A 48-hour general strike in Greece that was expected to shut down most of the country has now turned violent ahead of a vote in Parliament to implement austerity measures. Some 20,000 protestors have clashed with police in Athens' Syntagma Square, forcing police to turn to riot control strategies.
Protestors are rallying against the proposed austerity measures, believing they will focus unfairly on the poorest classes by raising taxes and lowering benefits for those making minimum wage. The measures proposed would include general tax hikes, public sector wage cuts, and privatization of some $70 billion in state assets.
Although extremely unpopular, it is very likely that Prime Minister George Papandreou’s government will be able to pass the austerity measures currently being debated. Papandreou’s Socialist party holds 155 seats in Parliament, and although two members have declared they will vote against them, just 151 votes are needed to pass the measures.
If these austerity measures are not passed, it could mean severe crisis for Greece. The European Union member states recently decided to delay €12 billion ($17 billion) in loans from the European Central Bank (ECB) and the International Monetary Fund (IMF) until Greece could prove that it was serious about reigning in its debt and restructuring its economy to control hemorrhaging government spending.
The EU’s top economic official, Olli Rehn warned Greek lawmakers that failure to pass the austerity measures would mean immediate default of the country’s debt. "The only way to avoid immediate default is for parliament to endorse the revised economic program... They must be approved if the next tranche of financial assistance is to be released," he said in a statement. To those who bet on a backup plan being discussed in Brussels, he also had a message: "To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default.”
Without a loan or bailout of some kind, Greece will run out of money within weeks, and would be unable to pay wages and pensions by the end of July. General unemployment in Greece already sits at 16.2 percent, while youth unemployment hovers around 42 percent. The state of Grecian society calls to mind comparisons with conditions in Egypt that led to the eventual toppling of the government there. However, most analysts are thinking it is highly unlikely that Greece’s instability will have the same result as Egypt’s.
It is probable that the austerity measures could make the situation worse for Greece. John Salevurakis, associate professor of Economics at the American University in Cairo, explains that this is because Greece’s “budget deficits will grow as unemployment rises, consumption continues to decline, and tax revenues fall. Frankly, the time for embracing austerity as a means to address Greece's budget woes was over several years ago.”
Membership in the European Union ties Greece not only to a monetary system (the Euro) that is currently overvalued for the state of Greece’s economy, but also puts their financial system at the mercy of the demands of the IMF and ECB if they are in need of an aid package.
So will Greece resort to choosing to default and break away from the European Union? It will take a lot of pain to push them to that point, and the pain that will come from austerity measures is nothing compared to what the pain would be if Greece were to default. One of the salient points for Greece’s membership in the European Union is the solidarity it provides against the growing regional power of long-time rival, Turkey; Greece no longer has the economic vitality to compete with the strength of a prosperous and growing Turkey, so historic fears as well as strategic imperatives will keep Greece tied to the European Union. Plus, in good economic times, membership in the European Union results in higher wages and a higher standard of living for Greeks.
If Greece were to decide to completely default on its Euro-dominated debt, the first uncontrolled default of an advanced country since 1948, it would mean economic catastrophe. All foreign capital would be pulled out of Greece, and the conversion from Euros to new Greek Drachmes would mean hyperinflation. It also would mean economic crisis for the European Union. The instability from Greece’s failing markets was already seen to be contagious, as it spread to Ireland and Portugal last year. Today, Italy and Spain are already beginning to show symptoms of the recent disease. No institution has the funds to bail out both the Italian and Spanish economies. In such a situation, if Greece pulls out of the Euro, and there is no support for a spiraling Italian or Spanish economy, what would be the point of membership in the European Union? It could mean the end of the Eurozone.
With all these consequences looming, it is not likely that the global economic community will allow Greece’s economy to fall. But that does not mean that there is nothing to fear. Germans find the idea of a second bailout of Greece unpalatable, just pouring more money down a deep hole, and the fears that Greece may be approaching a “Lehman moment” are increasing, rather than waning. No matter what the outcome, it is obvious that Greece will be at risk and will need financial support for several years to come.
The world is playing a waiting game today to see what the result of the vote in the Greek parliament will be tomorrow.
