Greece's only certainty in 2013? Predictions are futile

 

Nick Malkoutzis The Guardian, Thursday 3 January 2013 19.30 GMT

Forecasts of collapse, 'Grexit' and even civil war proved unfounded but Greek society is under immense pressure

Illustration by Satoshi Kambayashi

You cannot look upon 2012 as anything other than a momentous year for Greece. During those 12 months, it agreed a second massive bailout, carried out an unprecedented restructuring of its public debt, held two tumultuous national elections, was led by three prime ministers, had a fifth straight year of recession and saw unemployment climb to a euro zone high of 26%.

As epic as these events proved, though, they barely lived up to Greece's billing in some reports. Spurred on by analysts' predictions, such as the one by Citigroup's chief economist William Buiter that Greece would leave the euro zone at the start of 2013, a plethora of commentators predicted that 2012 would be its last in the single currency. The forecasts were accompanied by musings about what level of chaos would accompany the "Grexit". Some reports focused on the destabilising effect on the country's economy and society, while others heralded the imminent return of cheap island holidays.

An inconclusive general election in May convinced many observers that Greece was about to be reunited with the word it had introduced to the world: chaos. The failure to agree on a coalition government after the May polls, prompting a new election in June, triggered a bank run and intense speculation about an imminent collapse. Plummeting support for Greek political mainstays conservative New Democracy and centre-left Pasok, the rising popularity of anti-austerity Syriza and the emergence of neo-Nazi Golden Dawn was interpreted by some as evidence that Greece was destined for a clash of extremes, which even led commentators such as James Poulos in Forbes to raise the possibility of a new civil war.

Civil war never materialised, and neither did a euro exit or collapse. There were many times last year when Greeks could take very little about their future for granted, but the most ominous predictions often seemed driven by morbid fascination rather than measured analysis. In 2012, Greece teetered on the edge of leaving the euro zone but never strayed over the line. Its economy was battered but not beaten. The political system experienced a seismic shift but democracy did not disappear between the fault lines. And society's fabric had frayed but was not worn completely.

Nevertheless, Greece finds itself in a precarious situation at the start of 2013. To maintain its euro membership, the government had to agree to another round of confidence-sapping austerity measures from which its euro zone partners, Germany in particular, refuse to waver. Between now and 2016, Athens will have to implement a minimum of €18bn in cuts and tax hikes. That's the equivalent of roughly 10% of GDP and comes after three years of similar measures, which produced the biggest fiscal adjustment achieved by any OECD country for the last 30 years.

This produced remarkable fiscal results. New figures from Greece's finance ministry show the country on course to produce a primary surplus for 2012, its first since 2002. But this adjustment strangled the economy. Businesses closed at an alarming rate and about 1,000 jobs were lost every day. At the end of 2012, Greece's economy had contracted by about 20% from its 2008 peak.

This decline is putting immense pressure on Greek society. Joblessness, which some experts believe will reach 30% this year, means families are trying to provide a safety net for their loved ones at the same time as wages and pensions are being slashed. More Greeks are living at the margins of society, cut off from welfare and facing rising healthcare costs. In this environment, the extremism of Golden Dawn, which offers food and jobs to Greeks, has flourished. Its racism has made life hell for immigrants and fuelled much-criticised sweep operations by the government.

The governing coalition is an odd alliance of former rivals New Democracy and Pasok, with the moderates of Democratic Left. Its parliamentary majority has already been eroded due to a tense vote on the latest austerity package. The prime minister, Antonis Samaras, has pinned his hopes on rebuilding trust with Greece's lenders through a policy of full co-operation. He believes that with continued euro zone funding and support, Greece will weather another year of recession and banish lingering doubts about its future in the euro.

It is a high-risk strategy as public scepticism about the EU-IMF formula is overwhelming and Syriza has already risen to first place in opinion polls. The leftists have stepped up attacks on the political establishment following allegations that a former Pasok finance minister doctored a list of Greeks with Swiss deposits to remove the names of his relatives.

In recent weeks, the euro zone has shown a greater commitment to keeping Greece in the single currency but the country's precarious economic, social and political situation means it will not be a straightforward process. Perhaps the greatest wish Greeks could have for 2013 is for some certainty about their future: to be able to know that the worst of their troubles are behind them, that structural reforms will change the unsustainable economic model of the past, while creating a fairer society, and that recovery is in sight. There is very little about Greece's condition that can provide them with this comfort. The only thing they can be certain of is that 2013 won't be a year for predictions.

Greece's only certainty in 2013? Predictions are futile | Nick Malkoutzis | Comment is free | The Guardian