Greece's austerity policies could create a crisis of insolvency within the country, undermining the very reason they were implemented - to repay the country's debt - says the country's biggest labour confederation.

"I am afraid that we may see a phenomenon that could cause a social explosion," says Savvas Robolis, scientific director for the Labour Institute of the General Confederation of Workers in Greece (GSEE), the private sector's confederation of unions. "Right now many people can't pay their taxes. That's why state revenue fell 300 million euros ($395m) short of January targets. If that continues, I don't know if the state will be able to meet its obligations by June or July. It may not have the cash to pay salaries and pensions."

The state heavily subsidises approximately 1.3 million pensions, according to finance ministry data. It also pays the salaries of almost 800,000 state employees, roughly a quarter of all people still working in the country. Failure to pay those pensions and salaries in full would greatly impact on the state's own tax revenues, and therefore its ability to maintain payments to international creditors.

Pensions and salaries have already been cut by 40 percent during the crisis, says GSEE's Labour Institute. A new wave of austerity being implemented this year will raise those cuts to an estimated 50 percent. At the same time, Greeks have faced higher sales tax at the supermarket, higher fuel tax, a new property tax and a 'solidarity fee' of 1-3 percent on their salaries.

The squeeze is causing chronic pain. "I don't see why a person should pay tax to hold onto a home they've already spent a lifetime paying off," says Argyro Syriga, an unemployed mother of one. She inherited a house from her father, but now fears she may lose it. Her power was cut off six weeks ago because she could pay neither the electricity bill nor the property tax that rides on it.

"These measures are unbalanced, unfair and chiefly ineffective. They haven't brought prospects to the economy, but they have produced plenty of drama in society." - Vangelis Moutafis, union official



Syriga was one of tens of thousands of Greeks who marched through the streets if Athens during Wednesday's general strike, organised jointly by the private and public sectors.

Privatisation criticised

Taxpayers are bearing increasing indirect burdens as the government privatises state enterprises. Commuters who use the country's main motorway, which runs from Athens to the northern city of Thessaloniki, rioted earlier this month as new toll booths went into effect. As a privatised entity the motorway now charges almost 22 euros ($29) for the 450-kilometre trip. Other lucrative state utilities, such as the natural gas monopoly, DEPA, and state refiner, ELLPE, are to go under the hammer this year.

In some cases it is unclear that the extra money raised goes to its intended purpose. The state's Human Resources Organisation (OAED) says it has not seen a penny of the solidarity fee, which was to raise 300 million euros ($395m) a year to relieve unemployment, national daily Eleftherotypia revealed on Thursday. OAED pays unemployment benefits and runs retraining programmes. Its head, Ilias Kikilias, said, "this money could be given to OAED for unemployment relief."

"These measures are unbalanced, unfair and chiefly ineffective," says Vangelis Moutafis, GSEE's secretary for organisation. "They haven't brought prospects to the economy, but they have produced plenty of drama in society."

The problem is that the Greek economy is disappearing. It has shed 21.5 percent of its value since 2009 and is forecast to contract a further 4.5 percent this year. Austerity has made this worse, and by a greater factor than was originally expected.

When Greece signed its first memorandum with the International Monetary Fund (IMF) in 2010, its creditors assumed that that the economy would contract by about 50 cents for every dollar cut from public spending. On January 5, IMF chief economist Olivier Blanchard admitted that that multiplier was wrong.

"Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation," wrote Blanchard. Some economists believe the recessionary effect may be as much as four times greater than what the IMF believed.

Rising unemployment

This recession is in turn shrinking the tax base. Unemployment has now risen to 27 percent. The Labour Institute expects it to reach 29 percent by the end of the year, and 31.5 percent next year. Underemployment, which is not reflected in nominal figures, also affects people's ability to meet their obligations towards the state.

Greek breadwinners are now a minority of the population. According to figures released earlier this month by the Hellenic Statistical Agency, Elstat, 3.6 million people were in work last November, compared to 1.35 million unemployed and 3.34 million non-active members of the population.



People and Power: Greece the odyssey

Unions are angry that austerity is being carried out in the name of creditors. "About 80 percent of the wealth generated goes to lenders, to pay off interest," says Robolis. "That is why debt is increasing faster than growth. We started out in the crisis with debt at 120 percent of GDP, and now it's 175 percent."

They want Greece's recovery plan to be redrafted on the basis of what is good for society, rather than lenders. "We're not saying that we shouldn't pay our debts. But we should do that when Greece is back in growth," says Robolis.

Even Finance Minister Yannis Stournaras recently said he "would welcome" a second restructuring of Greece's debt, now 175 percent of GDP and set to rise to 189 percent this year.

In February last year, GSEE and its public sector counterpart, ADEDY, were stripped of authority to negotiate wage agreements with employers for each sector of the economy. Individual employers can now strike different deals with individual employees.

The 2012 law also smashed through the floor of Greece's minimum wage, which stood at 751 euros ($989) a month gross. It is now 586 euros ($772) and a mere 511 ($673) for the young.

'Destructive policies'

Yet lowering labour costs has not brought investment and stanched the flow of a thousand people a day who line up to claim unemployment benefits. The unions have concluded that the policy of making Greece more competitive through wage reduction doesn't work.

"For as long as these dead end, destructive policies continue, we will continue to act against them," says Moutafis. "The strike is about [bringing back] sectoral wage agreements and workers' rights, and it's about more democracy and a dignified standard of living for salaried employees."

The siphoning off of wealth also means that Greece's productivity is declining because of underinvestment, says Robolis. "160,000 companies have gone bust in three years… The investments made by small enterprises are being destroyed. It will take vast sums of money to turn that around."

Finance Minister Yannis Stournaras is more optimistic. At the beginning of the year he said that Greek exports had reached a record 24bn euros ($31.6bn) in the first ten months of 2012. Although he only took on the job in June, he pulled off a small miracle in bettering Greece's deficit target by half a billion euros in 2012. And he confidently predicts that the Greek recession will end in the last quarter of 2013.

"We have managed to turn the economy around," he said on January 28. "Towards the last quarter of 2013 we're going to have recovery, and definitely for the whole year in 2014. I feel sure, I feel certain, that this will be the last year of Greece's recession."

Even if he is correct, and Greece avoids the worst-case scenario of a unilateral default on its loans, it will have to contend with the social and political implications of entrenched unemployment. Robolis estimates that to create 50,000 jobs, the economy would have to grow by 3.5-4 percent, and that is not on the cards for the foreseeable future.