Greece, the Real Life Laboratory of Fiscal Consolidation

Greece, the real life laboratory of fiscal consolidation

Driving in the hectic Athens traffic one could be excused for not noticing that Greece has just defaulted on its obligations. Traffic is slow, the taverns are relatively full, and spring is in the air. However, after a few conversations with the likes of guides, taxi drivers and hotel clerks you get a clear idea of what is going on here. For the first time in a generation in Western Europe people are actually seeing their salary and pension cheques go down, significantly, and since prices are still at European level, this hurts a lot. Coupled with the fact that taxes are going up, disposable incomes are going down very significantly, two observations come to mind: First of all people seem to be devoid of hope in the future, and in particular they don’t trust either side of the current parliament. There will probably be a large proportion of abstentions in the forthcoming elections. Secondly, people seem to be accepting the tough medicine with a limited amount of protest. Of course there are sit-ins in front of parliament and the occasional more aggressive act, but there is no Greek Spring at work here.

It is too early to tell if this brutal fiscal consolidation will work. If it does, it will be a test case that people end up accepting to tighten their belts considerably when they see that there is no alternative, but the Greek ruling class has a heavy responsibility to ensure that the suffering it had to inflict on its citizens will not be for nought, and at the same time it must find ways to ensure that the weakest sector of society is not left without the basic needs of life, food and shelter.