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Austerity in Greece: Bailout leaves workers in misery

Paul Kellogg

February 27, 2012

Workers making minimum wage in Greece are about to receive a 20 per cent pay cut. Pensioners in Greece are about to see their monthly cheques sharply reduced. Public sector workers in Greece are bracing for 15,000 layoffs.

These are just some of the consequences of the “bailout” of the Greek economy, organized by the so-called Troika—the European Commission, the European Central Bank and the International Monetary Fund.

In return for drastic cuts in services and jobs, the Greek government will receive €130 billion ($175 billion) to prevent a default on looming payments required to service its debt load of some €368 billion ($495 billion). But this bailout will not end the misery.

Last year, 150,000 jobs were lost in small and medium-sized businesses alone. This year, the figure is expected to be 240,000. The economy in Greece has contracted every year since 2008. This year the decline was supposed to slow to just three per cent. But a draft of the bailout agreement indicated that the rate of decline this year will be at least four per cent and possibly worse.


The truth is, the bailout as designed is an extraordinarily clumsy and damaging method by which to address the problems of the Greek economy.

The European Union (EU), of which Greece is a member, has taken some of the steps towards creating a continent-wide economy. A key part of that process has been the creation, within the EU, of the Eurozone—a currency union whereby countries as different as Greece and Germany share the same currency, the Euro.

Because it has the same currency as Germany, the less productive Greek economy is vulnerable. It cannot do what it did in the past—let its currency (formerly the drachma) devalue relative to the former German mark to keep its prices competitive. Locked into a currency union, the inevitable has happened—German manufactured goods have pushed aside manufacturing based in Greece.

This was offset for a while by the fact that, in a currency union with richer countries, Greece could borrow at quite low rates of interest. But that process has caused debt to build up to 160 per cent of GDP, and a consequent surge in interest rates demanded by the financial markets the Greek government needs to purchase its debt.

The bailout will quiet these fears for a while but the structural problems behind the mess are all intact. This is the mess of a Europe designed by capitalists and technocrats. Only a politics of solidarity and resistance can begin the process of building an alternative.

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