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Riots, Fear, and a Waiting Game in Greece
June 28, 2011
A 48-hour general strike in Greece that was expected to shut down most of the country has now turned violent ahead of a vote in Parliament to implement austerity measures. Some 20,000 protestors have clashed with police in Athens' Syntagma Square, forcing police to turn to riot control strategies.
Protestors are rallying against the proposed austerity measures, believing they will focus unfairly on the poorest classes by raising taxes and lowering benefits for those making minimum wage. The measures proposed would include general tax hikes, public sector wage cuts, and privatization of some $70 billion in state assets.
Although extremely unpopular, it is very likely that Prime Minister George Papandreou’s government will be able to pass the austerity measures currently being debated. Papandreou’s Socialist party holds 155 seats in Parliament, and although two members have declared they will vote against them, just 151 votes are needed to pass the measures.
If these austerity measures are not passed, it could mean severe crisis for Greece. The European Union member states recently decided to delay €12 billion ($17 billion) in loans from the European Central Bank (ECB) and the International Monetary Fund (IMF) until Greece could prove that it was serious about reigning in its debt and restructuring its economy to control hemorrhaging government spending.
The EU’s top economic official, Olli Rehn warned Greek lawmakers that failure to pass the austerity measures would mean immediate default of the country’s debt. "The only way to avoid immediate default is for parliament to endorse the revised economic program... They must be approved if the next tranche of financial assistance is to be released," he said in a statement. To those who bet on a backup plan being discussed in Brussels, he also had a message: "To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default.”
Without a loan or bailout of some kind, Greece will run out of money within weeks, and would be unable to pay wages and pensions by the end of July. General unemployment in Greece already sits at 16.2 percent, while youth unemployment hovers around 42 percent. The state of Grecian society calls to mind comparisons with conditions in Egypt that led to the eventual toppling of the government there. However, most analysts are thinking it is highly unlikely that Greece’s instability will have the same result as Egypt’s.
It is probable that the austerity measures could make the situation worse for Greece. John Salevurakis, associate professor of Economics at the American University in Cairo, explains that this is because Greece’s “budget deficits will grow as unemployment rises, consumption continues to decline, and tax revenues fall. Frankly, the time for embracing austerity as a means to address Greece's budget woes was over several years ago.”
Membership in the European Union ties Greece not only to a monetary system (the Euro) that is currently overvalued for the state of Greece’s economy, but also puts their financial system at the mercy of the demands of the IMF and ECB if they are in need of an aid package.
So will Greece resort to choosing to default and break away from the European Union? It will take a lot of pain to push them to that point, and the pain that will come from austerity measures is nothing compared to what the pain would be if Greece were to default. One of the salient points for Greece’s membership in the European Union is the solidarity it provides against the growing regional power of long-time rival, Turkey; Greece no longer has the economic vitality to compete with the strength of a prosperous and growing Turkey, so historic fears as well as strategic imperatives will keep Greece tied to the European Union. Plus, in good economic times, membership in the European Union results in higher wages and a higher standard of living for Greeks.
If Greece were to decide to completely default on its Euro-dominated debt, the first uncontrolled default of an advanced country since 1948, it would mean economic catastrophe. All foreign capital would be pulled out of Greece, and the conversion from Euros to new Greek Drachmes would mean hyperinflation. It also would mean economic crisis for the European Union. The instability from Greece’s failing markets was already seen to be contagious, as it spread to Ireland and Portugal last year. Today, Italy and Spain are already beginning to show symptoms of the recent disease. No institution has the funds to bail out both the Italian and Spanish economies. In such a situation, if Greece pulls out of the Euro, and there is no support for a spiraling Italian or Spanish economy, what would be the point of membership in the European Union? It could mean the end of the Eurozone.
With all these consequences looming, it is not likely that the global economic community will allow Greece’s economy to fall. But that does not mean that there is nothing to fear. Germans find the idea of a second bailout of Greece unpalatable, just pouring more money down a deep hole, and the fears that Greece may be approaching a “Lehman moment” are increasing, rather than waning. No matter what the outcome, it is obvious that Greece will be at risk and will need financial support for several years to come.
The world is playing a waiting game today to see what the result of the vote in the Greek parliament will be tomorrow.
