Thursday, June 30, 2011

Greece in Crisis: Protest, Violence and Necessity

Maria Margaronis

June 29, 2011

The Greek parliament has just passed the package of savage austerity measures and privatizations required to get the last tranche of a 110 billion euro loan from the EU and IMF; without it, the country would have been broke by mid-July. Outside in Syntagma Square, protesters in cycling masks are running from clouds of teargas. Since yesterday, the square has been filled with surging crowds pushed back by riot police; Greek TV reports that 500 people aged between 15 and 65 have been treated in the metro station for respiratory problems and injuries.

Ambulances can’t get anywhere near the scene. The Twitter feeds give the flavor: “Fog of chemicals around #Syntagma they keep gas bombing us situation getting worse again”—“People are trapped at the sqr gas bombed from all sides”—“More doctors and supplies needed urgently at Syntagma Square in Greece. Please help”—“Police just hit directly to us. We were running, I saw a man spitting blood, 3 more fainted 3 steps away from me. Its really bad”—“Greek ministry of finance is on fire.”

By the skin of its teeth, Greece has escaped imminent bankruptcy; the Eurozone is safe for another week or two as the EU and IMF try to hammer out a second rescue package. Jose Manuel Barroso and Herbert von Rompuy, the presidents of the European Commission and Council, have hailed an “important step forward along the path of fiscal consolidation and growth-enhancing structural reform.” But the long-term prognosis is far from positive. First, the cuts and privatizations will not be easy to implement, leaving plenty of wiggle room for lenders later on. Second, this year’s austerity program has only plunged the country deeper into recession; even the EU and the IMF project that the debt and the interest on it are likely to keep rising, and the consensus is that Greece will have to default sooner or later anyway. Third, it isn’t clear how much more austerity the Greeks are willing or able to take. Almost a quarter already live below the poverty line; 50,000 businesses have closed in the last year; youth unemployment is at 42 percent; people are at breaking point.

It’s very hard to predict what is likely to happen next. The government still has to pass an enabling law on Thursday to speed up the pace of reform; after that, it has to put the austerity measures into practice. If it stumbles and is forced to call elections, Antonis Samaras, the leader of the opposition conservative party New Democracy, is most likely to win. He has no substantive alternative solution to the crisis, but has made populist hay by promising to “renegotiate” Greece’s loan agreement and to rescind a law granting citizenship to children born in Greece to legally settled immigrants.

The “aganaktismenoi” who have occupied Syntagma since the end of May are a new force in Greece—a popular movement that embraces leftists, centrists, nationalists, radical democrats and the apolitical, united by a collective allergy to traditional politics, with its cronyism and self-interest, its petty-mindedness and parochial machismo, its corruption and dishonesty. Some of them have been camped in the square for weeks, engaged in an experiment in direct democracy; whether that will survive today’s cataclysm of violence remains to be seen. Yesterday, peaceful protesters tried to stop the black clad agitators who were ripping up marble slabs and setting fire to vans and rubbish bins; today’s indiscriminate assault by the police has changed the atmosphere.

Classical analogies for modern Greek politics are always irritating. But today I can’t help thinking about tragedy, not in the tabloid sense of something terrible happening but as a clash between irreconcilable laws, or Free Will banging its head against Necessity. My heart is with the protesters, with their spirit and recklessness and energy and desire, but my head knows that parliament had to pass the appalling measures, because at this point the alternative would be worse, for Greece and also, perhaps, for the rest of Europe. Due to the long recalcitrance and rigidity of European leaders and their refusal to challenge the dominance of the markets; due to Greek politicians’ even longer failure to set their house in order; due to the absurd time pressure placed on this decision, there was, as EU commissioner Olli Rehn put it, “no Plan B.”

The tragic flaw is in Greece’s own responsibility for its problems, which has allowed Northern European pundits and politicians to demonize its people as incorrigibly lazy, feckless, criminal and corrupt: There simply wasn’t enough solidarity from outside the country to support a heroic last stand against austerity, the banks and the IMF. Perhaps political and economic pressure will soften the measures and ease the terms of Greece’s loans; perhaps, when default eventually comes, Greece will be better prepared to weather it. Perhaps the sight of a European country being forced to its knees might prompt a belated rethinking of the European project and the relationship between democracy and the markets. Perhaps. Otherwise, as one tweet coming out of Athens put it, “You are all in Syntagma Square. You just don’t know it yet.”

Maria Margaronis

June 29, 2011


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Wednesday, June 29, 2011

Two-Day Strike in Greece Ahead of Austerity Vote

Orestis Panagiotou/European Pressphoto Agency

Demonstrators and police clash in front of the Greek Parliament on Tuesday during a protest in Athens as part of a 48-hour general strike. More Photos »

Published: June 28, 2011

ATHENS — Parliament appeared close to approving and carrying out a set of unpopular austerity measures after a day of intense political maneuvering on Tuesday that seemed to bring wavering members of the ruling Socialist Party into line.



TimesCast | Athens Protests

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While the lawmakers debated, riot police clashed with protesters outside the Parliament building. Parliament must pass the measures — which include wage cuts, tax increases and privatizations in a recession-starved country — before Greece’s foreign lenders unlock the next installment of aid that the country needs to avoid default.

Prime Minister George A. Papandreou has a five-vote parliamentary majority as he tries to push through the austerity plan, which strikes at the heart of his Socialist Party base. The center-right New Democracy opposition party has struck a populist tone and opposes the measures, saying they offer too much austerity and not enough stimulus.

In the tense countdown ahead of the vote to approve the austerity package, which is scheduled for Wednesday, at least one member of Parliament from the Socialist Party who had opposed the bill changed his mind.

The lawmaker, Thomas Robopoulos, told state television on Tuesday that he would support the measures, “putting the national interest above everything else.” Earlier, Mr. Robopoulos had said he would decide “at the very last moment, after I have listened to all the speakers,” referring to the debate in Parliament.

“This is a crucial moment; if the memorandum does not pass we shall go bankrupt,” Mr. Robopoulos added.

He spoke after talks with the new finance minister, Evangelos Venizelos, a longtime Socialist who is regarded as being able to rally the party behind the measures, however unpopular.

The nation’s unions complicated matters on Tuesday when they began a 48-hour general strike — the first time they had walked out for more than 24 hours since democracy was restored to Greece in 1974 after a seven-year military dictatorship.

