The Greek parliament has approved the new set of austerity measures and the privatization legislation with a robust margin. But unfortunately even this victory is not going to be a breakthrough in this crisis.
Assuring passage of the austerity and privatization legislation in parliament was only the easy part. Given the waves of discontent being expressed by the so-called indignant citizens on Syntagma Square in Athens and trade unions’ militant industrial action, the subsequent implementation process will be severely challenged by different constituencies and thus risks being delayed or sabotaged.
Greek public and private sector unions hold a further 48-hour general strike this Tuesday and Wednesday, the fifth in 2011, after staging seven last year. The rolling strikes of the GENOP-DEH trade union at the Public Power Corp (PPC) against the government’s plan to reduce its shareholding from 51 percent to 34 percent is the initial litmus test of the privatization program. All aspects of the complex relationship between the government and trade unions in Greece are concentrated in this stand off.
It was a mistake during the negotiations last year for the first rescue package not to include the largest opposition party and trade unions in working out an agreement. This lesson was quickly learned and applied in the subsequent cases of Ireland and Portugal, but grossly overlooked in Greece.
For more than a year, trade unions have refused steadfastedly to constructively engage in shaping the narrative of the Greek reform agenda. If Papandreou and the newly appointed Energy Minister George Papaconstantinou can hold their line and deliver on that controversial issue in a timely manner they will establish policy momentum and create credibility for the state divestment plan.
The difficulties facing the real economy, the contraction of bank credit in combination with ongoing capital flight and record unemployment, in particularly among young people, make Papandreou’s endeavors this week a herculean task. Greece’s social fabric and its economic stability are being challenged like never before since 1945.
What we are currently witnessing on the streets and squares across Greece is the next stage of the country’s two-year long crisis. It now involves the collapse in trust between citizens and Greek-style parliamentary democracy. The rallying cry heard on Syntagma Square is that all politicians are “thieves”, irrespective of their political background or time served in parliament.
So what next? More of the same? The breakdown in political trust, citizens losing faith in their politicians risks opening the floodgates for much deeper ruptures further down the road. The major concern is the following: when will Greeks’ distrust of government, traditional political parties and representative democracy start spilling over into other areas such as losing faith in the EU, or calling into question the country’s 10-year membership in the single currency?
Anecdotal evidence is starting to emerge that apart from continued capital flight Greek citizens are frontloading Swiss francs, gold coins and other safe, but liquid assets. They fear that Greece could – perhaps in a year from now – end up being forced out of the euro zone or taking the exit option on a semi-voluntary basis. Under these - in my view unlikely - worst-case scenarios nobody wants to be sitting on a large pile of devalued New Drachma converted from the euros citizens hold in their Greek bank accounts.
But while the political protests are taking place on the streets and squares of Greece, the real decisions about what happens next in Athens are squarely taken in Brussels, Washington and Frankfurt. While Papandreou is seeking approval for his controversial legislation, he does not control events anymore. In fact, the protests of the indignant citizens, the trade unions’ militancy and New Democracy’s defiance only underline the powerlessness of all domestic sides involved in this Greek tragedy.
In passing the austerity measures and privatization legislation Papandreou gains further breathing space and the EU buys much-needed time to work out the shape and size of a second bailout arrangement for Greece. However, the underlying issue remains the country’s debt sustainability.
The day of reckoning may be put off for a further number of months. But the need for the euro zone in cooperation with the IMF to set up a toolbox comprising an orderly, properly financed and well-prepared sovereign default procedure and restructuring mechanism of Greece’s obligations remains a matter of urgency.
Time has been squandered and political capital wasted for far too long during the past 16 months. The responsibility now lies first with Athens to adopt the legislation, and then to sit down with its financial benefactors in Brussels, Frankfurt and Washington to work out a comprehensive and transparent solution sooner rather then later.
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