No "Shared Sacrifice" for Greek Socialists

The Left's thuggery on full display.

In Greece, a second flight from reality has begun in earnest. In Aphidnai, a small town north of Athens where local residents lost their exemption from a roadway toll due to the austerity measures forced on Greece's debt-ridden government, a movement known as “Den Plirono” (“I Won’t Pay”) was born.  The sentiment has gone national, and many citizens brazenly refuse to pay highway tolls or bus and subway fares, which have risen 40 percent. In a country with a reputation for lax law enforcement, such a movement is apparently effective in the sense that many people are getting away with such protests.  At the same time, it is a recipe for economic suicide, as the specter of default once again looms large.

Greece is currently servicing a $159 billion bailout loan.  It's overall debt is $491 billion in a country with 11.3 million people, which comes to $43,450 of debt per person (sound familiar?).  Last Friday, the Greek government addressed the current crisis, laying out plans to privatize some key government businesses, including Europe's biggest betting firm, OPAP, and reduce its stakes in others, such as telecom company OTE, and the Public Power Corporation. Regional airports and port authorities will also be privatized.

"Optimistic" forecasts conclude that Greece can raise $72 billion from such privatization. Benefit cuts, effective tax hikes and other measures would save about $33 billion in 2012-2015, bringing its budget deficit down to about 1 percent of GDP in 2015 from 15.6 percent in 2009.  "The government presented today a broad and specific mid-term fiscal plan up to 2015," Finance Minister George Papaconstantinou explained to Reuters. "This shows the commitment and willingness to proceed with fiscal consolidation and proceed further with structural reforms."

Unfortunately, the debt markets weren't buying it -- literally.  Borrowing premiums rose to record levels last Thursday, perhaps spooked by a comment from Werner Hoyer, one of Berlin's deputy foreign ministers and a member of the junior coalition party Free Democrats (FDP), who said it would "not be a disaster" if Greece were forced to restructure its debt. "[If Greece's creditors agreed that talks with Athens] would be helpful toward a restructuring of the debt, then of course this would be supported by us," Hoyer was reported as saying. Adding to the uncertainty was the fact that a speech by Greek Prime minister George Papandreou earlier on Friday to address the debt crisis was seen as lacking in details. Papandreou promised to provide them after the Easter holiday. "The plan will be completed in the coming weeks and will be then submitted to parliament," Papandreou told a cabinet meeting. "Today we are presenting the basic guidelines of a roadmap that will lead us from the Greece of crisis to the Greece of creativity," he promised.

Yet government has seen disappointing revenues due in large part to an ongoing problem with tax evasion, and a deepening recession which threatens to undermine fiscal targets required by the EU and IMF. Further complicating efforts are Greek labor unions which have threatened to once again go on strike to protest austerity measures they see as futile. "It doesn't matter how much family silver they sell, it won't work," said Nikos Kioutsoukis, general secretary of GSEE, the country's largest private sector union. "After these announcements, we will take action."

Mr. Kioutsoukis's comments reflect the anger of those opposed to maintaining the present course, including the I Won't Pay movement, whose "civil disobedience" translates into outright thuggery.  Activists, who many Greeks believe are spurred on, or hijacked by, left-wing political parties, have covered ticket machines on buses and trams with tape, even as thousands of people refuse to validate public transport tickets when they take the subway or the bus.  Doctors from state hospitals have blockaded pay counters to prevent patients from paying consultation fees.  A bus inspector hired to crack down on fare dodgers was shot. Thugs attacked Antonis Loverdos, the health minister, during a hospital visit in Athens, and James Watson, the 83-year-old Nobel Prize-winning geneticist, was attacked as he prepared to give a speech at the city's university in Patras.

Social commentator Nikos Dimou explains the ease with which many Greeks engage in such behavior. "There is a general culture of lawlessness, starting from the most basic thing, tax evasion or tax avoidance, which is something that Greeks have been exercising since their state was created," he said.