The protests in Syntagma Square in front of Parliament began peacefully but turned violent as groups of youths on the fringes began throwing rocks, firebombs and firecrackers.

The European Union, the European Central Bank and the International Monetary Fund have said they will release $17 billion that Greece needs to pay its expenses through the summer if Parliament passes the measures.

“The only way to avoid immediate default is for Parliament to endorse the revised economic program,” said Olli Rehn, the European Union’s top economic and monetary affairs official. “Let me say this clearly: There is no Plan B to avoid default.”

In Brussels, European Union officials said they were working on contingency plans, including an effort to persuade the Greek opposition leader Antonis Samaras of the New Democracy Party to support the measures.

After the vote on the austerity measures, Parliament is scheduled on Thursday to consider a bill on how each of the measures will be carried out. Last year, Greece’s foreign lenders imposed austerity measures after they provided a first round of aid.

Since then, Greece has cut the wages of its 800,000 public workers — a quarter of the work force — by more than 10 percent.

The demonstration on Tuesday was one of the first in which labor unions joined with the younger demonstrators who have gathered in downtown Athens every night for the past month. Security forces fired tear gas to thin out the crowd, sending the demonstrators fleeing into side streets.

A police official said that 23 people were detained, with five later arrested, and that 21 officers were injured, none seriously.

Near Syntagma Square, a 40-year-old woman who gave her name only as Eirini, said she had been a secretary in a construction firm but had been out of work for more than five months.

“I’m here because we have nothing to lose,” she said, pushing down the surgical mask she used to filter out the tear gas. “We know very well that in six months, when they run out of money in the banks, we will be even more broke and hungry.”

She added, “I think that in one year, we are going to go to Syntagma, take out all the grass and plant tomatoes.”

Stephen Castle contributed reporting from Brussels.

A version of this article appeared in print on June 29, 2011, on page A10 of the New York edition with the headline: Greek Workers Protest and Strike as Parliament’s Austerity Vote Nears.

Two-Day Strike in Greece Ahead of Austerity Vote -

Tuesday, June 28, 2011

Greece in Debt, Eurozone in Crisis

Maria Margaronis

June 27, 2011

The Greek verb agorevo means “I speak in public.” But agora also is the market. The market was an area of politics. When you try to separate the two, as neoliberalism does, trying to create a purely economic market place, then there is no democratic control.   —George Papandreou, Interview with Open Democracy, 2004


Are we the prodigal children of a neat global economy and an all-successful Europe? Or was the system ailing since its youth?   —from Debtocracy, a Greek documentary

Athens—When he was elected prime minister in 2009 at the head of Greece’s Panhellenic Socialist Movement (PaSoK), George Papandreou was going to wipe out corruption, open up politics, rejuvenate the country’s sclerotic economy. “There is money,” he said then, although he must have known there wasn’t any in the public coffers. Less than two years later, he has allowed the “troika” of the European Commission, the European Central Bank (ECB) and the International Monetary Fund to bind him on the horns of an impossible dilemma: either the Greek government implements a second round of austerity measures more savage than any yet endured by a developed country, with deeper cuts and tax hikes and a wholesale, cut-price sell-off of its public assets, or Greece faces default on its sovereign debt, imminent bankruptcy.

Meanwhile, since the end of May, Syntagma Square has overflowed with Greece’s aganaktismenoi (cousins of the indignados who filled Spanish squares this spring), here to refuse the troika’s blackmail and demand their democracy back. On the street in front of Parliament, protesters are banging drums, chanting and waving, singing. The crowd is huge, politically diverse and overwhelmingly peaceful. There are people here from all walks of Greek society; at times the rhetoric is that of a national resistance. A neat elderly couple on their first demonstration push through the crush because their pensions have been slashed, prices are rising and they just can’t make ends meet. Vassilis Papadopoulos, a 50-year-old unemployed truck driver living on loans from his mother, has come all the way from Corinth wrapped in a giant Greek flag, with a look of despair in his eyes and saucepans to bang together. This is a movement, he says, against the political system: “They’ve all cheated us. They destroyed the banks, our pension funds. They invested our social security money in bonds for their own benefit.” Farther down, in the square itself, something entirely new seems to be taking shape. A tent village has sprung up, a liberated zone in which an open conversation has been going on for weeks. University professors, passers-by, unemployed labourers, all get their three minutes with the microphone. There’s a medical tent, a “time bank,” a “team to promote calm.” When riot police cleared the square with clubs on the night of June 15, these protesters didn’t fight. They simply walked right back, picked up the rubbish and repaired their neighbourhood.

The Greek debt crisis is said to threaten the survival of the eurozone and a global financial meltdown worse than the one set off by the collapse of Lehman Brothers in 2008; each new prediction of default sends frissons of panic and flurries of speculation through the markets. In June the ratings agencies said that German Chancellor Angela Merkel’s plan to persuade Greece’s private creditors to roll over the debt into longer-maturing bonds would be deemed a “credit event”—finance-speak for a default that triggers debt insurance policies, in which American as well as European banks are heavily implicated. That, Merkel told the German Parliament, could have “uncontrollable consequences” for financial markets. At the eleventh hour, an EU summit agreed in principle to a new rescue package of up to 120 billion Euros, but demanded further cuts and tax hikes to close a 5.5 billion euro “black hole” in the existing plan. The markets rebounded. But Papandreou now has to push the new, augmented austerity package through a resistant Parliament before Greece can get the final tranche of last year’s 110 billion euro loan. Without it, the country will be broke by mid-July. The vote is due to take place on Wednesday; Greece's trade unions have scheduled a two-day general strike, and rallies are planned in sixty-five different towns. The Syntagma protesters intend to encircle Parliament.

Already parts of Athens look like New York City circa 1980, with shut-up shops, derelict buildings and graffitied walls. The effects of the game of chicken being played out by bankers and politicians are visible in the way Athenians walk now, head down and defended, through once-safe neighbourhoods; in the irritable, shamed anxiety you see on people’s faces. Depression is endemic; suicide rates have soared. For Greeks, this is much more than an economic crisis. It is a social and political convulsion unlike anything seen here at least since the fall of the colonels’ dictatorship in 1974.

