Greece has faced a devastating economic and social crisis since 2010, when speculation against government bonds forced the country to turn to the European Union for financial support. The EU, the International Monetary Fund and the European Central Bank (‘the troika’) imposed exceptionally harsh conditions involving large cuts in government spending and major structural changes. Between 2008 and 2013 economic output fell by 26%; the official unemployment rate rose to 28% and youth unemployment to 58%; major cuts in wages and social benefits have led to a massive increase in poverty and hardship.
According to the official view, the crisis in Greece is due to fiscal irresponsibly, to a clientelistic political system, and to a failure to ‘modernize’ the economy. Christos Laskos and Euclid Tsakalotos challenge this in their well-documented study: they argue that, on the contrary, neoliberal modernization in Greece started in earnest in 1996 under the social-democratic PASOK government and continued after 2002 when the conservative New Democracy took office. For Laskos and Tsakalotos, the crisis in Greece had its origins in the neoliberal model which was first adopted in the 1980s by the US and where, they note, the crisis first broke in 2007-08.
Greece was subjected from the mid-1990s to an extensive programme involving privatization and the liberalization of labour laws.From 2000 this was accompanied by the largest reduction in corporate tax rates in the EU. Casual and precarious labour contracts were promoted while the liberalization of the financial system led to an expansion of Greek banks through the Balkans and Turkey, and a highly profitable expansion of lending for consumer credit and mortgages at home.
Between 1995 and 2008, economic growth in Greece was higher than the EU average. But the private sector focused on short-term profits and was reluctant to invest in research and development. State employment, although higher than Germany, Spain or Italy was lower than in Scandinavian countries. Despite an attempt by PASOK to promote more transparent employment policies, however, clientelistic policies persisted. But labour market flexibilisation resulted in a shift to many skilled employees being paid by task and many of the self-employed were even more exploited than waged workers in the private sector.
By 2008, Greece had the most unequal income distribution in the EU bar Portugal and Britain. Although pensions converged to EU levels, total social spending was below the EU average. Crucially, the good years were not used to deal with the country’s social and democratic deficit. While the government deficit did increase, this was not due to high spending, which was around the average for EU countries, but rather to the tax cuts which led to a sharp fall in revenues.
Greek productivity increases prior to the crisis actually outstripped those in Germany. But it was difficult for peripheral countries to compete with Germany, which pursued a policy of keeping its wages down and expanding its exports to other parts of the EU. While the euro area had a common monetary policy, there was no common fiscal policy to ensure that imbalances between countries would be corrected, and when the crisis broke in the euro area an overall response was resisted by European leaders, especially those in Germany.
The onset of the crisis led to widespread resistance and demonstrations in Greece, but this was unable to stop the austerity policies. While there has been a growth of right wing parties, most notoriously the neo-nazi Golden Dawn, the most striking political development has been the rise of the Coalition of the Radical Left, SYRIZA, which has won widespread support particularly among young people, city dwellers and working class voters.
Unlike some parts of the Greek left, SYRIZA does not call for leaving the euro. According to Laskos and Tsakalotos what is now required is to strengthen democracy in Europe by promoting a mobilisation of support in both the South and the North for a radical change in policy. SYRIZA’s programme, they argue, will be difficult to implement without international solidarity.
At the elections for the European parliament in May, SYRIZA emerged in first place in Greece. With the possibility of early elections in 2015, this radical new party could soon face the formidable challenge of forming a government.