In a new serial Guest Blog, Jenny Floki explores the impact of the 2008 Financial Crisis on Greece, Europe and elsewhere. In this first article, she gives a vision of what it was like to live in at the front lines of an Austerity program even harsher than the one the UK implemented on itself.
Greece - Experiencing the Last Economic Crisis
Once upon a time in 2008, the whole world was sitting comfortably on top of a bubble counting their vast amount of money and enjoying life. Everything was running smoothly until one day, a big giant named ‘The Lehman Brothers’ accidentally fell down and burst the bubble. The world came crashing violently to the floor. Shocked and with mouths wide open, everyone tried to figure out what had happened… No one lived happily ever after.
This financial earthquake, which started in the US and quickly spread all over the world, destabilising both the global economy and international relations, seemed unbelievable. Many bankers did not see the economic crash coming (or didn’t want to) because they were so focused on the massive profits and bonuses they were reaping as a result of the very financial activities that were heavily contributing to an increasingly expanding debt bubble.
When the bubble burst, Greece was one of the countries that felt it most. ‘Greece’ however is really just the name of a country so it cannot actually “feel” anything. On the contrary, the people who lived within its borders felt and continue to feel confusion, desperation and anger at the strict austerity that was being implemented in their country. Whose fault was it? Are we, the Greeks, really lazy? Did a decade of austerity help the country to recover?
When the economic crisis reached Greece, I was a university student in Crete and I could not even imagine what was due to come when the prime minister at the time, A. Papandreou asked the EU and the IMF for financial assistance to deal with country’s sovereign debt.
In 2010, Greece was entering the era of IMF supervision, a time marked by the beginning of the complete deterioration of forty years of socioeconomic stability. In short, the crisis impacted the populace as a series of sudden reforms and austerity measures that led to impoverishment and loss of income and property, in what was described as a small-scale humanitarian crisis. During the IMF surveillance, the minimum wage was significantly reduced, people lost their houses, small businesses were shut down, unemployment was raised, income tax was substantially increased and government spending was cut, leading to underperforming health and education systems and misery throughout the country. All of the above was the product of the standby agreements (three in total) that the Greek government had to fulfil as conditions for financial help to be given to the country. Strict austerity, privatisation and favouring of FDIs (Foreign Direct Investments) are amongst the core policies dictated by the IMF to countries dealing with difficulties to meet their debt obligations.
What does this mean in real terms?
The mainstream consensus is that by restraining public spending, increasing taxes, privatising state enterprises and weakening the trade unions, economic prosperity will arise thanks to the natural motions of the free market. Businesses will profit due to the lack of state intervention and as a trickle-down effect the people will enjoy general economic prosperity.
This however was not the case for Greece.
Austerity was delivered through wage reduction and increasing taxation in order to equalise the budget balance, and followed by a massive privatization of state enterprises to generate the necessary liquidity for the external debt repayment. The low corporate taxation and labour market deregulation would generate the attraction of the desirable FDIs to secure long-term economic expansion. Furthermore, the banking sector had to be recapitalized and restructured. Overall, the global financial crisis was transmitted into a real economic crisis in Greece but the desirable outcome was never realised.
The 2008-2018 mayhem
During the years of IMF supervision, Greek people witnessed a series of regulations promising to take them out of the crisis while in reality it massively confused and depressed them. Primarily, the most significant policies were the privatisation of the state assets like the railway and the power corporations. The state leased the Port of Piraeus, the chief sea port of Athens, to a Chinese company whilst German companies gained control of various Greek airports, amongst them the international airport of Athens. It has to be noted that the above state assets alongside many more, were sold at a fraction of their real value.
One after the other, further shocks were thrown at the citizens of Greece who faced significant wage reductions and pension cuts. Particularly, in 2012, the monthly minimum wage for full time employment was lowered from €780 to €580 gross for workers over 25 years old and went down to €510 gross for workers in the age group 15-24. Furthermore, the average main pension decreased by 13.96% between 2012 and 2016. From 2010-2017, main and supplementary pensions were cut 14 times. Following the crisis, the unemployment rate steeply rose, reaching a high of 27.2% in 2013 in comparison to 7.7% in the year preceding the 2009 crisis. The 21.7% unemployment rate in April 2017, was the highest in the European Union. Currently, the unemployment in Greece stands at 17% average.
Social insecurity was increased during the years of austerity. The government was still struggling to meet its financial obligations - a fact that lead to further borrowing as a quick solution to meet short term debt repayments. In addition, in 2011, PSI (Private Sector Involvement) was conducted which put simply, meant that government bonds held by private owners had to be cut (defaulted) as a form of debt relief. In the aftermath of the PSI, Greek people whose bonds were cut, committed suicide and many more lost their houses.
Was the austerity worth it?
The IMF came to the country aiming to reduce the national debt and bring it back to sustainable levels but even after 10 years of austerity policies, the national debt was not only reduced but in fact it was nearly doubled. To be precise, the national debt accounted for 115% of GDP in 2009 and reached 181% in 2018. Simultaneously, the GDP growth was being depreciated rather than expanding with growth of -10% in 2012. In more recent years it has very slowly increased.
On the social aspect, the people were left with insecure employment, low wages and an underperforming welfare system. In addition, a huge wave of emigration occurred over the last decade with many young people - myself among them - migrating to other EU countries in hope of a better future.
Me, the immigrant!
Here I am, a Greek 27 year old, Glasgow resident, feeling hopeful and grateful for the last two years of my life. I arrived to the UK in search of the kind of opportunity that my economically and politically devastated country struggles to provide me with. It was not my fault and it was not Greeks’ fault that our nation struggles to stand on its feet. We did not create the problem. We were just put on the front line when the crisis hit the economy. We were burdened by the catastrophic results of bankers’ imprudent activities like other European nations. I am here because I believe in a better future for all, I believe in organisations like Common Weal and I believe that something is due to change because this time we will all work together to bring the change we want to see. There is never been a better time to take justice into our hands and if something does not suit us, to sculpt it to make it fit. We are not trees that stay rooted in their place and we will not be silent!
Written by Polyxeni-Jenny Floki