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Special to msnbc.com
updated 6/18/2011 6:40:29 AM ET 2011-06-18T10:40:29
ANALYSIS

Solidarity is probably a word that you would not associate with Greece following the events of the past few days.

Love and understanding were in short supply on the streets around Parliament, where protesters and police clashed this week, as well as within the walls of the prominent sand-colored building, where Greece's politicians failed to strike a deal to form a government of national unity to oversee the latest austerity measures the country has to adopt to qualify for more loans from the European Union and the International Monetary Fund.

However, solidarity is a very relevant word in terms of Greece's plight 13 months after the EU and the IMF agreed to bail it out with 110 billion euros ($157 billion) in loans. Firstly, it's a word that's on people's minds because the government said it is introducing a "solidarity tax" that will lead to crisis-fatigued Greeks having between 1 percent and 4 percent of their incomes kept aside to help pay benefits for the rapidly growing number of unemployed.

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Maybe this does not seem such a big sacrifice to make to help those left without jobs as a result of the crisis. The problem, though, is that the "solidarity tax" is the latest in a series of new taxes or hikes that have been imposed since last year as the Greek government scrambles to gather more revenues to tackle its towering deficit and debt.

The preferred method for raising more revenues was to increase value added tax (VAT). The top rate of VAT has increased twice since last year, rising from 19 percent to 23 percent. Duties on fuel, alcohol and tobacco have also increased substantially. So, a liter of gas in Greece now costs roughly 1.70 euros ($2.43), meaning it has gone from one of the cheapest countries in Europe to fill up your tank to one of the most expensive. Greece is now in the top three countries in the EU when it comes to VAT levels, fuel duty and social security contributions.

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Greeks might have been able to put up with this if their jobs or salaries were not being threatened by the austerity measures and deteriorating economic conditions. Civil servants have had their wages slashed by 20 percent to 30 percent since last year. Pensioners have suffered similar cuts and wage reductions have already begun to hit the private sector. Consumption accounts for about 70 percent of Greece's economic output so the combination of tax hikes and wage cuts has had a devastating effect on businesses. Stores are feeling the impact of this downturn. Some 70,000 around Greece have shut down since last year but it's also estimated that 120,000 small to medium-sized enterprises will close by next year.

With the Greek economy in its third year of recession and consumption drying up, job losses have inevitably followed. Figures published on Thursday showed that unemployment had soared to 15.9 percent in the first quarter of the year, up from 14.2 percent in the last three months of 2010. It's no surprise, therefore, that the government is trying to raise more funds to pay unemployment benefits. The problem is that the "solidarity tax" will result in only the bare minimum of support. The Greek state only pays a basic benefit of 500 euros ($715) a month for the first year that someone is out of a job. After that they're on their own. So much for solidarity.

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After a year of austerity measures and bailouts, Greece has a greater debt, a worsening economy, growing unemployment and no indication of how it will be able to create a sound basis for growth. It feels like a country that is being cut adrift. The EU and the IMF, which provided the financial support to prevent Greece defaulting on its debt, now appear caught between whether to step up their assistance or to cut their losses. The result is that there's no clear vision either from the Greek government or from its lenders on how to get out of this crisis.

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It's this insecurity that fuelled events in and outside of Parliament this week. Prime Minister George Papandreou made a clumsy attempt to form a government of national unity but was unable to agree on key points with the main opposition party, New Democracy. Papandreou wanted the broader consensus because Greece has to vote through a new set of austerity measures later this month in order to qualify for the next EU-IMF loan installment.

The prime minister appears to have convinced his deputies that the government's fortunes can be revived by a Cabinet reshuffle instead. But this is unlikely to be enough for the Greek people, who seem to have reached their breaking point. The public's mood not to accept any more austerity measures was evident in the sudden decline over the last month in the opinion poll ratings of Papandreou and his government.

The images of rioters clashing with police in Athens on Wednesday were replayed around the world but they were an extreme instance of this anger. Greeks have actually reacted with considerable maturity to the worsening situation in their country. For example, they have largely rejected calls by some populists for Greece to leave the euro. Also, for the last three weeks, protesters have gathered peacefully in front of Parliament to express their frustration.

In fact, some of these protesters tried their best to root out and chase away rioters on Wednesday. Their attempt to stand together to protect the non-political and peaceful nature of their protest was inspiring. However, the longer Greece is mired in its current state of little hope, the more displays of solidarity such as those will be lost causes. Greece now needs a dramatic reversal of fortunes to prevent it from collapsing, broke and divided.

Nick Malkoutzis is the deputy editor of the Kathimerini English Edition. He blogs at Inside Greece.

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