The Greek austerity measures are imposed on Greece in return for loans that will help ease its debt crisis and restore investor confidence. The Greek debt is estimated to be 5 times that of Argentina when it defaulted in 2001.
The Greek prime minister announced a referendum would be held on the deal he negotiated with the EU. However, it remains to be seen if it goes ahead or if Papandreou even survives an upcoming confidence vote.
In any event the austerity measure will no doubt continue to provoke the anger of many Greeks if the government insists on going ahead with the deal. Here are a few of the requirements in the deal.
Wages in the publics sector are to be cut by 20 per cent. Wages in state-owned companies are to be cut by 30 per cent. No doubt this may make it impossible for the state companies to hire workers and they will lose money leading to a demand for further privatization.
30,000 civil servants will receive only partial pay. They will receive 60 per cent of regular pay for one year. In effect this is a forty per cent pay cut during the year.
Pensions above the level of 1,000 euros are being cut by 20 per cent. Those above that level who retired under 55 will face a 40 per cent cut. Imagine how you would feel as a retiree facing these sorts of cuts.
While investors are worried about the economic health of their investments they could care less about the health of Greek citizens. Health spending must be cut by almost half a billion dollars in 2011. Between 2012 and 2015 it is to be cut by 1.8 billion euros.
Education spending also gets the axe. Almost 2,000 schools are to merged or closed. Even defence spending is to be cut.
The tax-free income threshold will be lowered to less than half of what it is now. This means some of the least well off will now pay taxes. As the austerity measures create more unemployed and the state has no money to pay them benefits a new tax is being introduced. Some well paid marketer no doubt created the term "solidarity tax"" This will be a surtax of one to five per cent on each household. The solidarity is with investors since the policies designed to comfort them cause these negative effects that the Greek householder must pay for.
Since the Greeks have supposedly been so profligate it is only fair that their SIN taxes should increase. Taxes on gas, cigarettes, and alcohol are to increase by a third. It will cost a lot more for Greeks to drown their sorrows.
Finally state debt provides an excellent opportunity for private capital to buy state assets at fire sale prices. Hellenic Telecom has already sold a ten per cent share to Deutsche Telekom to raise 400 million euros. But that is just a sample of what will happen. The government is to sell stakes in banks, utilities, ports, airports and land holdings. Greece is having a stress sale of assets. Greece will not only be part of the Eurozone it will be owned by Eurozone investors. The Greek people are not to own things. For more see this article.