Opening Pandora’s Box: The Sovereign Debt Crisis and Labour Market Regulation in Greece
AristeaKoukiadaki and LefterisKretsos
Abstract
As a result of the loan agreements that the Greek government has concluded in the past two years with the IMF, the ECB and the Commission, a policy of internal devaluation has been adopted in an effort to avoid a default of the economy and to allow Greece to remain within the Eurozone. The structural reforms undertaken in line with the loan agreements have been based on the premise that labour market regulation in Greece constituted a significant barrier to growth. To that end, essential features of the Greek labour law system have been amended, with significant implications for the role of the state and for the industrial relations actors. The reforms arenot distributionally neutral, but aim to liberalizse further and to deregulate key parts of the labour market and industrial relations system, and reduce the size and influence of the welfare state. There is growing evidence that the reforms have led to the deterioration of working and living conditions, while failing to delivergrowth.
1. Introduction
Since 2010 Greece has become an international point of reference due to its unfortunate, pioneering role in the current economic crisis. The potential collapse of the eurozone due to contagious effects of the Greek economic crisis on other European economies resulted in the gradual establishment of economic support mechanisms at EU level and the conclusion of consecutive loan agreements between the Greek government and the so-called ‘Troika’(the European Commission (EC) on behalf of the European Union, the European Central Bank (ECB) and the International Monetary Fund, (IMF)). Financial support from the Troika and especially the IMF has been conditional on reductions in public deficits and public spending, initiating drastic labour market reform, and a welfare state retrenchment unprecedented in the post war period.[1]
TAccording to many scholars, the severe and drastic character of the austerity policies imposed in Greece has resulted in far-reaching changes in the industrial relations system and labour law.[2] The establishment of a model of economic governance that promotes the neoliberal project is driving this development.[3] In this approach to governance, labour law deregulation is seen as a means of promoting financial stability.
The present article aims to discuss this thesis by providing new insights into the Greek crisis. The aAusterity policies tics and theimposed structural reforms that have been introduced in Greeceas a result of the loan agreements have severely weakened the role of trade unions and social policy institutions, resulting in an almost full commodification of labour.[4]In this regard, specific characteristics certain characteristics of the forced structural reforms austerity and structural reforms agenda in Greece requireour attention.
First, the imposition of austerity measures has been associated with a clear-cut transfer of the policy-making process from national to international actors. Second, as a result of the changes introduced, Greek social law is increasingly characterized by the individualizationmarginalization of the role of collective bargaining, the the fragmentation of the floor of labour rights in collective bargaining, and a return to civil law mechanisms and principles, replacing protective labour law ones. Greece canould become ‘contagious’once again, but this timespreading labour law deregulation across Europe. Third, austerity policies and labour market deregulation have opened the door to widespread social unrest and political change in Greece.[5] Perhaps paradoxically, and in an alternative scenario to the one just outlined, such developments may yet initiate a new stage of institutional development and re-regulation across the EU.
The article is organized as follows. Section 2 discusses the way the Greek labour market and employment regulation were conceptualized before and during the emergence of the economic crisis at domestic and international level. Sections 3, 4, 5 and 6analyzse thes procedural and substantive labour market reforms under the first and the second loan agreements. Section 74 concludescontains a discussion and conclusion.
2. The Greek Labour Market: Competing Views
The upsurge of the economic crisis in Greece has triggereddiscussion on the strictness of employment regulation and onthe way labour market was structured and over the last two decades in that country. Opinions on the role of labour law are divided. Two main explanations can be observed. The first view analyses the crisisthrough the prism of Greek exceptionalism. In this perspective, certain distinctive features of the Greek case are responsible for the crisis, including long delays in modernizing the regulatory framework,caused in turn by the persistence of vestedpolitical interests.s.[6]The second perspective, on the other hand, examines the emergence of the Greek crisis as the result of structural weaknesses in the European monetary union project, and in the different national varieties of capitalism. According to this view, both the EU project and particular national economic models foundered on the rocksof the global financial crisis and modern geopolitical antagonisms.[7]
Before the crisis,proponents of laissez-faire approaches (including the IMF, OECD and World Bank) had urged Greek governments to promote far- reaching labour market reforms.[8]These recommendations were usually in line with the collective bargaining demands of the largest employers’ association in Greece, the Hellenic Federation of Enterprises or SEV,over the past two decades.[9] Typical examples include proposals for adjustment in real wages in line with productivity outcomes; the promotion of flexible forms of work by changinglegislationrelatingtotemporaryemployment; the reduction of severancepayments,in particularforwhite- collarworkers; and proposals to abolish the implicitpermanentjobstatusofthevastmajorityofpublicservants and to allow greater room for collective bargaining decentralization.[10]
