Studying Poverty in the Time of Austerity

In 2009 Greece experienced a crisis of confidence among investors, as government debt soared. This created a spiralling recession, eventually leading to fears that Greece’s inability to service the debt could threaten the economies of the Eurozone. In 2010 the International Monetary Fund (IMF) and the Eurozone countries agreed on a €110 billion emergency loan under strict conditions, among them austerity measures which saw dramatic cuts in public spending.

Since that time the Eurozone has stumbled from crisis to crisis, as Greece and other countries, many of them in South Europe, have been on the verge of financial collapse.   

Visiting researcher from Greece

Maria Petmesidou is professor of Social Policy at the Democritus University of Thrace. She has done extensive research on social policy and development issues in Greece, as well as on comparative social protection systems in Southern Europe.

She is also a CROP Research Fellow and a University of Bergen SPIRE guest researcher. As part of her stay in Bergen she gave an open lecture on 6 May, titled “Crisis and austerity: A painful watershed for the South European welfare state”, at the Bergen Resource Centre for International Development.

During the lecture Professor Petmesidou presented evidence dismantling the myth that the expansion of social spending was the reason behind the Greek crisis. In fact, before the crisis hit such spending was lower than in countries like Denmark or Germany, which have a reputation for fiscal responsibility.

Petmesidou further explained that from the onset of the crisis, the bailout packages were designed with the sole aim of achieving financial sustainability, with no regard for the need to ensure adequate incomes. So, as Greece has plunged deeper into debt, poverty levels have increased dramatically, health spending has been halved from 2009 to 2013, and public pension funds have lost more than two thirds of their value.

Internal and external causes

Professor Petmesidou sat down with me ahead of the Resource Centre lecture, to discuss the economic and financial crisis which has hit Greece particularly hard.

– The crisis has two categories of causes. One is the internal causes, having to do with the fact that credit became quite cheap when Greece entered the euro. Politicians became keen to borrow to expand the clientelistic handouts to different groups. The external causes are linked to the dynamics of the euro. It is now clear that weaker economies in the Eurozone would eventually suffer. From its inception the euro would sooner or later cause problems. The problem was that the euro was only a monetary union, not a fiscal and political union. Redistribution is rather limited in the EU and fiscal policies vary among member states. When the economies are so different this structure would eventually lead to problems. It was a dangerous game that some people actually warned against from the start. Despite the obvious deficiencies of the current system there are no signs that an economic and political union will develop anytime soon. On the contrary there are fears that the eurozone might fall apart, says Petmesidou.

The imposition of depression

Along with many other experts on development, social policy and economics, Professor Petmesidou is highly critical of the austerity measures imposed on Greece, because cuts in public spending lead to a vicious cycle of decreasing economic activity, less revenue for businesses and lower employment:

– When the troika consisting of the EU, the European Central Bank and the IMF signed the memorandum of understanding for bailing out the country in 2010, they expected a slight recession in 2011, about 2% of GDP, after which the country would bounce back. However the recession turned out to be 7%. I have a hard time believing that the troika were honest in their initial assessment, as especially the IMF has a long history in dealing with such crises. Instead I believe that austerity is a free market fundamentalist creed, without concern for the effects on the country. But it is not only ideological. It is also a way of making sure that money will get back with a considerable profit to the German banks and other financial institutions which provided the loans. It’s the same as the Structural Adjustment Programmes, or SAPS, in the third world, which had really negative effects. It boils down to a transfer of wealth to the financial elites, and that’s what we see in Greece. When the sovereign debt bubble erupted, the public debt stood at about 115% of GDP. By the end of 2013 it’s estimated to reach 180% or 190%, says Petmesidou, who wonders if the ultimate goal could be to create a cheap labour market in the south of Europe, to the advantage of Central European industry.

Leaving the euro could be a remedy, as it would give the Government the possibility to stimulate growth by devaluing the currency. However Petmesidou points out that no party in Greece has developed a serious plan for such a move. The EU is seen as a security guarantee against possible Turkish aggression, given also the turmoil in the Middle East, and if animosity towards the Union has risen, it is not yet at a level where a plan for quitting the euro is a viable election strategy.

Political instability in the wake of financial ruin

Along with the confusion, fear and uncertainty of the debt crisis there has been political instability during the last few years. The Panhellenic Socialist Movement, or PASOK, has plunged in the polls since gaining nearly 44% per cent of the popular vote in the 2009 parliamentary election. In 2012 it received a little over 12%, giving way to radical parties on the left and right. Despite the plunge the party is still in power, as a partner with the Democratic Left and the centre-right New Democracy in a fragile government. For many Greeks however, what is of even greater concern than political instability is the emergence of the extreme right party Golden Dawn:

– It is the third party in parliament, which is very alarming. They have very populist policies which attract voters. They run soup kitchens and distribute food, so they fill a vacuum left behind by a weakened welfare state. But they only distribute food to indigenous Greeks, and they donate blood, insisting that it may not be given to those who have an immigrant background. Party members have also been behind racially motivated attacks. This is extremely dangerous, but it is also beneficial for the establishment. In other words it’s harmful to society, but it has the function of sending some of the voters to the right, thereby avoiding a strong extreme left, says Petmesidou.

Discouraged youth

Despite an obvious need for informed analyses of the current financial and economic situation in Greece and the rest of Europe, Petmesidou says there are few initiatives in engaging researchers to provide information to decision-makers:

– The major parties have their think-tanks but these produce mostly political rhetoric rather than research based evidence for informing policy. Maybe with the exception of some organisations linked to the main opposition party SYRIZA, a left-wing party, which organise workshops and public lectures. But overall there is little initiative by governmental or party political forces for evidence-based policy. In addition there is very little official funding for further research on these issues.

But worse still is the effect of the crisis that the professor sees on her students:

– The main change I see in students is that they are disappointed, so they are less keen to study hard. This is really bad. It’s something that discourages you. They think “why should we get a degree when there are no jobs?” There are a few students who would like to do research afterwards, but these are exceptions. Further studies are expensive and most families can’t support this, says Petmesidou.