Bailout byproduct: A less equal Greek society

The agreement of a third bailout takes the edge off the financial crisis, but widens the gap in Greece between those at the bottom and those who have the means to weather the storm.   

By: /
November 19, 2015
A youth paints a slogan reading "Burn it" on the wall of the Bank of Greece headquarters during a 24-hour general strike in central Athens, November 12, 2015. REUTERS/Alkis Konstantinidis.

In the gruelling years of Greece’s economic crisis there have been many failures on the part of both Greek governments and their international lenders. But perhaps the greatest collective deficiency has been that rather than bolster fairness in Greek society, which would have helped support for structural reforms, the bailout programmes have contributed to the escalation of inequality.

This failure was highlighted in October by the Bertelsmann Foundation. In its annual Social Inclusion Monitor, the German think-tank ranked Greece as the last socially just country among the 28 European Union member states in 2015. The Sustainable Governance Indicators used by the researchers to rank the countries indicate that Greece has slipped about 20 percent from its peak ranking in 2008 to 3.61 points this year. The EU average is 5.63 points.

Greece is placed in the bottom five countries for all six categories used to evaluate the countries: poverty prevention, equitable education, labour market access, social cohesion and non-discrimination, health and intergenerational justice.

According to the authors, the “bailout package measures have aggravated existing social problems.” This is evident from the increasingly miserable conditions faced by Greece’s youth. Young people in Greece are troubled by greater levels of poverty and unemployment than their elders. For instance, the share of children living under conditions of severe material deprivation has more than doubled from 9.7 percent in 2007 to the current 23.8 percent, while the unemployment rate for the 15-to-24-year-old group has more than doubled since 2008 to 52.4 percent.

“In 2014, 28.4 percent of 20-to-24 year old Greeks were neither employed nor participating in education or training ... If unresolved, this high rate of inactive young adults threatens to seriously destabilise the country over the long term,” said the Bertelsmann Foundation. 

Past Mistakes

It is important to stress, though, that the seeds of this instability were sown well before the troika of lenders (European Commission, European Central Bank and International Monetary Fund) arrived in Greece to bail out the country. Local policy makers, as well as a sizeable part of Greek society, carry grave responsibility for advocating and implementing policies that sent the country’s public finances way off track and left Greece perilously exposed.

At the same time, those policies created a false sense of prosperity that masked underlying inequality problems and the weakness of Greece’s expensively-constructed social security system in protecting the most vulnerable from the ravaging effects of the crisis. 

As highlighted by an Organisation for Economic Cooperation and Development (OECD) study last year, Greece built a skewed welfare system that diverted many of the benefits available to people who were not in great need. “Before the crisis, Greece devoted nearly 30 percent of government outlays to social transfers, but much of this spending went to relatively well-off households,” said the international organization. 

Perhaps the most conspicuous failure of policy making in previous years is evident in the lack of assistance unemployed Greeks receive. Despite having an unemployment rate of around 25 percent at the moment, less than 10 percent of Greeks without work receive the monthly benefit of 360 euros as it is only available to those without work in the first year after they lose their jobs. After that, they are on their own, or dependent on the generosity of friends and family.

Problems Ahead

After a tumultuous few months of negotiations between the Syriza-led government in Athens and Greece’s lenders, the agreement of a third bailout has removed a lot of the drama but none of the danger. The menace of a euro exit, or Grexit, may not be lurking just around the corner but the threat of a society buckling under the pressures caused by continued fiscal adjustment, lack of growth, political instability and burgeoning inequality remain.

The Greek economy is expected to shrink again this year by 1.4 percent of GDP. This will be the seventh negative reading for national output over the last eight years after a marginal increase in 2014.

At the same time, Greece is being asked to continue the fiscal consolidation process it began when it signed its first bailout in 2010, ensuring that it has a large enough primary surplus to pay back its public debt, which is expected to reach 200 percent of GDP in 2016, slated as another year of recession.

In the absence of growth or a growth-inducing fiscal policy, the burden for Greek recovery falls on structural reforms aimed at improving competitiveness. These, though, take time to have an impact and are often met with resistance either by interest groups with deep roots within the political system or by a sceptical public which feels there is not a genuine attempt to change anything for the better, only to increase the burden on those already being sorely tested by the crisis and austerity over the last five years.

 There is plenty of evidence to support the belief that the policies being followed are widening the divides in Greek society. According to the OECD’s most recent data on income inequality, the gap between the richest and poorest in Greek society has increased over the past few years, with the top tenth of society earning 12.3 times more than the poorest in 2012, up from 10.5 in 2007. 

Even more alarmingly, a study funded by Macroeconomic Policy Institute of the Hans-Boeckler-Foundation, the research wing of the Confederation of German Trade Unions (DGB), found that lower income groups in Greece saw their tax burden increase by 337.7 percent from 2008 to 2012, compared to a nine percent rise for higher income groups. This took place as the incomes of those in the lowest group fell by 34.6 percent, compared to a decline of 9.3 percent in the top group.

 This deepening of inequality in Greece is perhaps the country’s most serious challenge going forward. Local and European policymakers will lose the ability to connect with Greeks if they cannot convince them that the burden of the crisis is being shared as equally as possible and that the benefits of the recovery – whenever that will come – will also be spread amongst the population.

 The effects of failing to prevent a slide into greater inequality are already visible. More people relying on charities and NGOs for basic needs such as food and shelter, an overstretched public health system, a record low turnout in September’s general elections and the presence of a Neo-Nazi party (Golden Dawn) in Greece’s Parliament as the third largest grouping are just some of the warning signs that need to be heeded.

 

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