Today the Prime Minister and party leaders of Greece are meeting up after their ‘negotiations’ with the Troika. All day, they’ve been breaking into regularly scheduled programming on TV to tell us which of our rights they are agreeing to repeal.
Among other things, they’ve agreed to axe minimum wage by 22%.
The impact of such a measure differs from what it would be in the US because of the sheer percentage of Greek workers who will be affected. It is quite rare in Greece for a worker to be hired at higher than minimum wage. The worker works for three years at minimum wage, after which it is slightly increased; after another two years it is increased again. All these wages are affected.
22% is a big number – around one fifth. In reality though, it’s more than that. Unlike most countries, Greek salaries are paid out fourteen times per year, instead of twelve. The reason behind this is that Greek retirement pensions are based on the “monthly wage.” In a regular system, the monthly wage is given twelve times per year, and the pension is based on Annual Salary / 12. But if the monthly wage is given fourteen times per year, the pension is Annual Salary / 14. So they’ve been using this rather underhanded way of cutting retirement pensions for years. The two wages that are not tied to calendar months are nicknamed “gifts” in Greek, but of course they aren’t gifts, they’re just as much a part of a pre-agreed salary as the June or October wage.
However, because this shady approach to reducing retirement payouts isn’t used in other countries, it’s not well understood. I’ve read it described as a “bonus” in international media. Because the 13th wage is paid in mid-December, and the 14th wage is distributed between two religious holidays (Easter and the Dormition of the Virgin), many people think of these wages as holiday bonuses.
Which, obviously, makes them the target of international journalists and politicians everywhere. What could be more shocking than a Greek wage-earner getting a Christmas bonus? So, of course, we must cut them.
For some reason, the Greek politicians decided that they should ‘save’ the 13th and 14th wage by sacrificing the minimum wage, unemployment benefits, job security, and a variety of other silly perks that Greeks ‘enjoy.’
However, since the 13th and the 14th wages are based on the regular monthly wage, reducing the minimum wage automatically reduces the 13th and 14th wages also. And while the 13th and 14th wages only total 4/28 of a private sector worker’s annual income (public sector workers get much smaller 13th and 14th wages that are only a fraction of a regular wage. and are unaffected by this measure), the new 22% reduction in the wage scale means that Greeks will actually lose 7/28 of their annual income, or exactly one quarter.
So the one-fifth reduction in wage is actually a one-quarter reduction in income.
In American terms, it means that a person making $50,000 in 2011 would make $37,500 in 2012. In Greek terms, it means that someone who made 11,500 euros in 2011 would make 8,625 euros in 2012.
In other words, it’s such a severe reduction that the economy will retract significantly in the coming months, following the established pattern of the past few years.
No politician has tried to argue to the contrary – in fact, they have been upfront about this reality. They are proud of ‘saving’ the 13th and 14th wages, however.
Even if the politicians come to an agreement on all of this today, it still has to be voted through Greek Parliament with a simple majority, probably this Sunday.
While the Greek political leaders may well agree on all this – after all, they do seem proud of their accomplishments – I have my doubts about Parliament. PASOK, the party voted into power in 2009, still has a majority of seats in Parliament, but the party’s popularity was polled at around 8% this week. The individual PASOK parliamentarians may well decide to distance themselves from the party and their disgraced leader George Papandreou by voting against the agreement.
If the agreement is voted down in Parliament, Greece will likely default in the next several weeks.
If the agreement is voted through, the average Greek family will likely default in the next several months.