Greek Cuts Erode Livelihoods

The Wall Street Journal

Households, Small Businesses Wilt Under Strain of Austerity Measures; Holiday Bonuses for Pensioners Are Cut

By COSTAS PARIS And ALKMAN GRANITSAS

ATHENS—Greek households and small businesses show growing signs of strain as knock-on effects of government cutbacks ripple through the country's fragile economy.

Greeks like Maria Tergi speak of how cuts are eroding livelihoods and social structures. She felt compelled to shut down her lottery shop on Athens's busy Omonia square after 50 years because tight funding closed a drug rehabilitation center nearby, sending drug addicts out on the street outside her door.

"My customers play 70% less money because of the crisis, the landlord kept on asking higher rent and now this," she says when closing down her shop for the last time. "It has never been this bad. I can't cover the running costs so I am closing down."

Across town, Efi Panagou owns three small apartments and two shops. The income from the rents gave her a decent living but her tenants have stopped paying since February, even as the government raises her property taxes.

"The tenants come to me crying, saying that if they pay rent they won't be able to pay for utilities and food—it breaks my heart," she says. "The government has no sense of reality. They only know to talk numbers."

The government, supported by the European Union and the International Monetary Fund, argues that painful changes are necessary to put the country back on its feet after it nearly defaulted on its debt last year. As world attention this summer focuses on efforts to keep Italy and Spain from falling deeper into fiscal distress, the debt debacle's first casualty continues to falter and could be edging toward a political and social crisis.

The EU and the IMF are readying their second Greek bailout package in under two years. But the severe fiscal constraints the EU is demanding in return for more aid now threaten to extend Greece's economic recession into its fourth year in 2012. Economists estimate that fiscal measures taken last year and this year shaved three percentage points off Greek gross domestic product in 2010 and again in 2011. In effect, three-quarters of the decline in the past two years stemmed from budget cutbacks. Greece's economy shrank by 4.5% last year and is expected to contract by at least that much again this year.

Austerity measures are cutting salaries and pensions, shutting down support services and raising new taxes. Consumer spending, accounting for more than two-thirds of the Greek economy, has dropped 7% over the past year. Tourism and exports can't cover that gap.

One in four retailers in central Athens has closed, according to the National Confederation of Greek Commerce, a retailer group. Similar closure rates are hitting Greece's other urban areas.

The Athens Chamber of Commerce and Industry reports that some 80,000 businesses across Greece have gone bankrupt since the crisis erupted in early 2010, and it forecasts that on current trends, some 200,000 will close by the end of next year. "I'm beginning to fear that the 200,000 projection may prove to be conservative," said Chamber President Constantine Michalos.

Even health care is being affected, with some hospital staff reporting shortages of medical supplies. "We sometimes have to postpone routine operations because we might be short on stitching thread. It's like we are at war," says Ilias Avgerinos, a surgeon in a public hospital outside Athens. "We only take in serious or emergency cases, and we are overwhelmed with a huge number of patients because nobody can afford a private hospital anymore." In addition, pharmacies will no longer accept prescriptions from some state insurers because of those insurers' debts.

In a country where the average pension is about €500 ($720) a month, senior citizens have seen their traditional summer, Easter and Christmas "bonuses"—or additional payments that in effect amount to two extra months of pensions per year—cut in half and more cuts may be on the way this fall.

Visitors to Athens outdoor markets routinely notice older people picking over unsold fruit and vegetables that merchants have thrown into garbage cans.

Ekaterini Akrivopoulou, a retired civil servant, said, "Last winter l could not afford to buy any heating oil and my daughter could not help out because her husband got fired. If he doesn't get a job soon, they'll probably move in with me because they can't afford to pay rent.

Younger Greeks also are feeling the squeeze, with 40% of people between the ages of 15 and 24 unable to find work. That is more than double the overall unemployment rate of 16%, which the General Confederation of Greek Workers, the country's biggest union, predicts will reach 18% by the fall and 20% next year.

The government has said Greece will have 200,000 fewer civil servants than the roughly 750,000 it has now. Similarly, the public-wage bill will shrink by almost 30% by 2013, to €16 billion a year from €22 billion now.

Andreas Eleftheriou, who is 29 and holds a doctorate in computer science from Athens University, wants to leave the country but can't afford the airfare. "For the past two years I've been working as a part-time DJ at a bar, because there is no work," he says.

Caught between EU and IMF demands for more austerity and the need to defuse public anger at home, Prime Minister George Papandreou has urged Greeks to consider that their sacrifices are not in vain and that they brought much of the pain on themselves. "Unfortunately we produced false statistics, operated through political favors and had longstanding problems like corruption," he said during a tour of the country before the summer break.

Shortly after Mr. Papandreou took office in late 2009, he announced that the country's deficit was far greater than the previous government had disclosed. The revelation shocked investors, provoking a crisis that led to a €110 billion bailout in May 2010.

"The Greeks have made a huge effort and sacrifices to persuade everyone that Greece is not like this," the prime minister went on to say. "We achieved the biggest lending program and support in the world's modern history. Because of this we can still pay salaries and pensions...We continue running schools and taking care of our patients."

But privately government officials worry about a repeat of the violent protests seen earlier in the summer and can't exclude a political crisis that could lead to early elections before the end of the year.

"As the measures, old and new, take effect, we expect fresh protests—a lot of them—come fall," said one Greek cabinet minister. "This is the first time in the country's modern history that the crisis affects everyone."

Parliamentary deputies are feeling the heat from their constituencies, and many have told the prime minister that a single-party government won't be able to deal with such a situation, the cabinet minister said. "We may have early elections if the public anger grows and you will probably not get a clear winner in those elections," the minister said. "There is not much experience with coalition governments in Greece so, yes, you could call this a political crisis."