Friday, 26 June 2015

Solving the Greek crisis – by making inequality worse?

James Wickham: It seems the Eurozone finance ministers - and behind them the IMF – are rejecting the last proposals from the Greek government. These proposals attempt to reverse the trend of the last years where the crisis has exacerbated inequality – and the poorest are asked to solve the crisis by accepting even further cuts in living standards.

In Greece the crisis has meant growing inequality in terms of disposable incomes.  

In 2010-11 and 2011-12 the poorest 10% of households lost more in percentage terms than the richest 10% of households. There has been a dramatic fall in living standards of the poorest households.  If the poverty threshold is taken at the pre-crisis 2007 level, then Greece has by far the biggest rise in poverty of all OECD countries (OECD 2014).

Much of the conflict in Brussels is over demands for reform of the pension system.  Greek pensions are a mess and the widespread early retirements seem bizarre to the rest of us.

However, pensions have become important in the crisis because often they support whole families, including adult family members who are unemployed.  The flip-side of extensive pensions is that unemployed people in Greece are less likely to be entitled to any form of income support than any other EU country.   In 2009 precisely 12.4% of the unemployed received unemployment benefits (Gallie et al 2013: 24) but I’ve heard estimates as low as 8%.   

In this situation a parent’s pension can be a crucial for many unemployed young people.  

Gallie, Duncan (ed.) (2013). Economic Crisis, Quality of Work and Social Integration. Oxford UP.
OECD (2014), "Income Inequality Update - June 2014” 

1 comment:


I think a lot of people have been taken aback at the lack of solidarity or outright hostility shown by Enda Kenny and Michael Noonan to the Greek people. It really looks like a penny looking down on a halfpenny.

Cathal MacCoille had to correct Mr Kenny on Morning Ireland today when interviewing Yanis Varifakis. Mr Kenny had strutted out the classical neo-liberal anti-tax line, asserting that we in Ireland had not raised taxes. As MacCoille said the government did increase the VAT rate (by almost 10%) and many other taxes including substantial increases in capital taxes.

Ireland may be out of the crisis, but many argue convincingly that we could have been out about two years earlier if the government had made less cuts in public services and raised certain taxes like on corporations (some of which caused our crisis) and high earners.

But the role of tax in dealing with inequality and indeed economic growth is as yet not understood by many policymakers here.

Lets hope, in spite of the hostility of the European elite against policies of the Greek people’s democratically elected government, a deal is done.