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Why the Greeks are really protesting

By Kathleen Brooks, Research Director, Forex.com

From the outside it's easy to conclude that Greece is a lost case. It is a mere 6-weeks from bankruptcy and it continues to violate the terms of its bailout packages, its public finances remain out of control and its people have taken to the streets in protest.

Without a firm commitment from the leaders of the major Greek political parties to more stringent measures then more funds from the ECB/ EU and IMF will not be forthcoming potentially leading to a messy default, the first for a western nation since the Second World War.

But while it looks like it is Greece versus the rest of the world, the true battle that is going on is between the public sector and the rest of the population. In a very good report by Katinka Barysch at the Centre for Economic Reform (a pro -European think-tank) she lays out the real problem that is crippling Greece: its flabby, ineffective, expensive and corrupt public sector.

Did you know that since the Greek crisis first came to light in 2010 the public sector have seen their wages dip by 6 per cent in contrast to a massive 30 per cent fall for private sector staff. This comes although public sector employees made on average between 60-70 per cent more than their private sector counterparts during the pre-crisis years.

Not only were Greeks who didn't work for the government at a disadvantage before the sovereign debt crisis, but it has been the back bone of the Greek private sector like hoteliers, waiters and waitresses who have taken the brunt of the pain of fiscal consolidation so far. As of October (the last data available) the Greek unemployment rate stood at a whopping 18.2 per cent; however the jobs rate has fallen much quicker in the private sector than elsewhere. In fact between early 2010 and mid 2011 the government actually added 20,000 workers, although their salaries were likely to have to come from bailout funds.

The troika - the IMF, EU and ECB - who give Greece its bailout funds are understandably livid at this. The public sector makes up about one fifth of the workforce, yet wages, working conditions and pensions are much better in these sectors and, some may argue, it was this sector of the population that caused the sovereign mess in the first place. The troika have now ordered Athens to cull a further 150,000 public workers over the next 3-years.

According to Barysch, the Greek government is one large tangled web. There are 440 different departments or administrative units and the entire government is spread over a total of 1,500 buildings. Tax collection has been a major bugbear in the latest round of bailout negotiations. There is EUR 60 billion in outstanding taxes that Greeks have failed to pay. It's easy to blame the tax dodgers, but what about the people employed by the 300 or so tax offices dotted around the country that cost more to run than they collect in taxes?

It is wrong to think that the thousands of people who descended on Athens to protest this week were purely anti-austerity, they want radical change just as much as the IMF/ EU and ECB do. However, they want to see deep institutional reform, a greater sense of equality so that the taxes they do pay don't get wasted on the trappings of big government before they get on board with the tough job of rehabilitating Greece and helping to put it on the right path to future prosperity.

However, as Greece teeters precariously on the edge of bankruptcy the political classes would rather undermine the caretaker government of Lucas Papademos and protect the unsustainable status quo rather than take this opportunity to restructure the way the government in Greece operates.

While there is a two-tier society in the Mediterranean nation - with the private sector taking the bulk of the pain while the politicians stick up for the public sector - then expect protests to continue and uncertainty to remain elevated that Greece will fail to get its much-needed bailout funds.

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