Within this approach, employment protection in Greece came to beregarded as a major obstacle to structural change and the liberalization of domestic markets. At the same time,, while the persistent and powerful opposition of labour and social movements to laissez-faire policies were seen as restricting the state’s ability to implement the necessary and appropriate structural changes in the economy.Accordingtostudies prior to the upsurge of economic crisis in 2010,Greecehad some of thestrictestemploymentprotectionlegislation (EPL) amongsttheOECDcountries.[11]
The alleged overprotection of Greek workers by labour law provided a prime opportunity for the national economic and political elites to push a programme of labour law reform justified by the goal of economic ‘modernization’. Then policy orientation of the Socialist government, in power from 1996, was that economic modernization would lead to economic growth and vice versa, a notion crystallized in the achievement of the following policies: improvement of public infrastructure through EU funded projects and loans from international creditors; opening of product markets to international competition; financial deregulation and speculative activity that boosted the Athens stock market to unprecedented heights;and radical labour market reforms. These changes accompanied the entry of Greece into the Eurozone in 2001 and the hosting of the 2004 Olympics.[12]
As Tsakalotos argues,[13] the advocates of economic modernization, having large appeal to voters from all political sides and especially the centre-left and the centre-right, tried to capitalizse on their ideological hegemony by constructing not only their own worldview, but also that of the opposition. Cultural critiques and social anthropological analyses were provided as explanations for the resistance offered against structural reforms to the economic and labour law systemsconomy and the labour law.[14] According to this view, Greece suffered from what La SpinaandSciortino[15]described as the ‘Mediterranean Syndrome’; a low administrative capacity for policy implementation, linking non-compliance with particular institutional and cultural deficiencies.
On the other hand,Kouvelakis[16] has argued that the fall of the military junta in 1974 ushered in a period of ‘social compromise’, under both conservative and PASOK (socialist) governments, which overlay a society and economy still dominated by small-scale businesses and independent producers. The economic modernization process of the 1990s and early 2000s cemented ina social compromise that was based on an alliance of the middle classes and small and medium sized enterprises, with the latter benefiting from increases in consumer credit, the intensification of labour effort through high levels of undeclared work, cheap immigrant labour, and widespread tax evasion.[17] The introduction of the euro, as well as increased capital inflows through tourism, shipping and due to the completion of large-scale construction works, such as the Olympics, completed this process.
The reforms of the 1990s and 2000s saw Greece implementing key aspects of the neoliberal economic project. Thus the Greek labour market was not as heavily regulated as both domestic and international supporters of ‘structural reforms’have been claiming. Labour market flexibility was a central point of reference of the policy agenda of all governments from the 1990 onwards.[18] Industrial relations in Greece before the crisis were indeed highly collectivizsed, but they were not always formal, and growing numbers of workers were being left unprotected by the collective bargaining system and by labour legislation.[19]
It was not over-rigid labour law, but rather the inability of the Greek state to increase public revenuesand its over-reliance on borrowing to fund consumption and growth,which provoked the twin crises of high national debt and high public-sectordeficits. High economic growth rates, in historical terms, were observed over the period from 1994 up to the onset of the crisis in 2008, accompanied by rising levels of public deficit and debt. But the latter cannot be ascribed to the strictness of the Greek labour market. Over this period, corporate profits increased to levels approaching those of the early seventies, while the share of national income accruing to wages has continuouslydeclined since 1996.[20]The proportions of taxes paidon income by employed and retired persons is more or less the same as the average for the EU-25 area (35.1 %per cent in 2007 and 36.4 %per cent in 2006), but the tax rateon corporate profits in Greece is almost half that of the EU-25 ((5.9% per cent compared to33.0% per cent).[21] Growing inequalities arising from a weak welfare state and low level of social transfers[22] became more evident with the outbreak of the crisis. In response, social and political resistance to imposed austerity measures have increased markedly since 2010.[23]
We will now examine the labour law changes made in Greece since the start of the financial crisis and as a result of the austerity agreements made with the Troika.
3. The Emergence of the Debt Crisis and the First Loan Agreement
Following the lowering of its credit rating and the subsequent rapid increase of credit default swap (CDS) spreads on Greek sovereign debt in 2010, the Greek governmentwas unable to access international bond markets. In order to avert a default on its sovereign debts, it agreed a loan, to be advanced jointly by Eurozone states and the IMF. The loan agreement stipulated the provision of €80 billion on the part of the Eurozone states and €30 billion on the part of the IMF.[24] In return for this support, it was agreed that the the EC, the ECB and the IMF (the ‘Troika’) would prepare and oversee a programme of austerity coupled with liberalization of the Greek economy, with the aim of bringingdown the public sector deficit to 3 per cent of GDP within three years.
