the heels of news that, on Wednesday, with the institution responsible for funding Greece’s bailout withholding one billion euros of a planned 5.2 billion euro payment to Athens. In other words, Greece’s creditors have played politics with the money Greece needs to finance government services, with the Greek people paying the cost for their politicians’ mistakes.
Admittedly, the members of the euro zone – including the currency union’s de facto leader, Germany – see a major interest in not having Greece default, either by refusing to follow the austerity plan or by leaving the euro zone. Yet threatening and intimidating the Greek people because of how they voted is the wrong tactic to adopt. Greeks, for their part, have expressed support for keeping the euro, but simply want bailout conditions to be softened. According to average Greeks interviewed by Reuters, the election was less about getting revenge on the EU and the IMF and more about asserting their desire to be on an “equal footing” rather than treated as “slaves” – or, perhaps more accurately, as children who do not know how to manage their finances. While there can be no denying that the Greek government generated its own massive deficit, that Greek government is ultimately accountable to the people of Greece, not European bureaucrats and bank managers in Brussels. The Greek electorate seeks to choose its own path out of the financial crisis, and there is every indication that it will repeat Sunday’s election results if, as is expected, the Socialist party proves unable to form a government and a new election is held in June.
Markets trembled after the Greek polls came out, already unsteady following the election of a Socialist president in France. And markets would fare no better were Greece to ultimately default on its debt, one way or the other. Yet none of that is any excuse for pressuring Greeks to go along with dictates from abroad, denying bailout disbursements and hoping that the people fear instability more than they want humanitarian relief. For all the concern given to the state of the euro states and their economies, precious little is being given to those Greeks who are seeing their incomes evaporating, not to mention a youth population dealing with massive unemployment. Now there is even talk that inflation could cure the euro zone anxiety. In the face of spiraling wages, high prices on basic goods and services would only compound to the incredible human misery that must be going on in Greece.
Ultimately, it would be best if Europe were to readjust its austerity program, allowing for some government stimulus in order to spur growth, raise employment and keep wages on track with inflation. It is highly unlikely that the Greek economy will ever recover if unemployment and low wages are kept at their current levels, and even if were to do so, it is hard to foresee how Greece would be able to compete with its fellow euro states once it reaches that hard-to-see light at the end of the tunnel. It would be far better if a bold Greek government, following the wishes of the people, were to out-and-out threaten to leave the euro unless the current debt deal was renegotiated. Assuming that haughty Berlin and Brussels did not budge, Greece should go ahead and leave the euro, readopt its old currency and deal with default. Contrary to conventional wisdom, it can be done; Argentina did it in 2001 and came out the other end. There is no reason that Greece cannot do the same.
At any rate, it cannot be much worse off than it is now.