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DEVELOPMENTS IN THE DOMESTIC ECONOMY. FROM A WEAK RECOVERY TO A NEW SLOWDOWN AND ITS TRANSFORMATION INTO A DEEP CRISIS OF THE CAPITALIST ECONOMY
24.The period since the 20th Congress is marked by alternations in the development of the Greek capitalist economy. Initially, a sluggish recovery process was manifested in 2017–2019 that was followed by a new slowdown at the end of 2019, which, due to the measures to manage the COVID-19 outbreak, was transformed into a new deep capitalist crisis in 2020, with a fall in GDP by 10%, based on the existing estimations (e.g. IMF).
In Greece, the fall in GDP is expected to be higher than the EU and Eurozone average and the most countries in the wider region.
Since early 2017 until the end of 2019, GDP had risen at constant 2010 prices at an annual average rate of around 1.8%, covering a small part of the GDP contraction by 25% in the previous crisis (2008–2015).
The contraction of GDP, already in the 4th quarter of 2019, mainly reflects the decline in exports and investment. The stagnation in the Eurozone, the slowdown in the world GDP, and the sharp slowdown in international trade as early as 2019, before the pandemic outbreak, had a negative impact on the domestic economy with a delay of about six months.
The relative weakness of social capital to reproduce itself is evident in the official industrial production index for the period prior to COVID-19. In 2019, the relevant index decreased by 0.6% compared to 2018, when an increase of 1.6% was recorded, and the manufacturing index slowed by 1.2% compared to the increase of 2.8% in 2018. The index differs from sector to sector due to the uneven development among sectors, with the dynamic Pharmaceutical industry recording an increase of 23%, and the sector of oil refining products shrinking by 8.6%, while the food processing sector had increased by 1.5%.
The period 2017–2019 was accompanied by a gradual change in the sectoral structure of the domestic economy. Dynamic sectors have strengthened even more (Telecommunications/IT, Pharmaceutical Industry, Chemical Industry) through high investments and profits. The same also applies to the export-oriented commodity production sectors, international tourism, Transport, etc. On the contrary, the Construction Industry and the relevant manufacturing activity declined significantly. The sectoral restructuring of the domestic economy was promoted through the contribution of government projects and the utilization of European programmes (NSRF).
The new government of the New Democracy (ND) was overly optimistic about the “growing momentum of the domestic economy”, an estimation that was quickly refuted.
Our Party characterized in good time these forecasts for a strong growth of domestic economy in the medium-term period as over-optimistic. We repeatedly warned about the negative effects of the so-called “extroversion”, which was promoted as a significant post-crisis achievement by the governments of the ND and SYRIZA, the Hellenic Federation of Enterprises (SEV), and the Bank of Greece. The infamous “extroversion policy” led to the further integration of the domestic economy into the world capitalist market, and thus exposing it to a more generalized crisis.
The governmental economic policies after the formal completion of the memoranda
25. In the summer of 2018, the memoranda were officially completed, while the framework of enhanced surveillance was activated. In April 2019, the Stability Programme and National Reform Programme were submitted since the country joined the framework of the European Semester requirements.
Each government plans and develops its economic policies based on the overall needs and internal contradictions of big capital. Each alternation in government expresses, amongst others, contradictions among sections of capital and differentiations in the interests of bourgeois forces, a different rate in the implementation of certain aspects of bourgeois strategy. However, strategic bourgeois planning remains unchanged. The formation of conditions for the acceleration of capitalist development, the country’s geostrategic upgrading, the shift towards sectors in which the country “has competitive advantages”, and the system’s fortification against a potential sharp and mass popular reaction constitute its main components.
The government of ND passed legislation promoting the “indirect” support of capital’s profitability, the attraction of investments (land-use and investment scheme changes, abolition of mechanisms that hindered centralization, etc.), as well as the direct support of monopoly groups (tax deductions, utilization of NSRF and EU funds, etc).
It is firmly oriented towards strengthening capital’s competitiveness through policies aiming at cheaper labour force and the promotion of privatizations. The attraction of new major investments from the so-called “digital” and “green” economy require cheap labour force and increased rate of exploitation. The attack against the working class is escalating with new regulations on the flexibility of working hours, the relative reduction of employers’ social security contributions and the implementation of a fully funded system in Social Security, the reduction in pensions and the average wage, the lifting of the primary residence protection. Moreover, as a result of the activity of mechanisms interlinking the urban and rural self-employed with industry and trade, their liabilities to banks, the Public sector, the Hellenic Agricultural Insurance Organization (ELGA), etc. have increased.
