Without Papandreou, Greece’s Problems Will Continue

Greek Prime Minister George Papandreou may leave his job to get members of the opposition party, and some of his own, to support government plans for austerity. But Greeks still will not be ruled by new tax laws and reduced pay provisions. The prime minister does not have the power to change the habits of Greek citizens.

A change of heart by Papandreou about a national referendum on the government’s austerity plans means Greece will receive aid from the eurozone. The southern European country will get the $180 billion rescue  loans that were promised a week ago. The grant of the package assumes that Greece’s debt-to-GDP ratio will drop to 120% by 2020. That cannot happen if Greece falls into a recession even deeper than the current one.

That deeper recession is likely to come. The Greek economy is that broken. Most experts believe that much of the financial activity in the country is gone underground. A higher tax base and lower wages will likely increase that activity as a percentage of the nation’s economy.

Greek workers also will continue to hurt their own fates. The series of strikes staged in the country will not cease. There are ample reasons to resist new tax and wage rules, because there is some small chance they will be rescinded if they are resisted enough. But each strike damages the economy. Each strike makes it less likely that tourism, a critical part of the economy, will be harmed.

Papandreou may be about to leave. Otherwise, his party probably will be voted out of office in the next election. Many Greeks want a government that will repudiate the terms of the nation’s bailout. Any action by Papandreou cannot reverse the Greek economic slide and the country’s eventual inability to pay back the money given it as a bailout.

Douglas A. McIntyre