The new tax measures proposed by the Greek government as a condition for meeting its 2011 fiscal targets and receiving the 6th tranche of the first bail-out were published yesterday. These include:
1. A reduction of the tax-free income bracket from EUR 8,000 per year to EUR 5,000 per year.
2. Implementation of a new wage structure which minimises costs between the central government and the semi-governmental organisations. In practise, this means a reduction in labour costs for employees of semi-governmental organisations.
3. Reduction of all pensions above EUR 1,200 / month. For those above EUR 1,200 per month, reduction by 20% (though presumably not below EUR 1,200/month). For retirees of 55 years or below, reduction of the pension benefit above EUR 1,000 per month by 40%.
4. The transfer of 30,000 public sector employees to a “labour reserve” in 2011, with a further 30,000 per year to 2015 (theoretically up to 150,000 total). This labour reserve status lasts for 12 months, and includes a salary of 60% basic wage (probably between EUR 700-800 per month). At the end of the 12 months, the employee is fired.
5. Additional structural measures, including labour market deregulation, deregulation of closed professions, privatisations and public sector agency restructuring.
6. The implementation of a new tax system, eliminating loopholes.
The good news in this package is that the equalisation of tax on heating oil and driving fuel has been delayed to 2012.
The new measures were supposed to be voted today, but the absence of four PASOK deputies with health problems has delayed the vote until Tuesday. Given the rapid deterioration in public confidence in the government, and the evidently harsh nature of these measures, I have to ask one simple question: what happens if PASOK loses the vote?
PASOK has a majority of only 6 votes in Parliament at present. The level of rage is such that it would not be unlikely for 7-10 MPs to be absent for health reasons, or to vote against, or to resign between now and then.
This would set off a crisis, as it would mean a vote of no confidence might have to be held, unless the parliamentary majority shows it can pass an additional measure without such a vote. Should PASOK lose the vote of confidence, it means elections. It also means further massive contagion in Europe.
The Financial Times included a rather glib editorial on September 20th: Greece’s Tragedy is Made at Home. It contains this rather ridiculous assertion:
The troika can credibly threaten to withhold aid for three months. Unless Athens makes good on its promises, that is what it should do. If the Greek state stops paying salaries and pensions, that is a tragedy – but one of Athens’ own making, which others should not take it upon themselves to prevent. Not just because they can afford to – Greek middle class penury will not trigger a financial market meltdown – but because it could finally force the Greek political class to face the truth.
This argument totally ignores the major reforms made to date which, whatever your opinion of them, required real political courage. It also totally ignores the fact that any such event would lead to the downfall of the government. And the PASOK government, whatever its faults, is the only entity in Greece that is still fighting for this mess of conflicting policy goals pressed upon it by the Troika. Should the government fall, the Troika can forget any hopes of a smooth landing.
Next week, the Financial Times may receive just what it’s asking for.
Sleepwalking into Disaster September 18, 2011
Greece, the Troika, and the missing EUR 1.7 billion September 12, 2011
© Philip Ammerman, 2011
Post a Comment