Greece's weakened workforce starts to crack

[February 21, 2013]  ATHENS, Greece (AP) -- Looking out across a room full of reporters gathered to welcome French President Francois Hollande on Tuesday, Greece's President Karolos Papoulias gave a stark warning about the state of the country after three harsh years of government spending cuts, joblessness and tax hikes.

"We are faced with a societal explosion if any more pressure is put on society," he said.

In spite of Greece receiving much-needed bailout loans, life seems to be getting worse for ordinary people.

Not only are Greece's 1.35 million unemployed unable to make ends meet, but a growing number of those in work are struggling as more and more companies can no longer make regular salary payments. As well finding it harder to feed, heat and clothe themselves and their families, Greek workers also have to pay increasingly hefty taxes the government is relying on to turn the economy around.

Greece's trade union organization, the GSEE, organized a general strike Wednesday to protest a new series of austerity measures. It warns that the labor force -- which includes a large public sector -- has been too badly weakened to help the battered country recover.

Union and independent analysts are worried Greece will face further years of economic struggle and protest as too many demands are placed on a shrinking workforce.

Since it was priced out of the international debt markets in 2010, Greece has relied on emergency loans from other eurozone countries and the International Monetary Fund. To continue receiving these loans, the Greek coalition government has had to agree to harsh spending cuts and tax hikes to try and lower public debt. These measures, however, have also put the brakes on Greece's economy and hit ordinary Greeks hard.

"The government is thus caught between a rock and a hard place, trying to balance the demands of its domestic and foreign audiences," said Martin Koehring, Greece Analyst at The Economist Intelligence Unit.

"We expect political risk -- social unrest and the instability of the fragile three-party government coalition -- to remain a major focal point in Greece this year."

The country, of nearly 11 million people, is stuck in a five-year recession. Greece now has the highest unemployment rate in the 17-strong group of European Union countries that use the euro, with 27 percent out of work -- 60 percent of those aged under 24. The government-funded research institute KEPE has forecast that unemployment will hit 30 percent this year.

The crisis has left 450,000 households with no one working, while a one-year limit on unemployment benefits -- and strict rules to qualify for them -- mean just 225,000 jobless Greeks are currently receiving monthly state assistance.

Maria Kanga, an unemployed mother of two, is worried about what she'll do when her assistance runs out this summer.

She was fired from a chain of record stores that went out of business last year. Along with more than 150 other employees, she was left unpaid for five months and then received no severance money.

Protesting outside a Eurovision Song Contest event hosted by a company co-owned by her former employer, Kanga summed up her situation: "We've cut back on everything ... My daughter is 12 years old. She has one pair of shoes. If they get wet, there are no spares."

"Greece is not a country of bright lights and flashy events. It's a country with people committing suicide, of those unable to feed their kids properly, or who steal from the supermarket ... It's happening to everybody. We are these people."

Normally, those left in employment would be able to help support a government and the economy by spending and paying their taxes. But in Greece, as jobs continue to vanish at an alarming rate, hundreds of thousands of workers are no longer paid regularly, with struggling businesses unable -- or sometimes unwilling -- to pay their payrolls.

According to GSEE researchers, two-thirds of employees in the private sector no longer receive regular pay. Adding to these problems are the large increases in taxes that Greeks have to pay.

Struggling to pay down debts, The government's latest austerity measures include an overhaul of tax rules, axing deductions used by most families -- for having children, mortgages on first homes, life insurance and some education expenses.

Most people earning up to euro25,000 ($33,425) a year will see a small decrease in their income tax bill, but everyone above that level will see an increase. Someone earning euro35,000, for example, previously paid euro7,070 in taxes per year but will now pay euro8,050.

Meanwhile, further charges were levied on electricity bills, with households that failed to pay disconnected from the power grid. And another round of tax hikes took effect this year.

That pressure is pushing Greece toward a tipping point at which too many demands placed on a shrinking tax base, argues Savas Robolis, a professor of economics and public policy at Panteion University in Athens and lead researcher at the GSEE union.

According to government data analyzed by the GSEE, 3.6 million people out of a population of 11 million are working, with 1.6 million employed by private-sector companies -- that's down from around 2.5 million before the crisis broke in 2010.

"Out of them, about 600,000 are left who still work an eight-hour day and are paid regularly," Robolis says. "The remainder -- a million workers -- have had their hours cut or are getting paid late, four or five months late. They are in a state of desperation.

"In other words, Greek workers and unemployed people may soon not have enough money left to pay taxes while covering their basic needs. If that happens, it would be the worst possible outcome for the Greek economy and Greek society."

That, he argues, could leave the government unable fully cover its own commitments -- including wage and pension payments -- causing even greater poverty.

Early signs from 2013, suggest high taxes may be backfiring: January revenues sank euro572 million ($765 million) from last year's figure to euro4.42 billion ($5.91 billion), despite a raft of additional demands on tax payers.

When contacted by the Associated Press, officials the government's powerful new Department of Public Revenue refused to confirm widespread local media reports that 2.5 million tax payers will be sent notices starting next month demanding overdue payments.

"The question is when the tax capacity is used up ... Up until now, the state has fallen behind on payments to suppliers but it is able to pay wages and salaries," Robolis said.

"But if the situation gets worse I'm not certain it will be able to. If you look at other countries that went through a crisis ... when then they reached a certain point and the state told them they could not pay them, that's when the tension flared up."

[Associated Press; By DEREK GATOPOULOS]

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.