* * *

At a church-run soup kitchen in a dusty park, with his white hair combed back and his clean shirt neatly buttoned, Takis Karis is eating beans from a take-out container. When I ask what brought him here, a furious despair bursts through his gentlemanly manner: “We come so we won’t be hungry. Otherwise, we may as well kill ourselves.” Karis owned a factory, but his business went bankrupt; now he sleeps in the last of the company vans. He has lost his family and, he feels, his country. “You’re speaking to someone who was a Greek, but I’m not a Greek anymore. We’ve given up everything—flag, traditions, family, pride—for money. There is no state, no borders. They brought in 4 million migrants so they could have cheap labour for the Olympic Games and created an unemployment problem.” Niazi, at the same table, joins the conversation in fluent if accented Greek; he came here (legally, he stresses) from Alexandria twenty-seven years ago. He used to make shoes, but then the Chinese arrived and he, too, lost his business. The government, he says, should deport all illegal migrants. “If there is a Europe it has to be for Europeans, not Africans and Asians. An honest man can’t live in Greece anymore. What Greece needs is a new Papadopoulos [the dictator whose junta took over in 1967].” Karis agrees. “Under Papadopoulos, everyone had a job. People would go out and enjoy themselves all night.”

Such rhetoric is not new in Greece, but it’s become more common. A poll in June suggested that 23 percent of Greeks would favour a “strong leader” who could make decisions unencumbered by Parliament; another 31 percent would prefer the country to be managed by a “team of experts.” These numbers reflect the widespread (and not inaccurate) view that a political class steeped in cronyism and corruption has run the country aground and plundered the public purse; hence the cries of “Thieves!” that ring out nightly in Syntagma Square. But they also reflect something more dangerous: a sense of powerlessness, resentment and humiliation that finds no foothold in democracy, reaching instead for scapegoats and too-easy answers.

Athens is living through a double nightmare. Unemployment in Greece is officially at 16 percent, up by 40 percent in a year— 42 percent among the young. Those with jobs face wage cuts of up to 30 percent, tax and price increases, public services in chaos. The social fabric is tearing. Father Andreas, the young priest running the soup kitchen, calls the situation “desperate,” as more and more families find they can’t support their own. At the same time, there is an uncontainable migration crisis. Tens of thousands of Afghans, Iraqis, Pakistanis, Bengalis, Somalis and North Africans are packed into crumbling buildings owned by slumlords, mostly Greek, who double as traffickers. Around Omonia Square, migrants search in rubbish for bottles, cables, clothing, anything to sell. The charity Médecins du Monde has declared a humanitarian emergency; in the lobby of its small clinic young men wait for hours, three deep against the wall.

Like the debt, the migration crisis has a European dimension. Greece is a main entry point for people trying to reach the EU from the Middle East, South Asia and Africa; 150,000 entered the country without papers in 2010 alone. Most of them cross the Turkish border, where the government plans to build a seven-mile wall; hundreds are detained there in conditions unfit for animals. Few want to stay in Greece, but under pressure from the EU the government has tightened controls over the exit points, turning the country into a giant lobster trap to keep migrants from reaching London, Paris or Berlin. According to the 2008 Dublin II Regulation, refugees have to apply for asylum in the first EU country they reach; Greece has 54,000 pending asylum applications and an approval rate of 0.3 percent.

With mass irregular migration and immiseration comes crime, both petty and organized, run by Greeks as well as foreigners. Athens was once seen as Europe’s safest capital; last year there were 145 armed robberies in a single week. The city has become a Mecca for illegal weapons: you can get a “used” Beretta for around 800 Euros or a .357 Magnum for a mere 500. Racist violence is on the rise, as are revenge killings and turf wars. Five dismembered brown-skinned bodies have been found since Christmas at one municipal dump. Even at midday, formerly prosperous streets are lined with women in hot pants and high heels, most of them African; their pimps stay in the shadows. Heroin is cheaper here than anywhere else in Europe.

As the authorities abdicate from policing parts of the city, the task of “keeping order” is assumed by vigilantes affiliated with the neofascist party Chrysi Avgi, or Golden Dawn, which last year won its first seat on the City Council. Chrysi Avgi patrols large areas of Athens, with the explicit or tacit support of many Greek residents and often of the police, staging pogroms against migrants and pitched battles with bands of anarchists who oppose them; on May 19 more than 200 people rampaged through the centre, smashing shop windows and kicking or beating every dark-skinned man they saw while the police stood by. A young sympathizer described the group’s activities to me, proudly lifting his shirt to show a scar on his back inflicted, he said, by an Afghan with a knife. “We go into the basements where they have illegal mosques to check their papers, clear them out. They could be Al Qaeda; they could be anything. It’s not chance that they’re Muslims; they’re coming on purpose to undermine the country. There’s a plan, a secret funding mechanism, and there’s no state to protect us. The police are on the side of the migrants. We had to liberate Attica Square with our fists. The migrants were washing their clothes, their children, in the fountain; they were sleeping and praying in the square. It offends me to see them praying in the square.” This spring a 21-year-old Bengali was stabbed to death in “revenge” for the murder of a Greek expectant father knifed on the street for his camera. Two Afghans have been charged with the killing of the Greek; no one has been arrested for the Bengali’s murder.

* * *

Victoria Square, a stone’s throw from the National Archaeological Museum, used to be a cheerful place full of outdoor cafes; now it contains a few uncomfortable metal seats and ugly concrete planters, “improvements” made for the 2004 Olympics. On a June evening, groups of Middle Eastern men stood talking among themselves; a few women and children sat quietly on the ground. As night fell policemen on six motorbikes roared round and round among them, revving their engines threateningly until most had scattered. Marina Vichou, a third-generation resident and member of a local community group, says that in the past two or three years the area has become “a warehouse for human souls.” Eleni Zoi, who has lived here since 1967, described brothels and gambling dens, illegal shops and filthy apartments where fifty people live without sanitation, filling the airshafts with used toilet paper. “Uneducated people blame the migrants, not the people who rent to them, who are often Chrysi Avgi supporters, or the authorities that fail to integrate them. We kept asking the authorities to do something about the situation, and they wouldn’t—as if they wanted the area to become a ghetto.”

