«GOVERNANCE Working Paper No. 53 Assessing the impact of the memoranda on Greek labour market and labour relations Apostolos Dedoussopoulos Valia ...»
GOVERNANCE Working Paper No. 53
Assessing the impact
of the memoranda
on Greek labour market
and labour relations
Franciscos Koutentakis Project financed
by the European
Marina Maropoulou Commission
Working Paper No. 53
by the European
Assessing the impact of the memoranda
on Greek labour market and labour relations
in collaboration with Valia Aranitou Franciscos Koutentakis Marina Maropoulou Governance and Tripartism Department International Labour Office • Geneva November 2013 Copyright © International Labour Organization 2013 First published 2013 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated.
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ILO Cataloguing in Publication Data Dedoussopoulos, Apostolos; Aranitou, Valia; Koutentakis, Franciscos; Maropoulou, Marina Assessing the impact of the memoranda on Greek labour market and labour relations / Apostolos Dedoussopoulos, in collaboration with Valia Aranitou, Franciscos Koutentakis, Marina Maropoulou ; International Labour Office, Governance and Tripartism Department. – Geneva: ILO, 2013 GOVERNANCE working paper ; No.53; ISSN 2226–7433; 2226–7840 International Labour Office; Governance and Tripartism Dept labour market / employment / unemployment / labour relations / collective bargaining / social dialogue / economic recession / Greece 13.01.2 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them.
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Printed in SwitzerlandForeword
This paper is part of a series of studies funded by the European Commission in the framework of a project of the International Labour Organization (ILO) on “Promoting a balanced and inclusive recovery from the crisis in Europe through sound industrial relations and social dialogue”. The project falls under a recent partnership agreement between the ILO and the European Commission, which aims to study the impact of the crisis and crisis-response policies on national tripartite social dialogue, collective bargaining and labour law in the Member States of the ILO and the European Union (EU), and the role of social dialogue actors and institutions in this context. The project builds on ILO research initiated since 2008 on best practices in the area of crisis responses, and the Global Jobs Pact adopted by the International Labour Conference in June 2009.
This study on Greece by Apostolos Dedoussopoulos (Panteion University) in collaboration with Valia Aranitou (University of Crete); Franciscos Koutentakis (University of Crete); Marina Maropoulou (University of Athens) examines the impact of the labour market measures adopted and implemented under the Memoranda of Understanding concluded between the Greek Government and the so-called “Troika” (IMF, EC, and ECB). Two and a half years after the first Memorandum, debates on the necessity and effectiveness of the policy fiercely continue not only among Greek policymakers and economists but also among the “troika” partners.
These debates have arisen due to the social impact of the advocated policies as well as the difficulties encountered in achieving specifically set targets (i.e., the management of public debt, restoring economic growth and improving labour market prospects).
Currently, the Greek economy remains caught in a recessionary spiral with negative results for social cohesion, productivity, labour market institutions and mechanisms.
An earlier version of the paper was presented and debated at the ILO-EU research workshop on “The governance of policy reforms in Europe: Social dialogue actors and institutions in times of economic downturn and austerity” (28–29 May 2012, Geneva, Switzerland).
The responsibility for opinions expressed in this paper rests solely with its authors, and its publication does not constitute an endorsement by the Governance and Tripartism Department of the International Labour Office, or the European Commission.
1.2.1 Macroeconomic background
1.2.2 External trade and competitiveness
1.2.3 Questions of policy effectiveness
2. The Greek labour market
2.1 Structure and trends
2.1.2 Evidence of flexibility in the Greek labour market
2.2 Employment in times of crisis
2.3 The unemployment rate
3. Industrial relations, collective bargaining and social dialogue under the memoranda and austerity policies
3.2 Policy formation
3.3 Policy content: Rationale
3.4 Policy content: Classification
3.4.2 The reforms in collective agreement law
3.4.3 The reform of the mediation and arbitration institution
3.4.4 The reform of individual labour contracts
4. Results of the reforms: Preliminary evidence
5. The role of social partners
6. Additional remarks
1.1 Introduction The financial crisis of 2008 has had a strong impact on the Greek economy, as well as on the economies of other euro countries. The Greek economy in 2009 exhibited a doubleedged weakness in terms of budget deficits and a mounting public debt combined with an increasing external trade deficit. Both of these had been partly offset in the past by financial resources available within the functioning of EU Funds and policies. In 2010, the Greek Government decided to advocate a “rescue” plan (Memorandum I in April 2010) which has been since then continuously reformed and extended (notably in July 2011 and in February 2012, the so-called Memorandum II, which included a “haircut” of the public debt).
The events that led to these developments are highly debated. There are still remaining questions unresolved about the extent of the problem, its management by the then Government and the rationale for the policy advocated. The main issues involved are briefly raised below.
