Greece's financial woes set to continue.

Greece's financial woes set to continue., originally uploaded by Teacher Dude's BBQ.

According to Greek prime minister Giorgos Papandreou yesterday's decision by the country's European partners to bail out Athens was a “breath of life”. However, the decision by the EU to rescue their southern partner from the mercy of international finance markets may not be enough to put Greece back on a sound monetary footing.

For the past month the European Union has seen the integrity of the Euro threatened by the prospect of Greece defaulting on its massive $419 billion debt load. Whilst Germany has made it clear that Greece should put it's own house in order rather than let relay on its European partners the prospect of a domino effect involving Portugal, Spain and perhaps Italy has raised the prospect of a direct threat to the viability of the Euro itself.

However, even if Greece does manage to find the funding to service its debt in the immediate future the country faces the reality that any such bailout will come with strings attached and that in essence the country will have to cede control over its financial policies to Brussels.

Already the recently elected left wing PASOK government has announced increases in tax on petrol, alcohol and tobacco as well as saying that it will freeze public sector pay for two years. In addition sweeping changes in taxation, social security and public spending aresaid to be in the pipeline.

Doubts remain though over Athens ability to implement such radical changes given the massive public resentment they have created with the country's civil service trade unions. Already proposed changes to police and armed services pension contribution schemes have been postponed in the face of opposition.

Also the ability of Greece notoriously corrupt tax authorities to get tough on tax evasion has been questioned by Greeks long accustomed to such calls by political parties on both the left and right. As one Thessaloniki taxi driver drily put it, getting Greece out its present fix by raising taxes is like bailing out the Titanic with a sieve.

As well as strikes and public demonstrations there is also the fear that growing social unrest will spark off a repeat of the month long revolt which swept the country in December 2008 following the death of a teenager, allegedly shot by the police in central Athens. Although the violent street confrontations have died down the clashes have given rise to a resurgence in terrorist violence which has seen police stations machine gunned and almost daily firebomb attacks on banks and government targets.

Beyond the immediate problem of excessive public spending Greece faces enormous macro – economic challenges which have been growing since it joined the Euro-zone. By adopting the Euro the country has gained financial stability at the cost of raising prices and shrinking competitiveness in international markets.

With the old Drachma Greek products and services could exported at more competitive prices and the government could, if necessay devalue the currency so cutting prices in international markets. The rise in cost brought on by the Euro combined with cheap Chinese textiles an manufactured goods have decimated Greece's industrial base, especially in the north of the country where unemployment was rising steadily even before the present crisis. As with East Germany's adoption of the Deutschmark the use of the new currency has made Greek goods too expensive for their traditional markets.

In addition the country's endemic corruption has meant that many Greek companies have long relied on personal and political connections to win contracts with the state and so have had little incentive to increase productivity or lower costs. The result of decades of such crony capitalism is that such countries are ill – equipped to operate in international markets.

The existence of shadowy price cartels has also helped blunt Greek competitiveness as many parts of the economy and especially the retail sector is able to avoid damaging price wars and so has done little to improve service or reduce costs. The irony is, as the Greek media has been quick to point out that feta cheese is now cheaper in Berlin or Amsterdam than it is in Athens.

Although Greece's leader has pointed the finger of blame at the previous New Democracy government for hiding the scale of the country's financial woes the truth is that ex - PM Kostas Karamanlis was simply following the strategies inherited from the previous PASOK government's who systematically hid debts in order to meet the entrance requirements for the Euro-zone.

It should be noted that Papandreou held several high level posts in the PASOK government from 2000 – 2004 including responsibility for the 2004 Olympic Games which ended up costing 10 billion Euros, nearly three times that of the Sydney games in 2000.

The Greek parliament is still investigating charges that the German based Siemens corporation spent millions bribing Greek politicians in both major parties in order to win security contracts.

www.demotix.com