The group came together two years ago, opposing a plan to turn a rare green space into a parking lot; much of their energy is now spent trying to defend the neighbourhood from Chrysi Avgi. “The best way to fight the fascists,” Vichou says, “is to be united and do community things together. It’s very important for people to see that fascist activities are closely connected with illegal ones.” But she feels the cause is hopeless: “It’s all older people here, Albanian immigrants who are not yet established, small shop owners. Chrysi Avgi takes over and won’t allow anyone else to speak. They harass us too, call us filthy names in the street. If I could, I would sell my house and leave.” Zoi—a veteran of many protests, including the occupation of the National Technical University, which helped to bring down the colonels in 1974—insists she won’t be moved. But, she says, it’s the anarchists from a local squat who have so far held the line against Chrysi Avgi. “What can we do? Look at us. We can’t fight them with our fists. I’ve been on countless demonstrations in my life, always peacefully. I’m the one who goes up to people and tells them not to throw things. This is the first time I’ve ever been afraid.”

After decades of expecting everything to be done for them by the state, more and more Greeks are discovering the satisfaction of doing things for themselves: the Atenistas, a network that plants empty lots and cleans up derelict buildings; the community group that filled Kalliga Square with candles when a migrant was murdered there; the cyclists who swoop through the streets in a great flock every week; the campers in Syntagma. But they are working in the shadow of a tidal wave.

In 2010 Greece’s economy shrank by 4.5 percent; a further slump of 3.8 percent is projected for this year. By the troika’s own figures, even if the Greeks can be forced to accept a second wave of cuts and privatizations, by next year sovereign debt will have risen to 166 percent of GDP; 8–9 percent of GDP will go just to pay the interest. (The interest on US debt, which so exercises Washington politicians, was at 1.3 percent of GDP in 2010.) The country will still be bankrupt, and the drumbeat for default is becoming deafening. What, then, is the point of punishing Greece further?

Despite the contemptuous grumblings of Northern Europeans, Greeks are quick to acknowledge the country’s responsibility for its fiscal mess, sometimes to the point of masochism. (“We ate it together, we’ll pay for it together,” the politicians frown. “We didn’t eat it, you did,” the protesters roar back, pointing to multimillion-euro bribes paid to fixers and legislators by companies like Johnson & Johnson, Siemens and Ferrostaal.) Many Greek intellectuals supported the government’s first agreement with the troika, because it was preferable to disorderly default and because some of its reforms (clamping down on corruption and tax evasion, shrinking the public sector, opening up restricted professions, making it easier for businesses to invest and thrive) have long been necessary but are blocked by vested interests. But such changes can’t be effected in the space of months, in the midst of a deep recession and without democratic control; even economists who backed the plan agree that it had little provision for growth and less regard for Greek realities. Rather than commit hara-kiri by alienating its base in corrupt public sector unions, PaSoK has shut its eyes and slashed the knife across the board, without planning or forethought. Hit by rising taxes and shrinking demand, 50,000 businesses have gone bust in a year. The new austerity package will see most of the state’s assets, from ports to power plants and banks to motorways, sold off to foreign companies, which will have no compunction about firing workers. The troika’s main aim is to rescue not the Greek economy but the country’s creditors—or at least to postpone default until “contagion” can be limited and the banks protected, by transferring the debt to taxpayer-funded lenders like the IMF and ECB.

Since the pain is almost certainly going to get worse, why not simply cut and run back to the drachma, as some of the Syntagma protesters advocate? At least then Greece would be in charge of its own destiny, free to take the traditional route out of debt through devaluation. Some analysts compare Greece’s plight to Argentina’s in 2001, when it saw daylight by unpegging its peso from the dollar. But Greece is not Argentina—among other things, the only oil it produces comes from olives—and even if leaving the euro were possible, the unpredictable consequences could be devastating: economic collapse, rampant inflation, rising nationalism. And while drowning by sudden default may seem a shorter, sharper torment than suffocation by the EU and IMF, the truth is that neither should be necessary.

Although most European bankers and politicians officially shudder at the prospect of a Greek defection from the euro, there are many on the right who would welcome such a “catharsis,” for reasons that Boris Johnson, London’s Conservative mayor, recently explained: “Bit by bit we seem to be creating a fiscal as well as a monetary union, in which huge sums…are being transferred from the richer to the poorer parts of the EU.” The Greek crisis has forced a recognition that the eurozone can’t continue as it is. It must either fly apart under the centrifugal force of the periphery’s debt or become more integrated, a union in which nations have common interests as well as a common currency. Neither option appeals to the bankers and eurocrats—or indeed to the voters of Germany, Britain, France or Finland, the main audience for the spectacle of Greece’s humiliation.

Just as the migrants have become the scapegoat for the Greek people’s suffering, so Greece has become the scapegoat for the structural problems of the eurozone, as well as for the failures of neoliberal orthodoxy. If the medicine isn’t working, it must be the patient’s fault. Greece’s entire economy is worth less than 3 percent of the euro zone's GDP; the obstacles to a more humane, realistic and lasting reform are not financial but political. Like any homeless person on the street in Athens, the country has reached this point for reasons that are particular aa well as systemic. Beginning from the premise that it is in no one’s interest for Greece to default, any lasting solution must address both aspects—which means a rethinking of the euro zone's policies and purposes, and a decision by political leaders to reclaim democratic control from the markets and ratings agencies. It would be pretty to think that such a thing might happen, but no one I know in Athens is holding their breath.

Maria Margaronis June 27, 2011


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Monday, June 27, 2011

Dissent, strikes ahead for Greece on crisis reform road

by John Hadoulis Sun Jun 26, 3:37 pm ET

Dissent, strikes ahead for Greece on crisis reform roadAFP/File – Greek 'Indignants' protest in front of the Greek parliament in the central Syntagma square

ATHENS (AFP) – Greece faces a strike this week and a momentous battle in parliament as the government struggles to quash dissent to additional austerity reforms needed to secure a vital new EU-IMF bailout.

The country's influential unions have called a 48-hour walkout from Tuesday on top of rolling power cuts by disgruntled electricity workers that have hit households around the country for the past week.

The labour unrest, accompanied by large protests outside parliament that have occasionally turned violent, is fuelled by government plans to sell 50 billion euros ($71 billion) worth of state assets to reduce the country's crushing debt.

