It's one thing when journalists and outsiders comment on the situation in Greece. It's an entirely different thing when the President of Greece does.
“We are faced with a societal explosion if any more pressure is put on society,” he said, with a constant barrage of pay cuts, tax hikes, and slashed pensions that he nonetheless supports.Greece's austerity driven Depression has forced the unemployment rate up to 27% (and is expected to hit 31% next year). For those under 25 its 67% despite the minimum wage being cut. Nearly 10% of those still employed haven't been paid in months.
31% of the population is either in poverty or at risk. Suicide rates are skyrocketing.
And yet things are likely to get a lot worse in a few months.
Greece's austerity policies could create a crisis of insolvency within the country, undermining the very reason they were implemented - to repay the country's debt - says the country's biggest labour confederation.The Greek government has 800,000 employees and pays 1.3 million pensioners. Failure to pay these obligations would throw million into poverty.
"I am afraid that we may see a phenomenon that could cause a social explosion," says Savvas Robolis, scientific director for the Labour Institute of the General Confederation of Workers in Greece (GSEE), the private sector's confederation of unions. "Right now many people can't pay their taxes. That's why state revenue fell 300 million euros ($395m) short of January targets. If that continues, I don't know if the state will be able to meet its obligations by June or July. It may not have the cash to pay salaries and pensions."
Pensions and salaries have already been cut 40% with austerity measures. A new schedule of cuts are about to hit.
State utilities are being privatized to raise cash, but that cash doesn't help Greek people.
Unions are angry that austerity is being carried out in the name of creditors. "About 80 percent of the wealth generated goes to lenders, to pay off interest," says Robolis. "That is why debt is increasing faster than growth. We started out in the crisis with debt at 120 percent of GDP, and now it's 175 percent."The Greek economy has shrunk 21.5% since 2009, and it is expected to shrink another 4.5% this year. 160,000 businesses have gone bust.
The streets of Greece are full of rumors of military coups, revolutions, counter-revolutions, and mercenaries.
In other words, the complete collapse of Greece could be just months away.
Greece isn't alone. Spain appears to be just a year or so behind them.
Protests in Spain have become commonplace as the conservative government passes measures aimed at shrinking one of the euro zone's highest budget deficits and reinventing an economy hobbled by a burst housing bubble.The protestors have targeted the "coup of the financial markets" as the source of their problems. Spanish banks are getting bailed out, politicians are caught taking bribes, while working class people suffer. Just like in Greece, Italy, and the United States.
Prime Minister Mariano Rajoy has introduced some of the deepest budget cuts in Spain's democratic history in an attempt to convince investors the country can weather the economic crisis without falling back on international aid.
But, with more than half of the country's young people out of work and growth not expected until sometime next year, the measures have only scratched the surface of the budget shortfall which is expected to be more than double the target in 2014.
Meanwhile, corruption scandals which have hit the ruling party as well as the once-popular royal family has left many Spaniards disenchanted with their leaders on all sides of the political spectrum.
The unemployment rate in Spain is 26%.
Meanwhile in Italy, the people had a chance to voice their unhappiness with the current system. Instead of voting for one of the two major parties (that have both sold them out, just like in Greece and the United States), they made a huge protest vote.
(Reuters) - A huge protest vote by Italians enraged by economic hardship and political corruption pushed the country towards deadlock after an election on Monday, with voting projections showing no coalition strong enough to form a government...Because of the size of Italy's economy, the election there has dominated the news. Despite the situations in Greece and Spain being so much worse.
The projected result was a stunning success for Genoese comic Beppe Grillo, leader of the populist 5-Star Movement, who toured the country in his first national election campaign hurling obscenity-laced insults against a discredited political class...
The projected results showed more than half of Italians had voted for the anti-euro platforms of Berlusconi and Grillo...
Grillo's movement rode a huge wave of voter anger about both the pain of Monti's austerity program and a string of political and corporate scandals. It had particular appeal for a frustrated younger generation shut out of full-time jobs.
Update: Just looking through my old diaries. On January 16, 2010, I wrote:
There is a concept in economics known as the "snow-ball effect" on debt. It involves the self-reinforcing effect of debt accumulation arising when the growth of the national economy is less than the interest paid on public debt.Amazing that I could see this coming three years ago, but most economists couldn't.
In math it looks like this:
The concern is that Greece's economy is fundamentally uncompetitive in the world market, that it must borrow just to maintain its basic needs, and that interest payments on the debt accumulation is now reaching levels that has forced Greece to drastic action. Raising taxes and cutting social services to pay the interest will smother the economy further, making more borrowing necessary...
At a certain point in the not to distant future, the markets are going to realize that Greece's predicament is terminal. When that happens things are going to move fast.
Normally when a nation becomes uncompetitive the default option is a currency devaluation. However, that's a problem within the Eurozone, where both strong and weak nations share the same monetary policy. This leaves Greece with only one option: austerity.
Austerity does not come without risks. In the case of Greece, there is almost certain to be social unrest. The other risk is that the austerity will by itself cause the snow-ball effect on the economy, thus becoming self-defeating.
Three months after this diary, Greece managed to renegotiate their debt with creditors (i.e. default). To which I wrote:
There are two problems with bailing out Greece.Greece did indeed get a second bailout, and so did Spain, Portugal, and Ireland.
The first problem is that it is unlikely to be the last Greek bailout.
Without the first bailout in place, Greece is already sizing up the next bailout. That's bold.
The second problem is that Greece would simply be the first country asking for a handout.
More than a year later I wrote:
Even with another bailout Greece will still be unable to access the private debt markets. So unless the bailouts are permanent (something that countries such as Germany, Finland, Holland, and Austria are not going to do), Greece's only recourse is to default.I got this one slightly wrong. I didn't expect Europe and the ECB to go "all-in" with the bailouts. Thus they were able to kick the can further down the road than I expected.
Nevertheless, nothing has been reformed and the debt is still unpayable.