Tax evasion is indeed widespread in the country.  Several studies estimate that Greece may be losing as much as $30 billion per year, and despite offering several amnesties -- including one last September in which the government offered tax cheats the opportunity to completely settle their bill for fifty-five cents on the dollar -- evasion remains an endemic problem. Further complicating the problem is Greece's legal system.  Greeks who appeal tax bills wait an average of 8 to 10 years before their cases are settled, and there are more than 300,000 cases backlogged in the system.  According to the Wall Street Journal, unreported income was "25.1% of gross domestic product in 2007, according to Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria, and corruption among tax payers--and tax collectors--is rampant."

Dionysis Gousetis, a columnist writing for the newspaper Kathimerini, is contemptuous of the I Won't Pay movement.  "Now, with the crisis as an alibi ... the freeloaders don't hide. They appear publicly and proudly and act like heroes of civil disobedience. Something like Rosa Parks or Mahatma Gandhi. They're not satisfied with not paying themselves. They are forcing others to follow them," he wrote.  Prime Minister Papandreou was of like mind. "You think that lawlessness is something revolutionary, which helps the Greek people," he said in a parliamentary rebuke of Coalition of the Left party leader Alexis Tsipras. "It is the lawlessness which we have in our country that the Greek people are paying for today." Political analyst Takis Michas also concurred: "There is clearly a breakdown of the rule of law, and without the rule of law there can be no economic development. It is organised lawlessness spearheaded by the hard left," he said.

The I Won't Pay tactic has proven momentarily successful.  On Monday, the socialist government will announce reductions of up to 50 percent in road toll fees hoping to appease the protesters and restore a measure of lawfulness to the country.  Yet such concessions do nothing to alter reality.  Despite last May's bailout, Greece remains mired in a recession which has exceeded the most dire predictions of the IMF and the EU, and further austerity measures are likely to enrage a population which sees them as unnecessarily stringent at best, and utterly futile at worst.  And despite Prime Minister Papandreou's vehement insistence that Greece will continue meeting its obligations, counseling a default as "catastrophic for the country," other government officials are less optimistic.  "It's better to have a restructuring now … since the situation is going nowhere," said Vasso Papandreou, head of the Greek parliament's economic affairs committee.

Greece is faced with three possible solutions.  One, continue to muddle through in the hopes that economic conditions improve and protesters can be kept in check, even as more stringent austerity measures are enacted. This option is the most daunting, and as the I Won't Pay movement and upcoming union strikes indicate, it is also the most explosive. Two, work out some sort of debt-restructuring settlement between Athens and its creditors in which the owners of Greek bonds accept that they won't get all their money back. This is a somewhat illusory fix, since it would substantially raise future borrowing costs for the nation, as bondholders would demand higher returns for greater risk.  This in turn would lead to a far longer period of only marginally less austerity. Third, abandon the euro as their national currency, return to the drachma, and devalue the currency to attract outside investment into the country.

Number two would cause large losses for German and French banks and other European nations struggling with debt, as Ireland and Portugal would be tempted to follow suit, leading to an even wider Continental crisis.  Number three?  The end of the European Union as it is currently constructed.

If world renowned economist Nouriel Rubini is correct, option one is already off the table. He believes default is no longer a mater of "if," but a matter of "when," due in large part to government debt projected to reach 159% of GDP by next year. Yet it is also obvious that ordinary Greeks are exacerbating the problem, even as they are quick to blame a combination of government corruption and cronyism for undermining their future. The I Won't Pay movement is a testament to the general economic illiteracy of a public desiring to starve the same socialist government beast that they have long relied upon to underwrite their profligate lifestyles.  Many Greeks believe they are entitled to go on living off "other people's money" absent any realistic restraint -- or any more money.  And as evidenced by record levels of interest required to finance more debt, ongoing austerity, or default and debt restructuring, "other people" markedly disagree. Greeks will be brought, perhaps kicking and screaming all the way, to reality. Or they will divorce themselves from the European Union.

Divorce might not be the worst option, the reason for which was illuminated long before the current crisis began.  As it was bluntly stated more than a year ago, one can only wonder how long Germans who retire at 67 will go on underwriting Greeks who retire at 53.

Arnold Ahlert is a contributing columnist to the conservative website