Greece has been told by its European peers that it cannot hope to continue receiving aid out of a 110-billion-euro rescue package agreed with the EU and the IMF last year without these reforms and privatisations.

The Socialist government of Prime Minister George Papandreou has until Thursday to push austerity reforms worth an additional 28 billion euros through a divided parliament -- on top of sweeping cuts last year.

"We are totally confident," government spokesman Ilias Mosialos told AFP on Saturday. "These are extremely crucial votes. We believe lawmakers in parliament's majority will act responsibly."

But Papandreou's political opponents have pledged to oppose the plan and even some of his own lawmakers are grumbling about measures likely to alienate constituents.

"I insist that I will not approve this plan," said one Socialist lawmaker, Alexandros Athanasiadis, who opposes the sale of a 17-percent stake in the near-monopoly Public Power Company.

Another deputy has criticised the government's deference to the so-called "troika" of creditors -- the EU, IMF and the European Central Bank.

"Last week we managed to soften some of the edges of the plan, then the troika told the government to take the changes back," said Socialist lawmaker Thomas Robopoulos.

"This means we have no role to play in parliament," he said.

Papandreou has a five-seat majority in the chamber and a state treasury that is about to run out of cash by mid-July unless the international creditors agree to unlock a scheduled 12-billion-euro tranche of the EU-IMF bailout.

They have refused to release the loan without without a clear reform commitment from Athens. The IMF has even threatened to pull out of the deal without pledges from Europe that the Greek problem will be addressed once and for all.

To help Papandreou prevail at home, Brussels this week offered the hope of extra funds from regional cohesion funds to boost development and create jobs.

Amid a deep recession exacerbated by the cuts, Greek unemployment has climbed to record levels (15.9 per cent of the workforce in the first quarter of 2011) and more than 800,000 people are officially out of work.

The parliament vote is also linked to a new bailout that could reach 100 billion euros, though part of that will likely be on the tail-end of the existing 110-billion-euro EU-IMF package.

The second bailout of Athens in just over a year would combine fresh eurozone loans and privatisation proceeds with a contribution from banks and other private investors who are being pressed to lend the Greeks more money in the form of a rollover of Greek bonds due for redemption over the coming months.

World markets are following the drama closely for fear that a wrong step now could cause far-reaching damage throughout the eurozone.

EU leaders on Thursday called on "all political parties in Greece to support the programme's main objectives," saying "national unity is a prerequisite for success."

But the country's number two party, the opposition conservatives, intends to oppose the plan.

"We disagree with the policy mix which has already led to a deep and protracted recession," party leader Antonis Samaras said after talks with fellow conservative leaders in Brussels.

"Our responsibility lies not in accepting the mistake but in correcting it.

"I held my position to the end," Samaras said, amid reports that he received a dressing-down for his refusal to back the five-year programme of spending cuts and tax rises worth more than 28 billion euros by 2015.

Finance ministers from the 17-nation eurozone meet again on July 3 -- days ahead of a deadline for Greece to repay maturing debt or face default.

Dissent, strikes ahead for Greece on crisis reform road - Yahoo! News

Sunday, June 26, 2011

BBC News - Greece crisis: Cronyism is killing business, firms say

By Manuela Saragosa Business reporter, BBC News, Athens

anti-government protest in Greece protest in Greece

Businesses say that the government, headed by Prime Minister George Papandreou, has put its interests before the country's

Greece crisis

The Greeks call it "Rousfeti". It means expensive political favours and cronyism.

For Nikos Sofianos, head of the Greek wood flooring company Shelman Sofianos, it's a word that sums up everything that has gone wrong with the country's economy.

He blames Greece's bloated public sector, the country's ballooning debt and the government's inability to deliver on many of the crucial economic reforms being demanded by international authorities, on a culture of "Rousfeti".

It means, he says, that political and personal interests prevail over economic necessity.

It is a point of view shared by Constantine Michalos, president of the Athens Chamber of Commerce: "The horrific example I always bring is that cleaners in the Ministry of Finance earn as much as managers in other ministries," he says.

Competing political interests inside government have made it difficult for the private sector to flourish.

Nikos Sofianos

If you want to invest 5 or 10 million euros and this country does not support you and faces you like an enemy... then people are fed up and they leave” Nikos Sofianos Head of flooring company Shelman Sofianos

That matters because if Greece is to pay back its international debt and not pitch Europe's banking system and the rest of the eurozone into crisis, the economy here needs to grow and generate enough revenues for state coffers.

"You can't keep milking a cow without feeding it," Mr Michalos says.

"If you don't stimulate the economy then you'll stagnate it completely and then there's only one way to go: Default."

Lost investment

Last year the government introduced a so-called fast-track policy for the private sector, which was supposed to encourage businesses like Nikos Sofianos' to flourish.

"Nothing has been done. I haven't seen even one foreign investment," he says. "It has not been implemented."

"I give you an example of a friend from Taiwan who operates in Romania and wanted to set up a factory here in Greece three years ago, for recycling plastic materials," Mr Sofianos continues.

"He was trying for one and a half years. He was going from ministry to ministry.

"So the Ministry of Economics was asking one thing, but the Ministry of Environment didn't accept what the other ministry was asking."

In the end, his Taiwanese friend gave up.

"If you want to invest 5 or 10 million euros and you come in and this country does not support you at all and faces you like an enemy... then people are fed up and they leave."

"As a society, we do not realise that these investments will give places of employment," Mr Sofianos says.

Plans halted

Athens shopper

Austerity cuts and job losses are also hitting businesses hard as consumers have to cut back

George Peristeris, chief executive of Gek Terna, a large Greek energy company, has also been stymied by government bureaucracy.

Last year, encouraged by Prime Minister George Papandreou's plan to transform the country into a green economy harnessing its abundance of sun and wind, he tried to set up an offshore wind project in the Aegean Sea.

His project - along with several other similar ones put forward by other energy companies - came to an abrupt halt when the government decided large-scale renewable energy projects should be managed by the state and not the private sector.

A year later he's still not clear why the government made a u-turn, but he qualifies his criticism: "In the energy sector it's not easy to set up a business anywhere. That's not just Greece, but also in France or Spain."

Empty tills

You have to save some money for a future that does not look very promising”

End Quote Dimitris Dimiroulis University professor

Even for businesses that do have the necessary papers, getting financing in the midst of the country's economic crisis is becoming ever more difficult.

