Will Workforce Reductions Help Greece Recover?
“Since May 2010, the euro area Member States and the International Monetary Fund have been providing financial support to Greece in the context of a sharp deterioration in its financing conditions,” reads a statement by the European Commission. “The aim is to support the Greek government’s efforts to restore fiscal sustainability and to implement structural reforms in order to improve the competitiveness of the economy, thereby laying the foundations for sustainable economic growth.”
As it stands, Greece has received aid in two broad packages. The first was the Greek Loan Facility, a $34.4 billion euro ($44.98 billion) loan that was rolled into the European Financial Stability Facility with the addition of 130 billion euro ($169.99 billion) in assistance. Where the first program was basically a bilateral loan, the second program — the combined 164.5 billion euro ($215.10 billion) package to be distributed through 2014 — will be financed through the EFSF.
All told, the euro-area commitment amounts to 144.7 billion euros ($189.21 billion), or 87.9 percent of the total bailout. The IMF will cover the remaining 19.8 ($25.89 billion) billion euros worth as part of a four-year 28 billion euro Extended Fund Facility approved in March 2012.
“The release of the disbursements will be based on observance of quantitative performance criteria and a positive evaluation of progress made with respect to policy criteria,” commented the European Commission in a statement on the second economic adjustment program for Greece…
That said, after protracted negotiations and evaluations, Greece looks like it is on track to receive the next tranche of aid, worth 2.8 billion euros ($3.67), shortly. On top of this, the nation is scheduled to receive another 6 billion euros ($7.65 billion) in May. However, the terms of these disbursements are relatively austere. The Troika has obligated Greece to reduce its public-sector workforce by 15,000 positions in the next two years.
The layoffs have been a point of contention between Greece and the Troika for a few years, but it seems like this is one of those problems that does fade away with time. Greek officials report that much of the reduction in workforce will be attained through general attrition. Greece has already agreed to place 25,000 public workers in a labor pool, where they will receive 75 percent of their wages until they are transferred, or fall out of the pool after a year.
The workforce reductions amount to a sort of corrective surgery that policymakers recognize is necessary, but have been unwilling to pursue because of the political consequences. However, with government payrolls reduced and talent reallocated (ostensibly in such a way that increases productivity), Greece is theoretically on track to reach a primary budget surplus and unlock additional financial assistance from the Troika.