For the first time since Greece’s economy skidded off the fiscal cliff three years ago, George Zoulovits was starting to feel somewhat optimistic this month.
His family’s housewares company, drastically downsized from seven to two shops in the financially dishevelled Greek capital, was finally breaking even. All but one of his 14 employees had been spared sackings in the company’s radical restructuring, and a newly launched website cajoling customers to “keep calm and shop online,” was seeing surging hits of orders from abroad.
It still is. But last week, that veneer of calm, and the hope that spring’s dearth of bad news from Greece could spill into summer, spurring growth in the local economy, shattered amid fresh fears of added austerity.
Mr. Zoulovits, and markets already skittish about debt-choked Greece’s reforms, are spooked again.
“It’s nerve-racking,” says the young entrepreneur. “One minute you’re given the impression things are finally moving forward; the next, everything freezes.”
Once the driving force of the Greek economy, small, family-owned and personal businesses were counting on the summer sale season that kicks off this week to see much-needed cash seep into a market paralyzed by years of sagging consumption and tighter lending by teetering banks.
Some 60,000 enterprises are forecast to close this year. And this on top of 160,000 businesses that have gone bust since the start of the crisis. Building contractors, retailers and small manufacturers remain hardest hit.
“No one really knows how to plan any more,” Mr. Zoulovits says. “It’s all in the air.”
Last week, despite missed deadlines and looming uncertainty, international lenders cast Greece another lifeline, preventing the cash-strapped country from sinking amid Europe’s lingering debt crisis.
The €6.8-billion payment, part of the world’s biggest bailout, staves off a Greek default, tiding the battered country over until after the German elections, in September, when debt inspectors from the European Union and the International Monetary Fund return to Athens for a follow-up review.
Greece’s three-month respite won’t be easy. In fact, pundits and politicians concede, its rescue is proving harder with every review.
Three years into a €240-billion bailout, analysts say, the Greek program remains fragile and uncertain; reforms, grudging and scant, with most of the country’s problem-solving tasks lying ahead.
“The outlook isn’t good,” says Vassilis Polimenis, a leading Athens-based economist at the Aristotle University of Thessaloniki. “While some progress has been made on the fiscal consolidation front, chronic problems troubling the Greek economy have gone untouched.
“It is as if we are flying through the worst storm ever,” he says, “trying to steer a plane with only one engine. If the second engine doesn’t start up soon, then we’re doomed, bound for a deadly crash.”
This week, in a desperate bid to jump-start the economy, Greece’s ruling coalition will put to vote a grab-bag of structural reforms, including a painful program of public sector restructuring putting some 25,000 state workers in line for dismissal if they fail to find work in a different department within eight months.
Although the weakened two-party coalition looks likely to push the bill through parliament – it controls a five-seat majority in the 300-seat House – its effectiveness in implementing the contentious measure is already being challenged in a country loyal to the sanctity of state job security.
Already, two of the country’s biggest labour unions have called for a 24-hour nationwide strike on Tuesday; thousands of municipal employees and teachers – among the first wave of 4,250 targeted layoffs – also plan to protest outside the parliament Monday night to block lawmakers from entering to vote on the bill.
“If there are more than one or two dissenters,” warns Aristides Hatzis, an associate professor of law, economics and legal theory at the University of Athens, “then the parties will start thinking about early elections.”
The stakes are high.
Just last month, Prime Minister Antonis Samaras saw his awkward three-party coalition nearly collapse, when a minority, leftist partner quit over the sudden shutdown of the national broadcaster – a move that left 2,656 Greeks jobless without any warning.
The political crisis that ensued rekindled uncertainty and volatility in the financial markets just as fiscal deadlines were finally being met, hedge funds began snapping up Greek bonds, and millions of euros stashed either illegally in foreign accounts or under Greek mattresses finally started coming out into the open.
Now, even the strongest backers of the Greek plan can’t guarantee it will succeed.
A 47-page report co-authored by the European Commission and leaked to media this week, showed Athens could face a fiscal gap of up to €2-billion this year and next. And this is on top of savings worth €4-billion the government needs to outline in September for 2015 and 2016.
The report cited anemic government attempts to lure direct investments to encourage growth in the near term. It also singled out Greece’s “inability or unwillingness” to improve tax collection as the main source of creditors’ concern.
Nikos, a 53-year-old electrician who declined to reveal his surname for fear of reprisals from the state, is one example. After decades of running his own shop north of the capital, he shut down what was a legal business to run an illegal operation.
“Officially, I’m unemployed,” he says. “But unofficially, I’m making more money than ever.
“I charge less, but without 23 per cent sales tax, my clients also pay less, so we’re all happy,” he explains. “I have no problem paying taxes, but by [the state] piling on more and more of them, even the most law-biding professionals have no other option than to go black.
“Don’t these politicians get that?”
With the economy losing billions a year in undeclared income, the conservative-led coalition government has made tax collection a priority. But so did previous governments, which failed miserably at the task.
Since fighting his way to power after two highly divisive elections in May and June, Prime Minister Mr. Samaras has moved to placate public anger and claims of social injustice by sanctioning stings against high-profile tax cheaters, including tycoons, rock stars and politicians. Scores of Swiss bank accounts are now on the tax auditors’ radar.
Still, a decision to lower the tax-free threshold last year and increase the sales tax to a whopping 23 per cent has resulted in 60 per cent of Greeks who work in the private sector reporting less income. At the country’s 31,000 bars, among the most lucrative businesses in the sun-kissed nation, each recorded average profits last year of only about half of what constitutes the cutoff for Greece’s poverty line.
Greeks, feeling condemned to a slow and excruciating financial death as they face fiscal deficits, fear the government may resort to further fiscal retrenchment and even more austerity. Both Mr. Samaras and Finance Minister Ioannis Yannis Stournaras have vehemently denied that, leaving open the prospect of either a debt writeoff or a new restructuring plan.
Both international lenders and Athens have to share responsibility in the disastrous outcome of the Greek bailout, analysts say.
“Athens has to really get to grips with reforms,” says Lefteris Farmakis of the London-Based Nomura International Group. “But if lenders keep pushing it the way they are, then they may sooner rather than later face the unpleasant surprise of seeing the government fall in Athens.
“If that happens, there is no other credible negotiator to step in and take charge.”
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