"Proposals by healthy companies are not accepted by banks at the moment simply because there is no money in their tills," says Mr Michalos of the Athens Chamber of Commerce.

Banks, he says, are being coerced by the government into buying national bonds to support the economy. "There is a limit to these actions," he says.

"Everyone has to realise that if the business sector does not survive, then the rest of the economy won't survive."

In the meantime, Nikos Sofianos' flooring business is down some 70% from last year in terms of revenues.

With salaries, pensions and perks being cut in the public sector - which accounts for about a fifth of the total workforce - and a struggling economy overall, people don't have money to spend on things like a new wood floor.

Take Dimitris Dimiroulis. His salary at the Panteion University in Athens has been cut by about 20% in the past year, and he fears it may go down by 40% in the year ahead.

"You have to be very, very careful in your expenses," he says. "And you have to save some money for a future that does not look very promising."


More on This Story

Greece crisis

BBC News - Greece crisis: Cronyism is killing business, firms say

Greece Debt Crisis Long-term Solution E.U. Unification Under One Leader?

Jun 25, 2011 - 07:11 PM

By: James_Loong

As Papandreou, Greek PM, plans to put together another austerity package worth more than €6.5 billion ($9.3 billion) by the end of the month, the protesters outside the parliament building, unwilling to accept the prime minister’s course of action, shouted: “Thieves, traitors. What happened to our money?”

Euro zone members on Monday gave the green light to a permanent system to prop up ailing euro-zone economies after 2013. The new measure will take effect in mid-2013, replacing the current temporary bailout fund. The approved fund, called the Europe Stability Mechanism (ESM), will total some €500 billion ($713 billion). It was initially approved at an EU summit in March this year. Jean-Claude Juncker, euro-group head, said the decision reflected the bloc’s determination to shore up the currency’s stability. The euro-bloc countries will, according to the plan, guarantee more than €620 billion and member states will pay €80 billion directly. Of that, Germany must pay almost €22 billion, payable in five annual installments of €4.3 billion starting in 2013.

A quick check on the Greek maturing debt schedule shows that nearly 200 bn euros need to be returned till 2015 with more than 74 bn of them be paid in the last year. And yet this only accounts for 58% of the overall leverage in the Greece economy.

Greece and Ireland has seen 57% and 85% increase in its Debt/GDP ratio while even frugal Germany has seen its debt increasing to its GDP by 14%. The Greece crisis has been spurred not just by Debt but also by a contracting GDP which has worsened the situation. Greece Industrial production has fallen 16% between 2005-2010 as noted below, a period during which China and India grew 8% and 9% CAGR growth.

Greece economy simply stagnated while it accumulated debt. The question to ask is what was Moody and Fitch doing while debt was being loaded? How did Greece maintain its AAA rating all through 2008,2009.

And no wonder German banks have reduced their exposure to Greece bonds. Since the beginning of 2010, they have reduced their total exposure from €34.8 billion to €17.3 billion, not including debt held by the state-owned development bank KfW. Insurance companies have reduced their investment in Greek bonds from €5.8 billion to only €2.8 billion in the last year.

In Germany, it is state-owned banks who have the greatest exposure to Greek debt. Commerzbank, a quarter of which is owned by the federal government, holds €2.9 billion in Greek bonds. The state-owned regional banks known as Landesbanken and their so-called bad banks hold additional risks of more than €4 billion.

On May 2, the euro countries and the International Monetary Fund (IMF) approved a €110 billion bailout package for the beleaguered country. Although the German portion of the loans was coming from the government-owned development bank KfW and not the budget, the federal government still served as guarantor. Every euro the Greeks do not repay will constitute a burden on the German taxpayer.

The Greece story from 2010 has been one of lost opportunity and lapses. The Greece story has completely exposed the loosely knit EU framework based on monetary union rather than regulatory frameworks based on political union. Greece was the first lapse for EU, the first violation of the European treaties, which categorically rule out aid payments to needy euro countries. This so-called no-bailout clause was intended to guarantee that the monetary union didn’t become a transfer union, and that the strong wouldn’t have to pay for the weak. It was crucial to the acceptance of the treaty by the national parliaments; without it the German parliament, the Bundestag, would not have agreed to the monetary union.

The second lapse occurred soon afterwards. On May 9, 2010, the first euro bailout fund was launched. Although the volume of €440 billion alone made it clear that the opposite was the case, Merkel and Finance Minister Wolfgang Schäuble tried to downplay the importance of the European Financial Stability Fund (EFSF). They insisted that the fund was purely a precaution, would not be used and, most of all, was temporary.

“An extension of the current bailout funds will not happen on Germany’s watch,” Merkel said in Brussels on Sept. 16, 2010. This promise, too, lasted only a few months. On March 25, 2011, the leaders of the euro zone approved a new, constant crisis mechanism. Although it has a different name, the European Stability Mechanism (ESM), it will function on the basis of the same principle as its predecessor fund, the EFSF, beginning in mid-2013. The euro countries want to pry loose €700 billion for the fund, which will include a cash contribution for the first time. The Germans will be asked to pay at least €22 billion. To do so, Germany would have to take on additional debt.

Since May 2010, the ECB has spent €75 billion purchasing government bonds from ailing euro countries. Its goal was to bring calm to the markets and prevent the risk premiums for the bonds from skyrocketing. But many used the opportunity to unload the risky securities on the central bank. The ECB is believed to have spent €40-50 billion to date on Greek government bonds. In addition, as of the end of April it had refinanced Greek banks to the tune of €90 billion.

Will Greece lead to Euro Bonds

If nothing else works, ECB will simply have to be offered bonds that satisfy its requirements. A 10-member “Greece Task Force” at the German Finance Ministry has worked out how this could function. The experts propose that the Greek government, in addition to the €90 billion-€120 billion in fresh cash it may receive from the euro-zone countries and the IMF as part of a second bailout, also be given access to bonds issued by the EFSF, the euro rescue fund. It could pass on these securities, which have the rating agencies’ highest rating of AAA, to Greek banks, which in turn could use them as collateral to obtain liquidity from the ECB.

