Greece Defies Bailout Terms, Cancels Privatizations

Violating the terms of its bailout, Greece cancels privatizations and vows to raise pension payments.

Greek Syriza party leader Alexis Tsipras speaks in Hamburg, Germany, September 29, 2012
Greek Syriza party leader Alexis Tsipras speaks in Hamburg, Germany, September 29, 2012 (Die Linke)

Greece’s new prime minister, Alexis Tsipras, said on Wednesday he would no longer accept a “policy of subjection” and canceled the privatization of Greece’s largest seaport and its public power utility. The left-wing leader also vowed to raise pensions and plans to reinstate government workers who are judged to have been dismissed unfairly.

The policy chances — some of which are in direct violation of the commitments Greece made to qualify for €240 billion in financial support from the European Union and the International Monetary Fund since 2010 — put Tsipras on a collision course with other European countries, especially Germany which has advocated budget consolidation and structural economic reform in weaker eurozone states.

German economy minister Sigmar Gabriel said the new Greek government should have discussed its plans with other European countries first. “Citizens of other euro states have a right to see that the deals linked to their acts of solidarity are upheld,” he said.

Tsipras’ demands for debt relief were also rejected in Berlin. Wolfgang Schäuble, Chancellor Angela Merkel’s hawkish finance minister, ruled out not just a reduction in Greece’s debt, some 80 percent of which is owed to other governments; he said there would be no further credit line extensions or interest rate cuts.

Merkel herself reportedly described Tsipras’ demands as “incredible” during a meeting with ruling party lawmakers, pointing out that the eurozone had already allowed the country low interest rates and delayed repayment of the loans to 2020.

Finland’s prime minister, Alexander Stubb, had ruled out debt relief before Greece held an election on Sunday, saying, “It is clear that we would say a resounding ‘no’ to forgiving the loans.”

But Tsipras told his cabinet on Wednesday they could not disappoint voters who gave his far-left Syriza party a strong mandate to put an end to austerity.

“We are coming in to radically change the way that policies and administration are conducted in this country,” he said.

Syriza won the election on Sunday but fell two seats short of an outright majority. It entered into a coalition with the right-wing Independent Greeks who won thirteen seats.

Although the Greek economy started improving last year and the government’s shortfall — excluding one-off expenditures to recapitalize its banks — is now below the European Union’s 3 percent treaty limit, down from nearly 16 percent at the height of the crisis in 2009, unemployment remains high. Many Greeks attribute the malaise to the austerity measures that have been enacted at the insistence of other European countries.

However, Greece has repeatedly missed its targets and deadlines for budget cuts and liberal economic reforms.

Corruption and tax evasion remain widespread, reported Thanassis Cambanis for The Boston Globe last year.

Even anti-corruption officials reputedly accept bribes and only one cabinet minister has gone to prison for embezzlement. At the bottom level, freelance workers and shopowners still hide most of their income, like a workman who got angry when I filed a receipt for the repairs he did at my house.

The culture of cheating and mistrust is far more extreme than anywhere in Europe. Surveys show 80 percent of Greeks believe it is all right to claim government benefits to which they are not entitled. 20 percent disapprove. In most of Europe, the ratio is almost exactly flipped.

Years of austerity do not appear to have changed Greece’s entitlement mentality. Not has Greece taken advantage of the crisis to thoroughly shake up its economy.

Dutch experts who were supposed to help Greece set up a reliable national land registry office were simply dismissed. Attempts to establish a truly independent tax administration have been frustrated at every turn.

Under its first bailout, Greece was supposed to raise €50 billion by selling off state property. That number was later cut in half and the target date postponed to 2020. Yet almost no progress has been made.

The government could theoretically eliminate much of its debt — equal to 175 percent of economic output last year — by selling real estate and all the shares it owns in publicly-traded companies. The state owns, or partly owns, casinos, docks, hotels, resorts, railways and utility companies.

In the years leading up to the crisis, Greece expanded its public sector by an estimated 150,000 workers to over one million, or 21 percent of the workforce. Public health expenditures grew from 5 to 7 percent of economic output; public spending on pensions rose from 11.8 to 13 percent.

Despite the huge government bureaucracy this created, average Greeks without political connections saw little benefit. Millions still lack insurance. Many of those who are unemployed receive no government assistance at all.

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