Was the Greek crisis a specifically “Greek” crisis, or was it the result of the financial crisis in 2007–2008? Though such a question may seem superficial, it is worth noting that the Greek Government approached the issue as if it resulted solely from mismanagement in the past. As a result, the Government over-dramatized the situation,1 interest rates in the financial markets increased rapidly and the burden of refinancing accumulated public debt became unbearable. In conceiving the “Greek crisis” as a specifically Greek one, the Government created the wrong psychology in the financial markets, allowing speculation to take place on the country's borrowing needs and the euro.
There are some conjectures about why the Government acted this way. One may list a number of possible explanations: the decision of the Government not to implement promises made at the election campaign in September 2009; its fear that planned but not officially announced reforms would be fiercely opposed, which led it to choose to impose a “shock treatment”; pressures from dominant business interests; or merely its own inadequacy. These may be considered alternative or combined reasons for its decision.
However, the end result of this public rhetoric on the crisis has been simple: if Greece is responsible for its own crisis, the Greek people have to pay the price. This might explain both the reaction of certain European countries and several press publications at the time. It also explains why aspects of the Memoranda Agreements have taken the form of a vindictive policy.
Such a conceptualization of the Greek crisis was more than welcomed by the EU institutions. On the one hand, it eased the pressure for major reconsiderations of policies and institutional changes in times of hard financial conditions. On the other hand, the Greek Memorandum I provided a guiding post for the offensively called “PIIGS”.2 In this sense, the EU lost an opportunity for a major reform towards economic and political unification, which relates to the current problems it faces.
It is clear that a different approach, i.e. conceptualizing the Greek crisis as part of the international and European crisis, would have proven more fruitful. Under such an approach, the possibility of an alliance between the southern European countries and a renegotiation of European policies and institutional settings might have been explored.
The then Finance Minister referred frequently to the “sinking Titanic” and whenever he issued a press release the interest rate on public debt was raised.
Portugal, Italy, Ireland, Greece, Spain.
Given that the political choice was made and Memorandum I was adopted, has this policy been effective in terms of its own goals?
The simple mathematics of the relations of the public debt require, for the share of the public debt in gross domestic product (GDP) to be reduced, either a rate of growth in excess of the interest rate with a balanced budget or a surplus budget at a rate capable of offsetting any difference between the interest rate and the growth rate. Calculations of the dynamics of the Greek debt ratio conducted by several economists at the time3 concluded that the Greek debt was unmanageable – even if the very optimistic macroeconomic scenario indicated in Memorandum I had been realized.
In a recent book, P. Roumeliotis,4 former representative of Greece to the IMF, revealed that IMF officials had been convinced that the Greek debt had become unmanageable and they suggested a major haircut before signing Memorandum I. This suggestion was rejected by both the Greek Government and the EU.5 In relation to the macroeconomic model IMF has been using to estimate the impact of the fiscal measures, the IMF World Economic Outlook 2012 (October 2012)6 carries an important revision stating that the size of the fiscal multiplier should be revised from an average 0.5 to multipliers ranging from 0.9 to 1.7. This implies that the impact of budget deficit cuts on growth rates (and hence unemployment) has been severely underestimated.
The authors’ own rough estimate of the size of fiscal multiplier for Greece is around 1.3.
This means that the 13.5 billion euro in fiscal cuts decided in September 2012 will result in a 9 per cent recession for the succeeding two years depending on the time structure of the measures. An additional impact on recession will be brought about by the wage cuts in the private sector and the increasing death rate of enterprises – especially those of small and medium size.
It is not the author's intention to review the fast-growing literature on the causes of the “Greek problem”. Reference should be made to the works of J. Manolopoulos (2011), C. Lapavitsas’ numerous working papers for the University of London's School of Oriental and African Studies (SOAS) and press articles, G. Varoufakis' analysis and policy proposals mostly presented in his blog, and to the publications of J. Geanakoplos (2011) as well as E. Laskos and E. Tsakalotos (2011). The common ground of these works is to analyse the Greek crisis as part and parcel of the world financial crisis and of the role of financial institutions, in sharp contrast to the conceptualization of the crisis mechanisms advocated both by the Greek Government and by the troika. Such a conceptualization reduces the crisis to its phenomena, i.e. public deficit and external trade deficit. The authors argue that even if they had adopted this view, the policy conclusions would have to be different.
Turning to the numbers of the Greek crisis, the budget deficit in 2009 stood at
15.6 per cent of GDP while public debt amounted to 129.3 per cent of GDP in the same year. Interest rates on Greek public loans had been climbing, making further borrowing extremely costly for the Greek economy. The response of the newly elected Greek Government (October 2009) was to come to an agreement with the European Union, the European Central Bank and the International Monetary Fund (Memorandum I). The agreement provided new loans for the Greek State and established a rather ambiguous programme of public-sector cuts and restructuring, and increased taxation on wage earners, pensioners and independent professionals. It also contained a number of policy proposals, See, for example, R. Janssen, 2010, Greece and the IMF: Who Exactly Is Being Saved?, CEPR.