The problem is that this measure would make the new bailout package significantly more expensive. To ensure that the EFSF had sufficient funds for the operation, its financial scope would have to be increased so that it could really make €440 billion available, as it was originally intended to do. To achieve this, the member states would have to double the scope of their respective guarantees. Germany, for example, would be liable for €246 billion in the future, instead of the current €123 billion.

The would-be euro rescuers are also considering accessing the so-called Hellenic Financial Stability Fund. This fund, set up as part of the first Greek bailout package in May 2010, contains €10 billion, which could be used to boost the capital of Greek banks in an emergency. The fund hasn’t been touched yet.

Long term solution: EU Unification under one leader?

Make no mistake: If Greece defaults, the story of EU is over! To prevent this from happening, many politicians specializing in financial and economic affairs recommend bringing about the political union of Europe as quickly as possible, a union with a strong central government. They argue that if the nations in the euro zone formed a closer union, they could coordinate their financial systems more effectively, thus providing the common currency with a political foundation.

This would make it easier to implement reforms in the recipient countries and improve their competitiveness. Just recently, ECB President Jean-Claude Trichet proposed installing a European finance ministry equipped with the right to intervene in the individual member states.

German Reunification: The role model?

But it isn’t quite that easy. More integration doesn’t necessarily mean that economic imbalances would disappear as a result. No one understands this better than the Germans, who had similar experiences with the monetary union between the two Germanys about 20 years ago. Effective July 1, 1990, the deutschmark became the official currency of East Germany. It was largely exchanged for the former East German mark at a ratio of one-to-one. The East German states joined the Federal Republic of Germany only three months later. It was the model case of a monetary union that was accompanied by a political union.

But anyone who believed that rapid unification would lessen the economic shock of the monetary union between the two Germanys was soon disappointed. In fact, the economic imbalances in reunified Germany became entrenched after that. Thousands of companies in the former East Germany went out of business, because they were unable to bring productivity up to Western standards.

The unemployment figures exploded, and financial transfers between the two parts of the country soon exceeded the trillion mark. To this day, the former East German states still lag behind the former West German states in terms of economic strength, productivity and income.

German reunification did nothing to change this. It merely helped to financially cushion the negative consequences of the monetary union. The states of the former East Germany were incorporated into the West German inter-state fiscal adjustment system (under which money is transferred from richer to poorer states) under favorable terms, and the former East Germans were suddenly given access to the blessings of the generous West German social system.

Such a model would in any case be incompatible with the European treaties. New agreements would have to be negotiated and ratified by all national parliaments, and perhaps even approved in referendums. It is a compromise or a necessity that EU will ultimately have to live with.

by James Loong

Editor: The GMB post

© 2011 Copyright James Loong - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Greece Debt Crisis Long-term Solution E.U. Unification Under One Leader? :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

Saturday, June 25, 2011

Austerity on the Streets of Athens

Greek parliament has until the end of this month to decide on a fresh wave of austerity measures that are a precondition for international loans. Those loans are to prevent Greece from defaulting on its debts. Greek citizens already are feeling the pain, however, from a year of heavy spending cuts and tax increases.
The financial hardships are evident in the capital, Athens. The streets are littered with deserted storefronts, even in the wealthiest shopping districts. Homeless people sleep on pavements and one in six across the country are unemployed.
One of those is 29 year-old Areti. She was in a car crash two years ago that killed her fianc? and almost took her life. Since then she hasn't been able to work.
"Having the car accident, losing your fianc?, losing your health, you need something to get out of the home and get out of the Internet, make new friends, have something to make your mind work again," said Areti. "If you don't have a job, this is very difficult because your life is only the hospital, the sadness" it's very difficult."
She said many of her friends also are without work. She said all their energy and ideas for the future of Greece are wasted.
"It's like you're sleeping for a very big period and you are dreaming and every day you feel less strong and less happy."
It's a dream that Greece seems unlikely to wake up from anytime soon.
The country is in major debt and is relying on its partners in the European Union and on the International Monetary Fund to keep its economy afloat. An aid package worth over $100 billion is designed to keep Greek creditors at bay.
But that won't solve Greece's long-term problems, and despite the pain inflicted by tax hikes and spending cuts over the past year, they"ve failed to put a dent in the deficit.
Now, the EU and the IMF say before additional money is handed over, more cuts will have to be made. Lawmakers have until the end of the month to decide on around $40 billion worth of new spending cuts and economic reforms.
Many Greek citizens say austerity is bringing the country to its knees. Stefanos Manos is a Greek politician and a former government minister.
"When is it going to be over, no one has given an answer. And the government says this is it, many times," he said. "And every time they change their mind. That was not it, let's have some more measures. So people are now very unsure of the future."
But Manos said that despite the pain, more cuts are necessary. He said the Greek public sector is too large and inefficient, and in order for the country to get its economy in shape, public sector costs have to be downsized.
He said if that doesn't happen, Greece may be forced to default on its debt and risk losing its place in the European Union.
"I hope it doesn't happen. I think it would be a disaster for Greece," said Manos. "Therefore, I would go all out to cut the spending so that we are never forced to either default or be pushed out of the European Union."
Manos isn't the only one hoping to avoid that outcome. European politicians are struggling to find a way forward that will prevent the union from unraveling. But for now, Greek citizens are the ones taking the hit from their remedy.

Friday, June 24, 2011

How to Save Greece - BusinessWeek

Debt doesn't have to spell disaster. A solution to Europe's crisis exists—and it's worked before

By Peter Coy

Illustration by Jennifer Daniel

Greece is a chronic defaulter. Since winning independence from the Ottoman Empire in 1832, the nation has spent half its time in various stages of default or restructuring. At one point in the middle of the 19th century, Greece was in default—meaning out of compliance with debt obligations—for 53 straight years, according to This Time Is Different: Eight Centuries of Financial Folly by economists Carmen M. Reinhart and Kenneth S. Rogoff.

If Greece defaults again, this time really will be different. The finances of the world are linked more tightly. Derivatives obscure and sometimes concentrate risks. Greece is locked into a single currency with 16 other nations. It's possible that the global economy could get lucky, and a Greek default will be a minor event. But it's also possible that a default would cripple a chain of vulnerable economies, including Ireland, Portugal, and Belgium. The nightmare scenario: defaults by Spain and Italy, which might thrust all of Europe into a deep recession.

