Greece's problems put ours in the ha'penny place

INSIDE POLITICS:In the week in which another Labour TD left the fold over the budget, the big news on the European front was that the way was finally cleared for Greece to receive its massive second bailout. A visit to Athens this week, organised by the European Commission to inform journalists from other EU countries about the state of affairs in Greece, helped put our local difficulties into context.

While the Irish people have to contend with the impact of a €3.5 billion adjustment package for next year the Greeks will have to endure €13.5 billion in spending cuts and extra taxes over the next two years. Coming on top of five years of deep austerity it puts our problems in the ha’penny place.

By the end of next year the Greek economy will have shrunk by one-quarter in the period since 2009. As prime minister Antonis Samaras pointed out, that is more than any other European country has endured in peacetime.

Public sector salaries have been cut by between 35 per cent and 50 per cent since the start of the crisis, as have pensions. Other entitlements, many small to begin with, have been slashed to the bone.

Greeks were bemused to hear about the political row in Ireland over the cut in the respite care grant. Not only is there no such thing in Greece but there is no carer’s allowance in the first place.

How the country will cope with another year of economic contraction is anybody’s guess but senior government figures insisted the worst is almost over and a recovery can begin in 2014.

A range of government politicians as well as EU officials involved in the bailout programme stressed the primary task was to remove the uncertainty over Greece’s continuation in the euro zone, or “drachmaphobia”, as Samaras called it.

“This is something that has held us hostage for a long time. Will Greece stay in the euro or go? This story is finished and that will have a spillover effect on the economy and psychology,” he said.

Cassandras

The negative impact on the economy of undue pessimism is something that has a resonance in Ireland. The Cassandras who, two years ago, were loudly proclaiming the inevitability of an Irish sovereign default and an exit from the euro have thankfully been proved wrong, at least for the present, but they came close to undermining international confidence in the country’s ability to recover.

The release of funds from the second Greek bailout has created some confidence in that country’s ability to stay in the euro. If the sweeping forms required to reinforce the process are made quickly then confidence may harden.

One outsider involved in the effort to rebuild the Greek economy made the following observation: “In Ireland the banks ruined the State. In Greece the state ruined the banks.” He went on to say that repairing dysfunctional banks is an achievable if extremely costly goal. Repairing a dysfunctional state is much bigger problem. The EU has established a task force for Greece to help in that process, as distinct from the troika, which supervises the bailout.

The core problem is that for the past 30 years or so Greece has had a debased political system, an incompetent and bloated public administration and a tax system that doesn’t work. The judicial system is also deeply tainted.

Greek politics has been transformed by the crisis. The Greek socialist party, Pasok, which dominated the country for decades, suffered an even worse fate than Fianna Fáil, which occupied a similar position in this country. Its vote dropped from more than 40 per cent in 2007 to just 10 per cent in the election this year and polls now show the party on 5 per cent.

Its main rival the conservative New Democracy has fared better retaining over 20 per cent of the vote even though it played a cynical role in obstructing the efforts of Pasok to get to grips with the crisis. The two parties have now come together with the small Democratic Left to form a three-party government. It is the first ever coalition government in Greece and has had its teething problems.

Tortuous negotiations

The most impressive minister in the cabinet, Ioannis Stournaras at finance, is not a politician but a professor of economics. He has spent the past month in tortuous negotiations with the troika and the three parties in government to get his reform package through parliament. That had to be achieved before the EU-IMF funds could be released.

The public is deeply cynical about the government and all politicians. Paradoxically that appears to be making the coalition more stable as all three parties face huge losses in an early election. Their only choice is to press on and hope that there will be some economic recovery by the time the next election comes around.

One obstacle to recovery is a deeply cynical electorate that blames its politicians for the country’s woes. Pasok leader Evangelos Venizelos pointed out that the public has some responsibility for the politicians it elected and demands it made on the political system. That cuts little ice with voters desperate to find a scapegoat for what has happened their country.

Ultimately it is down to the Greek people to save themselves but the rest of the EU has a very important role to play in helping the country to achieve that goal.

If the EU’s Nobel Prize for helping to ensure more than half a century of peace is to mean anything in today’s circumstances it should underpin a mood of solidarity between the better-off EU states and their more vulnerable members.

A leading Greek journalist made the point that in dealing with Greece the Germans should heed the difference in the way they were treated after the second World War compared with the first. In Ireland, given our self-inflicted misfortunes, the least we can do is give the Greeks as much support as we can at EU level. In any case the protection of the euro is vital to our long-term national interest and a Greek recovery will ensure the currency survives.