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Amid dissent from his own government and continued protests in Athens, Prime Minister George Papandreou instructed the Ministry of the Interior to prepare for the possibility of a referendum on further cutbacks. “I am prepared, for the great changes that we are putting forward, to use even the institution of a referendum, for the broadest possible consent or opinion,” the prime minister told his cabinet ministers during a lengthy meeting. Further cutbacks are strongly opposed by a significant number of Greeks across the political spectrum but especially by members of Papandreou’s PASOK (Panhellenic Socialist Movement) party. For the past two weeks, protests have been ongoing outside of Greece’s Parliament in Athens further pressuring the government to come up with a solution. Greece’s economy was severely damaged at the start of the global economic recession. Its overreliance on tourism and shipping was especially precarious given the connection of these industries to the global economic landscape. However, despite the inconvenience that the cutbacks are causing, they are necessary in order to receive more financial assistance from the International Monetary Fund and Eurozone states. As frustrating as the cutbacks are they have yet to produce the intended result, which is to right a sinking Greek economy. Many Greeks are increasingly alarmed that the Greek debt crisis was not solved after the first IMF/EU bailout despite assurances from the government that short-term pains would be sufficient. Since Greece’s economic slide began, the Papandreou government has instituted necessary reforms from a restructuring of the country’s pension system to addressing powerful monopolies. “Some important reforms have certainly been made, in the teeth of protests and demonstrations. Unaffordable promises on pensions, an already high 11.6% of GDP last year, have been slashed: instead of doubling to 24% in 2050, the burden will rise by 2.5 percentage points. The labour market has become slightly more
flexible through changes in arbitration arrangements and opt-outs for individual firms from collective-bargaining agreements. The government has also sought to tackle entrenched monopolies such as the trucking industry,” the Economist writes. Under the Papandreou government, the referendum concerns another round of austerity measures including, “€6.4 billion ($9.34 billion) worth of remedial measures this year and a €22 billion ($32.11 billion) package through 2015.” These cuts are necessary in order to continue to receive financial assistance from outside sources. Additionally, the government plans to pursue a very ambitious privatization scheme to generate roughly €50 billion in revenue. Of particular concern to the government is its inability to come up with enough funds to cover next years budget and to avoid default on its significant debts. Papandreou is in a politically untenable position. Despite the fact that his PASOK party holds a majority in Parliament by six seats, many of PASOK’s deputies refuse to rubber stamp any further measures without an extensive debate. Moreover, in order to receive more economic assistance, the IMF and Greece’s fellow Eurozone partners will need to witness movement on curtailing Greece’s large debt burden and the instituting of further austerity measures. However, in a statement by the International Monetary Fund, the European Commission and the European Central Bank, it was announced that they were satisfied with progress within the Greek government and a second bailout will be made available by early July. The statement reads in part, “Further progress has been made with structural reforms. Legislation to modernize public administration, reform healthcare, improve the functioning of the labor market, remove barriers to setting up and operating a business and liberalize transportation and energy has already been passed or is underway. The government will continue to push ahead in these areas, with a particular emphasis in coming months on growth-drivers such as reviving the tourist industry and removing administrative barriers to exports….Building on the agreed comprehensive policy package, discussions on the financing modalities for Greece’s economic program are expected to take place over the next few weeks. Once this process is concluded and following approval of the IMF’s Executive Board and the Eurogroup, the next tranche
will become available, most likely, in early July.” In a nod to the current Greek political climate, Papandreou acknowledged, that while he would attempt to achieve consensus for the austerity package in the Greek Parliament, he would be unable to garner approval from a majority of members of opposition parties. Therefore he would rely on support from at least 151 Parliamentarians. “This is not an issue of arithmetic, but of politics,” Papandreou insisted. When implemented these new austerity measures will include comprehensive tax increases, spending cuts and the public sector will be further trimmed. Part of Greek’s privatization drive has been to sell off ownership in various companies. Greece sold a 10 percent stake in O.T.E. (Hellenic Telecommunications Organization) to Germany’s Deutsche Telekom for €400 million. The Greek government had initially sold some of its stake in O.T.E. in 2008. Greece now owns just 10 percent of the company which at one point was entirely government owned and operated. However unpopular a second round of austerity measures are with the Greek public, a referendum is inherently dangerous and politically precarious. According to government officials, it is highly unlikely that the Papandreou government will allow a referendum to proceed. Instead, it will rely on the Greek Parliament to pass the austerity measures and deal with the political fallout at a later date. In order to appease opposition members of Parliament, the government will reduce the VAT (value-added tax) and other corporate tax rates. In a move that will likely infuriate members of PASOK, Parliament will not vote on individual segments of the austerity plan but instead will be presented with a comprehensive package of tax increases and austerity measures. This is increasingly due to the realities that individual parts of the plan possibly might be defeated in a vote and some parts would be passed. In order for the IMF and others to agree to more loans, the Greek Parliament must pass a comprehensive package. “Parliament will vote on the medium-term plan by the end of-June. It will be voted on as a single article,” a senior government official said.
European Union officials have encouraged the Greek political establishment to support the plan despite the painful cuts that lay ahead for the Greek people. In a reflection of the Arab Spring, social media has played a key role in organizing the large peaceful rallies in front of the Greek Parliament in Athens and throughout Greece. This is a marked departure from past demonstrations, which have turned violent. “Modeled on the Spanish movement of the 15th of May, the protests of the Greek Indignados are unusual by Greek standards in two essential ways. Firstly, they are determinedly unaffiliated to any party or union…Secondly — and this, too, is a major deviation from common practice — they are almost exclusively peaceful. People yell angry slogans at Greece’s beleaguered parliamentarians, calling them thieves and traitors, they bang their pots and pans but, so far at least, there has been little confrontation,” Yannis Palaiologos writes in The American Prospect. Despite calls by American politicians that the U.S. will mirror Greece’s economic situation in the short-term unless more is done to curtail Medicare, Social Security and defense spending, the single largest lesson to learn from the Greek experience is the danger in not diversifying a state’s economy. Greeks overreliance on tourism and shipping was its undoing. It is doubtful that a second financial aid package will entirely rescue the Greek economy. The Greek people and its politicians will undoubtedly be forced to make further cuts than are required by the IMF and the European Union. Prime Minister George Papandreou realizes the untenable political situation that he faces and the likely scenario that his political future hinges on whether the Greek economy can rebound or at least recover some of its luster. John Lyman is the Editor-in-Chief of Foreign Affairs Journal.
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