It was in this context that the Greek Ministry of Finance prepared, with the participation of the Troika, a programme for 2010-2013, which was set out in a ‘Memorandum of Economic and Financial Policies’ (MEFP) and a ‘Memorandum on Specific Economic Policy Conditionality’ (MSEPC) (the Memoranda).[25] The MEFP outlined the fiscal reforms, structural and income policies that had to be undertaken by Greece.[26]The Memoranda were annexed to Act 3845/2010[27] on ‘Measures for the Implementation of the support mechanism for the Greek economy by the Eurozone member-States and the International Monetary Fund’ and enacted into law by the Greek Parliament on 5 May 2010.[28]On the basis of the measures outlined in the MEFP, the MSEPC set out specific time-limited commitments on a quarterly basis. With respect to the labour market, the reforms outlined in the Memoranda were aimed at lowering public expenditure by cutting public investment and public sector wages, reforming the pensions system, downsizing the public sector, and privatizing a large section of public sector enterprises and utilities. Under the structural policies pillar outlined in the MEFP, a number of further undertakings were given by the Greek government:
in line with the lowering of public sector wages, private sector wages need to become more flexible to allow cost moderation for an extended period of time. Following consultation with social partners and within the frame of EU law, the Government will reform the legal framework for wage bargaining in the private sector, including by eliminating asymmetry in arbitration. The Government will adopt legislation for minimum entry level wages in order to promote employment creation for groups at risk such as the young and long-term unemployed…Employment protection legislation will be revissed, including provisions to extent probationary periods, recalibrate rules governing collective dismissals, and facilitate greater use of part-time work.[29]
Labour market reforms envisaged in the Memoranda encompassed a variety of measures, coveringchanges to individual and collective labour rights in both the public and private sectors. On the basis that Greece’s membership of the Eurozone did not allow for currency devaluation, the underlying rationale for the introduction of the reforms was the need to initiate a process of ‘internal devaluation’ to restore the competitiveness of the Greek economy. These reforms were not distributionally neutral, and were, indeed, but aimed at furtherliberalizsing and deregulating key parts of the labour market and industrial relations system. In that respect, they are in line with the Washington-consensus inspired policies which the IMF has previously applied to developing economies.[30] There was no public consultation over the reforms.[31]The Greek government justified the absence of consultation on the basis that ‘it was not possible to accommodate participatory methods when Greece was about to default on its loans’.[32]
In the absence of social dialogue procedures, there has been evidence of ‘legal mobilizsation’[33] on the part of Greek trade unions, at domestic and increasingly at international level. At domestic level, an appeal was lodged before the Council of State against government decisions that provided for wages and pensions cuts and established the incomes policy for 2010, on the basis that the loan agreement which necessitated these changes should have been ratified by a qualified majority of three fifths of the Parliament.[34] The appeal was rejected by the Council of State: it was held that reasons of overriding public interest necessitated the loan agreement, that full compliance with the principles of proportionality and necessity was achieved, and that Act 3845/2010 did not need to be adopted by the Parliament by a qualified majority, as the loan agreement did not constitute an international agreement under Article 28 of the Greek Constitution.[35]
At international level, GSEE filed in July 2010 urgent observations with the ILO Committee of Experts on the Application of Conventions and Recommendations for non-observance by the Greek government of 11 Conventions ratified by Greece.[36] On the basis of extensive meetings with all relevant labour market actors in September 2011, an ILO High Level Mission issued a Report in late 2011.[37] Besides these developments at ILO level, two complaints were lodged by the General Federation of employees of the national electric power corporation (GENOP-DEI) and the Confederation of Greek Civil Servants’ Trade Unions (ADEDY) against Greece to the European Committee of Social Rights concerning the changes in the collective bargaining system and the employment contracts for young workers.[38] In its submissions to the Committee, the Greek government requested the rejection of the complaints on the basis that the legislative provisions were reasonable measures to enhance the competitiveness of Greek enterprises by means of strengthening the decentralizsation of collective bargaining and reducing labour costs. No decision on the substance of these complaints has been issued yet.
Despite the adoption of extensive legal reforms under the aegis of the first loan agreement, problems associated with the worsening of the Greek public finances, a loss of political momentum on the part of the PASOK-led government and the deepening of the crisis in other parts of the Eurozone led to further changes in the programme of reforms. Following four reviews by the Troika of the implementation of the programme (September 2010, November 2010, March 2011 and June 2011), the Memoranda were revised and updated versions published by the Greek government. The most important revision of the programme took place on 1 July 2011, when the Parliament adopted Act 3986 on Urgent Measures for the Implementation of the Mid-term Fiscal Strategy Framework. This mid-term fiscal strategy introduced new austerity measures with a revised implementation plan and a new time-horizon of 2012-2015.