Why there’s quite a bit of ambiguity surrounding Greece’s protracted (and increasingly absurd) negotiations with creditors, one thing is clear: the Greek populace faces a lose-lose scenario.
Striking a deal with creditors means accepting more austerity including pension cuts and a VAT hike. Failure to reach a deal means redenomination and, in all likelihood, an outright economic collapse as Greece is digitally bombed back to a barter system.
The combination of austerity and economic depression has hit the country’s pensioners especially hard, and times would get even tougher should PM Alexis Tsipras choose to concede to the troika’s so-called “red lines.” In April, pension payments were delayed by some 8 hours in what Athens claimed was a “technical glitch” and the Greek government’s move to borrow from pension funds in order to pay the bills not only represents yet another in a series of ridiculously circular funding schemes, but also demonstrates the extent to which pensioners are imperiled by Greece’s increasingly desperate situation.
Their backs against the wall, some Greeks have had enough and say further cuts to pensions and/or an increase in the VAT would lead some citizens to revolt (and that’s putting it mildly). WSJ has more [7]:
As Greece lurches toward climb-down or collision with its creditors, an exhausted population is bracing for more economic pain—either way.
Panagiotis Koupalidis, a 68-year-old retiree, is supporting his wife as well as their three grown children, who lost their jobs in Greece’s depression, on a pension of €700 ($790) a month. That is just over half what it was before the austerity measures imposed by creditors as the condition for bailout loans..
“The creditors are acting like grave diggers,” he says. “They want to send us pensioners to an early grave.” Pension cuts and sales-tax increases—which would inflict the most pain on low-income families already living hand to mouth—are the most politically explosive demands from Greece’s creditors, who see them as essential to restoring Greece’s long-term financial stability.
(Communist-affiliated union members at the finance ministry last week)
Mr. Tsipras told lawmakers from his left-wing Syriza party that Greece can’t accept the terms on offer, but tried to sound optimistic. “I believe that we are now in the final stretch. The real negotiations are starting now,” he said on Tuesday.
Failure to reach a deal could lead to even-more pain through capital controls, further economic meltdown and a turbulent exit from the euro.
The prospect of sharp hikes in value-added tax, a form of sales tax, are threatening to hurt Greece’s battered business sector further. Lenders want to simplify Greece’s exemption-ridden VAT system and raise some rates to boost revenues by 1% of GDP a year.
The IMF is insisting on the measure through even though it thinks Greece’s economy is already overtaxed, because it sees extra revenues as essential for paying down Greek debt if Europe—which holds the bulk of it—won’t write it down.
“How can a deal that raises VAT even more be a good deal?” said Christos Lousis, a 53-year-old entrepreneur whose window-installation business had 26 employees before the crisis.
Years of recession have forced him to lay them all off, while his sales have fallen by nearly 90%. Now struggling to service his mortgage and the loans on his shrunken business, the father of two also fears that Greece will strip away homeowners’ protection from repossession by banks—which Greece’s creditors have pushed for to protect the banking system.
“They are going to turn us into murderers,” Mr. Lousis says. “If they come to seize my house I’m ready to take the head of whoever is standing there—and I’m not the only one thinking this way.”
And, in what is perhaps the best explanation of why talks between Athens and Brussels have hit a wall, Kathimerini reports [8] that despite the fact that pensions account for some 18% of spending (the most in the EU), pensioners still find themselves struggling to stay above the poverty line.
The plight of 79-year-old Athenian Zina Razi and thousands like her strikes at the heart of why talks between Greece and its creditors have collapsed. She lives off a pension system that helps to consume a huge proportion of state spending and can appear overly indulgent - but still she's broke.
Razi barely keeps up with her power and water bills, and since her middle-aged son lost his job, supports him as well. "I am always in debt," she said. "I can't even imagine going to the cinema or the theatre like I did in the past."
Five years of austerity policies imposed at the creditors' behest have helped to turn a recession into a full-blown depression, and still they want more. Athens has flatly refused to achieve further savings by raising value-added tax on essential items or, crucially, slashing pension benefits.
[9]
('high stakes' pensioner poker)
As it inches closer to default and a potentially calamitous exit from the euro zone, the government has dismissed such demands as "absurd" or designed to pummel Greeks' morale.
To the lenders, the pension system is still too generous compared with what the country can afford. Greece spent 17.5 percent of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012.
With existing cuts, this figure has since fallen to 16 percent.
The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. For Razi, that would mean losing 180 euros ($203) out of her 650-euro monthly pension.
The average Greek pension is 833 euros a month. That's down from 1,350 euros in 2009, according INE-GSEE, the institute of the country's largest labour union. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.
"They can take our money, but they cannot take our hearts and souls. We live for our dignity," Razi said.
Considering the above, we don't think it's unreasonable to suggest that social unrest could be just around the corner in Greece, especially if Tsipras manages to somehow convince Syriza hardliners that compromising on pension cuts and the VAT is preferable to a Grexit.
Then again, saving face with voters means standing firm in the face a redenomination-fueled economic collapse which, as mentioned above, would effectively impoverish the entire country, an eventuality that could very well also lead to social upheaval.
The question then, would appear to be this: with Greece caught in an economic Catch 22, is a popular revolt now assured?
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