Zartaloudis, S. (2014) “The financial crisis has badly damaged the Greek and Portuguese welfare states“, LSE EUROPP, 23 September.
Several European states have pursued austerity policies in the aftermath of the financial crisis, but how have these policies affected welfare states? Sotirios Zartaloudis writes on the impact of the crisis in Greece and Portugal. He argues that both countries have had to pursue unprecedented spending cuts, tax rises and labour market reforms and that the crisis has had a significant negative effect on their welfare states.
The on-going financial crisis and the subsequent sovereign debt crises in Greece and Portugal have ensured these countries have faced spiralling borrowing costs. These ever-increasing borrowing costs and recourse to the European Union (EU) and the International Monetary Fund (IMF) for financial support meant that they had to implement extensive fiscal consolidation measures to tackle their unsustainable borrowing levels. In a recently published article, I present the findings of a research project assessing the impact of the economic crisis on Greek and Portuguese welfare states which caused ‘shock and awe’ in both countries.
Fiscal consolidation in Greece and Portugal
After the crisis, both countries implemented an unprecedented wave of cuts, tax rises and labour market reforms. More specifically, public sector pay and jobs were cut, pensions were significantly curtailed and pension rights substantially restricted. For instance, in both countries the retirement age was increased, a threshold for pensions was introduced and pensioners lost a considerable part of their pension by the abolition of the Christmas, Easter and summer bonus. The latter measure was also applied in all public sector workers, while Portugal went a step further and introduced a special levy to all self-employed people to the same effect.
In addition, successive tax hikes were implemented – mainly increases of indirect taxes like VAT – along with increases in property taxes. Welfare benefits became less generous and more conditional, with less protection for the unemployed and considerable cuts in healthcare budgets. Both countries reduced public investment in order to achieve savings in their spending, resulting in the abandonment of a number of public work projects. In order to cut spending and increase revenues, both countries implemented wide-ranging privatisation of state corporations and/or ports.
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