The impact of the general indebtedness of the country
26. The general indebtedness is an aspect of the contradictions within the framework of capitalism. The management non-performing (“red”) loans in favour of banks and the promotion of land centralization were implemented through the respective government pressure on popular strata, even for partial debt payment.
The forecasts for 2021 are grim regarding the domestic bank system since there is an assessment for a new and higher level of non-performing loans. According to the assessments of the Bank of Greece, the ratio of non-performing to the total amount of loans will be higher and several times the EU average, while the final and liquidated deferred tax assets of banks will approach, in early 2022, 75% of regulatory capital.
Given the importance of the banking system in capitalist operation, the workers' and people's movement must be vigilant and develop their own front of struggle.
Based on IMF assessments, public debt could jump from 180.9% of GDP in 2019 to 208% in 2020 and could remain above 200% for the next four years, while the annual financial needs for the debt management could increase as a percentage of GDP.
 Regulatory Capital is a type of bank capitals that are considered by the EU supervisory authorities to be qualitatively secure to absorb future financial losses without causing problems in banking operations.
The current crisis and its impact on various economic sectors
27. The current crisis is also unevenly manifested in the various sectors of the Greek economy and is accompanied by widespread destruction of invested capital in Tourism —mainly of small capital— while any recovery stage will be accompanied by a new round of its centralization in the sector. The crisis, together with the COVID-19 management measures, is expected to cut down the internal Tourism –Hospitality–Recreation sector and fuel a new round of investments in the sector, which will be directed towards inbound tourism. A further contraction, besides the sectors of Retail Trade and Tourism, is recorded in the Hospitality, Air Transportation, Spectacle–Entertainment sectors. According to relevant assessments, a significant section of small businesses will close immediately and another one will be burdened with significant liabilities that will have to be repaid in the next period, while unemployment is expected to reach 20%.
The realignment among sectors has triggered a dispute amongst capital’s representatives per industry on the direction of state intervention (aid schemes, tax exemptions, etc.); it has revived old contradictions, e.g. between industrialists and representatives of tourism or trade sector regarding the so-called change in the “production model”, the strengthening of industrial production. This is not merely the debate in Greece around the historical underdevelopment in the industry of means of production, which has its roots in the history of the country. The current debate and the respective inter-capital contradictions concern the EU and USA in general, as a result of the preceding extended industrial capital export to China and other Asian countries.
Current and future contradictions are related to a series of realignments, even within sectors (e.g. the trend in automobile industry towards electric vehicles; towards RES in electricity industry, etc), which are presented often as a green production–economy, as more environmentally friendly.
Under these circumstances, it is difficult to forecast whether a return to relative recovery will be carried out with the lifting of restrictive measures due to the pandemic or whether, on the contrary, the overall international situation will have a more long-lasting effect on preventing the recovery.
Recent history, of course, has shown that international crises do not affect the domestic economy directly and proportionately in terms of time and depth. In particular, we need to also take into account that in relation to the past —even the recent one—, the extroversion of the Greek economy has increased, thus making it more vulnerable to international turmoil, which is also marked by the sharpening of contradictions amongst the USA, China, and Germany. These factors, in combination with the condition of the domestic financial system, render any projection for the development of the Greek economy particularly precarious in the upcoming years. This is also demonstrated in the assessments of international organizations, such as OECD, IMF, etc., both for the depth of the crisis in 2020 —even 2021— and the projected recovery rate in 2022. These assessments deviate greatly from the initial unfounded, over-optimistic government forecasts.
The adjustments in the management of the bourgeois economic policy under conditions of a new international crisis
28. The outbreak of the new international crisis and the corresponding decline in the new private investments led to changes and adjustments in the bourgeois economic policy aiming at their reinforcement.
In Greece, as well as in the EU and internationally, the governments and the bourgeois political system as a whole converge on adopting a greater state intervention, an expansionary fiscal policy, and monetary easing to support the growth of the Greek economy.
Liberal–conservative forces present this option as the most appropriate for the “exceptional situation” of the sharp contraction of production and the lack of private investment. Social democratic and opportunist forces portray this as a “progressive turn, after the failure of neoliberalism”. In our country, the bourgeois parties of SYRIZA and KINAL criticize the ND government policy for an inconsistent adjustment to the respective EU one and project themselves as more genuine exponents of a similar, more expansionary state policy. However, of course, they are not convincing, since they bear the responsibility of the memoranda management of the economic crisis.
