Where Is the Rule of the Troika Leading Greece?

Where Is the Rule of the Troika Leading Greece?
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Since 2010, Greece is under the rule of the Troika (IMF, European Commission [EC] , European Central Bank [ECB]), which rules under the terms of the Memorandum of Understanding (MoU), a document expounding what is expected to be executed by the Greek government.

The life and the future of eleven million people hang from the policies of the Troika, which are dominated by the German dictates of a severely punitive austerity characterized by deep cuts in wages and pensions and heavy taxation of individuals and businesses.

Since 2009, salaries in the public sector have been cut up to over 50 percent, wages in the private sector have been reduced by 40 percent, and pensions have been cut up to 45 percent. From 2010 to 2013 the tax on the average income has increased by 25 percent, while the income of most people has gone down by over 29 percent. Taxation of real estate has increased by 552 percent. The value added tax was raised from 19 to 23 percent, and numerous other indirect taxes have been added or gone up. In 2014, revenue from tax increases imposed on businesses is expected to increase by 137.2 percent.

Since 2009, as a result of this severe austerity, the GDP has dropped by 27 percent and continues to fall and the unemployment has grown to 28 percent and continues to grow. The Greek depression is worse than the Great Depression in the U.S.

By the end of last September 526,477 enterprises have fallen behind on their tax payments. The total taxes owed to the state by enterprises amounts to 39.3 billion euros, while those owed by individuals amount to 22.6 billion euros (2012: public revenues of 44.7 billion euros, debt of 303.9 billion). It is estimated that the state will not be able to collect 35-40 billion euros of these debts, because they are due by businesses and individuals that are financially dead.

Bank non-performing loans from business and household debt reached 28 percent in 2013 and is expected to hit the mid 30s in 2014.

Traditionally many Greeks own their homes and many of these have been inherited from generation to generation. With the drastically increased taxation, the new property taxes, the drastic cuts in salaries and pensions, and the record high unemployment, many families cannot meet their mortgage payments. In a country of 11 million people, in 2012 there were about 1,330,000 people living in households where none of its members had work. Even people that have inherited their houses from grandfathers, or have no mortgages to pay, risk to lose them, because they cannot pay the taxes.

The Troika is pressuring the government to end in 2014 a ban on house repossessions. Meanwhile, since the beginning of the economic crisis real estate prices have fallen up to 62 percent with an average drop of about 38 percent, while real estate taxes are based on values before the real estate market collapsed.

With unemployment for young people approaching 60 percent, and unemployment for young scientists and engineers above 35 percent, Greece has been hit by an epidemic of immigration as people look desperately for work wherever it can be found. It has been estimated that the last five years the drain in scientists and engineers has increased by 70 percent.

Although, according to Geek estimates, Greece has managed this year to achieve a small primary surplus of 0.6 percent of GDP, with a goal this surplus to be extended to 1.5 percent in 2014 and 4.5 percent in 2016, due to the drastic GDP contraction, a fiscal gap, whose amount is a moving target, is foreseen until the end of 2016. To meet fiscal targets, the Troika demands the undertaking of additional austerity measures, which naturally would depress the economy even further, and is threatening to withhold the release of bailout money if its demands would not be met.

In the U.S., which did not implement austerity to recover from the great recession of 2007-2009, the deficit has dropped from 10.11 percent of GDP in 2009 to 4.2 percent in 2013 while the GDP has grown by 16 percent, and the economy would be in a better shape if it was nor for a dysfunctional and very partisan Congress. The IMF projected for Greece a real GDP growth of -4.0, -3.0, and -3.0 for 2010, 2011, and 2012,while the actual numbers came out significantly worse, -4.9, -7.1, and -6.4, respectively.

For many years the Achilles' heel of the Greek economy has been a persistent negative trade balance. In 2008 exports amounted to approximately $29 billion and under the Troika, in 2012 dropped to $21.8 billion and if fuel products are excluded, which include fuel pumped into oceangoing ships visiting Greek ports, in the first eight months of 2013 exports fell by 2.6 percent. In the years leading to the current crisis, this critical weakness of the Greek economy has been exacerbated by corrupt and incompetent governments, a public life corroded to the bone, a defective by design 3urozone, and an EU attitude of looking the other way until the crisis hit a disastrous state.

Cutting of salaries and pensions, tax increases, and uncertainty depress economic activity and erode the tax base. Although Greece still needs reforms, the insistence of the Troika on a severe austerity focused on heavy taxation, instead of a focus on investment in badly needed export oriented businesses, helps neither Greece's creditors nor the Greeks. Debt cannot be paid by unemployed people and an economy spiraling deeper into recession. Many Greeks think that the only ones who will benefit the most from this disaster are those who have and will buy Greece's assets at fire sale prices.

The dismal state of Greece unavoidably raises the question: Where is the Troika leading Greece? As the most consequential body ruling Greece today, the Troika is responsible for the lives and the future of 11 million people, and for the consequences of a Greece teetering on the edge of economic collapse and political instability on the future of the dream of a United Europe.

Correction: An earlier version of this post incorrectly stated that "income of most people [in Greece] has gone up by over 29 percent." In fact, the income of most people in Greece went down by that percentage.

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