2

Premise: I'm not an expert in politics nor in economics, nor I am Greek. It just happens that I've spent the last 5 months in Greece, heard a lot of stories from common peoples, and failed to understand the logic behind the actions I've been told the Greek government took once the financial crisis arose. Thus, this question.

What I gathered:

  1. To counter the public debt problem, the government raised the income taxes and the VAT (OK, this more or less make sense).

  2. Then, the national minimum wage has been lowered to around 450 euros net without a safety net. What I mean, they didn't just lower the public one, they lowered the national and allowed private companies to freely lower all the wages to the new minimum. Many of my current friends went from 1200-1500 euros a month to 450 euros a month, without a chance to argue against it.

  3. With a lot of national products to export, the lowest paid workforce in all Europe and non existing roads, one of the first things they decided to sacrifice has been the railroad system to start building highways. Not that there was a good railroad system before, but totally shutting it down means that you are cutting your own legs and that the day you'll need it back again you'll have to spend tons of money to rebuild it from zero.

What are the rationales behind these decisions, if any?

  • This feels like a question for Economics.SE possibly – Venture2099 Mar 21 '17 at 19:10
  • I do not get point 3 - this article tells us about completely selling the railways operator TrainOSE to some Italian company. This is not shut down, just privatization. – Alexei Mar 21 '17 at 19:11
  • I think there have been national strikes, sometimes by rail workers. I think "why did <government> do <action>?" is on topic here even for economic actions. People at economics.se might be better able to explain if those actions were reasonable or not. And if not (my uneducated impression apparently shared by motoDrizzt) the question would just come back here to explain how austerity can make silly choices politically viable. – user9389 Mar 21 '17 at 19:30
  • About the railways: I know the difference between shut down and privatization as much as I know the difference between privatization and "no more trains running in most of the country, train stations used as parking lots, rail tracks left unattended and devastated/stolen, bridge collapsed into rivers". This is not "privatization for the sake of getting few ten millions", this is just "destroy hundreds of millions worth of railway system" – motoDrizzt Mar 22 '17 at 9:24
5

To address the rationale for all 3 points:

  1. The Greek debt crisis included a budget crisis. The debt wouldn't have been a problem if the budget was sufficiently in the black to pay interests and repay principals in time. Resolving the budget crisis meant both cutting spending and raising taxes.

  2. The Greek economy can be compared to its neighbors, such as the Balkan states and Turkey. The new minimum wage is in line with those countries, as well as the economic performance of Greece itself. The chief goal is to combat unemployment; minimum wages cause unemployment by forbidding jobs that do not pay enough. The idea that employers would just pay more if the minimum wage is higher ignores the reality of globalization. Importantly for Greece, tourism can offer many jobs, but Greece is in direct competition with other Mediterranean states. A lower minimum wage directly helps tourism to be competitive, and can quickly create new jobs.

  3. The loss-making railways were part of the budget crisis. Getting them off the budget helped; getting a few million from the privatization is another benefit.

Of course, much more is needed for Greece to recover. New companies are needed in large numbers, and Greece still has a very bad reputation in that area. It must become far easier to start a new company (in 21st century, the time neede should be measured in hours). Strikes are still far too common, so Greek companies are seen as unreliable suppliers. And the government is still rather big in comparison to the total size of the economy.

2

As already mentioned, this is more related to Economics rather than politics. However, how the costs are cut is also a political decision.

The economic climate that led this severe policies are illustrated in this article:

By the end of 2009, the Greek economy faced the highest budget deficit and government debt-to-GDP ratios in the EU. After several upward revisions, the 2009 budget deficit is now estimated at 15.7% of GDP.[67] This, combined with rapidly rising debt levels (127.9% of GDP in 2009) led to a precipitous increase in borrowing costs, effectively shutting Greece out of the global financial markets and resulting in a severe economic crisis

When you do not have money and nobody wants to lend to you, you have to rely on austerity packages and reforms. E.g. The last austerity package included "pension and taxes reforms to the tune of 5.4 billion euros. The measures included pensions cuts, increase of VAT to 24% and others.".

So, these will cover for the first two points of your question.

As for your point 3, it does not seem to be any railway shutdown, but it's complete privatization.

The sale of 100 per cent of TrainOSE to Ferrovie dello Stato Italiane will bring in only €45m. But privatisation officials say it completes a series of infrastructure sales to international investors that will boost Greece’s role as a transport and tourism hub for the eastern Mediterranean.

tl;dr

Greek government over the national crisis political decisions are forced by the fact that it does not have money, almost nobody wants to lend to them anymore and thus they are forced to make drastic reforms and cost cuts.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.