The possibility of greater state intervention to mitigate the negative consequences for the people from the great depth of the crisis is limited. The sharpening of competition amongst imperialist centres in the international capitalist market poses objective constraints on the expansionary fiscal policy adopted today in the EU and Greece. Sooner or later, the great slippage from fiscal targets will result in new harsh measures that the working class and popular strata will have to pay. German pressure is already mounting to re-establish the terms of the Stability Pact, after 2021, on reducing government debt and annual deficits. The state debt of Greece now surpasses 200% of GDP and its servicing costs will increase in the following period.
Thus, a vicious circle is reproduced: a direct state expansionist intervention to support capitalist reproduction and its new constraint, a phase in which the consequences will again be paid by the workers.
The ND government took a series of short-term measures to address the problems that jointly affect the domestic economy, based on a new government loan that exceeded €12 billion. They also took advantage of the surpluses of the previous period, which were achieved through the plundering of the people, while preparing a large finance package for the capitalist economy, with the lion's share of support measures being directed at strengthening the business groups.
The medium-term policy of the government, at about €70 billion, is the Greek version of the EU response to the new crisis, which now affects all EU economies. It aims mainly at supporting investments in the fields of green and digital transition, proving that the problem of reproduction of capital in Greece —but also in the EU— is much deeper than the consequences of the pandemic, since the green and digital transformation of the EU economy is being portrayed as the main solution.
The EU finance package and Greece’s participation in the Recovery Fund are linked to the national development plan, which will determine the reform and investment priorities until 2026. This plan must be submitted by each Member State and is a precondition for the funding disbursement. Moreover, it is aligned with both the EU planning and priorities and also with the demands of domestic capital. Most of the funding will be utilized to implement large investment projects of green growth (at least 37%) and the promotion of new digital solutions (at least 20%). The tender procedure for the 5G spectrum is already expected in the next period, while Microsoft investment in Attica has been announced.
Although the economy is even more exposed to international turmoil, the bourgeois policy portrays extroversion as the main driving force of the domestic economy. The main goal behind this policy is to organically link industrial production to this direction, i.e. with the “relative participation of internationally tradable goods and services in the national product”.
The extroversion of domestic capital is in line with the level of internationalization of the world capitalist market, the increasing interdependences, its historical orientation towards international transportation, international tourism, and similar manufacturing sectors (Food, Beverage, Metallurgy, etc).
The Pissarides Commission report reveals how the next day of the “return to normality” will be like: a nightmare for the people, with an escalation of the policies that reduce the price of the labour force and abolish the remaining social security rights; a heaven for monopoly groups with new tax exemptions and measures that accelerate the concentration and centralization of capital.
The government’s benefit policy under lockdown conditions
29. The government, under lockdown conditions, also took some measures of emergency benefits for the long-term unemployed, extending the payment period for the unemployment benefit and retaining the labour–people’s income in view of the possibility of its sudden–large shrinkage and an uncontrolled rise in unemployment.
However, a part of these measures (benefits, deferred payments, contributions without their partial cancellation, etc.) are clearly temporary, since they just prolong the payment of these debts, making them basically unsustainable.
Another part, e.g. the special purpose benefit, the subsidy of social security contributions, was in fact a way to support the business groups, with the state assuming a large part of the wage costs during the period in which their operations are limited or shut down. In addition, the funding of mortgage loan repayment up to 80% contributed to the protection of the banks' liquidity and the avoidance of the creation of new “red” loans.
Respectively, some support measures for small and medium enterprises, e.g. repayable advances schemes, serve a dual purpose. On the one hand, they seek to support a more dynamic section of the small and medium-sized enterprises that have been affected hard over this period providing some liquidity. On the other hand, they seek to slightly reduce the extensive impasses and the possibility of immediate close-downs of a large number of small businesses that employ staff occasionally or do not have any staff at all.
Accelerating the digital transformation
30. The outbreak of the crisis was utilized by the government as an opportunity to accelerate the plan for the digital transformation of the economy. In this direction, the digital transformation of the state administration functions has been advanced; EU funds have been absorbed to promote investments in digital infrastructure; compulsory digitization has taken place in a number of aspects of economic and social life, while the cheap and trained labour force in new technologies has also made the country a field of some investments in the production of relevant technological commodities and services. At the same time, the digital modernization in the framework of the capitalist economy and the digital transformation of state functions are utilized to promote work intensification and raise the exploitation level (e.g. teleworking), and also increase the means to monitor and suppress the people.