When big banks fall, as they did in 2008, nations rescue them. When big nations fall, there is no one strong enough to hold the safety net. "Failure to undertake decisive action could rapidly spread the tensions to the core of the euro area and result in large global spillovers," the International Monetary Fund, which is no stranger to sovereign debt crises, warned on June 20.

Can disaster be averted? The answer is yes, because a solution exists. It doesn't involve simply reprimanding the Greeks to cut their way back to good health, as the Eurocrats in Brussels have been pushing for. Nor does this plan force creditors to accept repayment stretched out by seven years, as Germany, until recently, has advocated. Best of all, the world has tried it before—and it worked.

The idea, which has floated around for months without getting much uptake from European decision-makers, is to scarf up Greece's unaffordable debt on the open market and exchange it for new, more affordable long-term bonds issued by a (presumably) reformed Greek government. A deal like this, modeled on the approach that helped Latin American nations emerge from debt crises in the early 1990s, would save Greece money on interest, while getting its debt into the hands of investors who want to hold it, instead of ones who can't unload it. (It's worth emphasizing that investors are not blameless—chasing after high returns, they ignored the warning signs that Greece was in over its head.)

A good time to try something like this would be, oh … yesterday. The debt crisis is doing visible damage even without a default. The Greek economy shrank 5.5 percent over the past year under the weight of austerity measures and punishingly high interest rates. Unemployment was 15.9 percent in March. Less visibly, though dangerously, European banks are getting nervous about their peers' creditworthiness. Instead of borrowing from one another, as usual, a growing number of banks—353 as of June 21—are getting loans from the European Central Bank itself through the so-called repo window. They're also asking the ECB for more cash than the ECB expected they would want. Those are early warnings that there's a "growing liquidity squeeze," says Lena Komileva, global head of G10 strategy for Brown Brothers Harriman in London.

Although some kind of compromise that averts default is in everyone's best interest, progress toward a deal has been slow because each player in the Greek drama has an incentive to play tough until the last minute. Greece's opposition New Democracy party, which is leading in opinion polls for the next election, opposes more concessions to creditors and withheld support from Prime Minister George Papandreou in the confidence vote that he survived on June 22. Under pressure from the German public, Berlin is demanding more budget cuts and asset sales by Greece, as well as shared sacrifice by private creditors. The European Central Bank says it will stop accepting Greek sovereign debt as loan collateral if there's any hint of default. And so on.

As in the U.S., where lawmakers are withholding approval of an increase in the federal debt ceiling to gain leverage in budget-cutting negotiations, the risk is that someone in the game of chicken will miscalculate and disaster will ensue. If Greece defaults, speculators will turn their attention to other vulnerable nations, driving their bond prices down and their borrowing costs up. Ireland and Portugal are already receiving official assistance to cover their debts, so they're temporarily insulated from speculative attack. The bigger problem would be if jittery investors drove up yields on Spanish and Italian bonds to the point where it became hard for those countries to roll over their debts. That's still a remote possibility, but not out of the question in investors' minds—Spanish and Italian 10-year bonds yield around 5.5 percent and 4.8 percent, respectively, vs. equivalent German bonds at 3 percent.

The trick, then, is to quell the fear before it turns to panic. Europe would do well to try something like "Brady bonds," created to stabilize Latin America two decades ago. Those bonds, named after former U.S. Treasury Secretary Nicholas Brady, were fixed-income securities that commercial bank lenders could receive as a replacement for loans they had made. Two former chief economists of the International Monetary Fund, Rogoff of Harvard University and Michael Mussa of the Peterson Institute for International Economics, say that some variation on the Brady bond plan could work in Europe. Says Rogoff: "The reason the Brady plan is appealing is there's some precedent. It gives people something to anchor their expectations around."

A Brady bond solution isn't perfect. Rating agencies, the ECB, and the credit default swap market would most likely deem a Brady debt exchange a default, since the new bonds wouldn't be worth as much as the face value of the bonds they replaced. Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., proposes a variation on the Brady theme that might skirt default. He says an organization such as the European Financial Stability Facility should buy Greek bonds on the open market, swap them with the Greek government for new long-term Greek debt with lower interest rates, and sell the new bonds back to the public. Advantage: no coercion, so no default. The only question, a big one, is whether the market would buy the new Greek debt.

Greece's debts are so large that some of them almost certainly will never be repaid. If Greece must eventually default on portions of its debt, as investors expect it will, Europe's goal should be to make the process as orderly as possible to avoid chaos and contagion. Brady bonds help by giving investors something of clear, certain value, even if it's not 100 cents on the euro.

Whatever happens, it needs to happen soon. Above all, Greece must quickly balance its budget, painful as that may be. Greece's problem is too much debt, so extending it even more loans, even on favorable terms, can't be the solution. It's true that postponing a final reckoning through continued official aid will give European banks more time to build their capital cushions so they can withstand losses from a Greek default. But that has to be weighed against the pernicious effects of delay. Markets crave certainty. The longer Greece remains unresolved, the more investors will start to worry that the conflagration will jump the fire break and reach Portugal, Ireland, and beyond. Such fears can become a self-fulfilling prophecy.

Reprising something like the 1990s Brady bonds won't necessarily provide a way out for Europe. But it just might point the way forward.

Coy is Bloomberg Businessweek's Economics editor

How to Save Greece - BusinessWeek

Thursday, June 23, 2011

Greek government approves austerity plan - Europe - Al Jazeera English

Papandreou's cabinet passes laws for the implementation of budget cuts necessary to secure an international bailout.

Last Modified: 22 Jun 2011 18:53

Greeks have been protesting against their government's planned austerity measures for weeks [[EPA]

The Greek cabinet has approved a 2012-2015 austerity budget plan as well as laws for its application, a condition to get an international bailout, government sources say.

The decision on Wednesday came a day after George Papandreou's government survived a vote of confidence in parliament, following weeks of consecutive protests against planned tax hikes and budget cuts.

Greece's creditors are demanding that the prime minister gets parliamentary approval for $40.24bn in budget cuts and new taxes and for a $72bn sell-off of government assists by the end of June.

Only then will they hand over $17bn in bailout funds that Greece needs to avoid bankruptcy in mid-July.

The mood in financial markets was calm after the confidence vote, especially when compared to the firestorm last week when Papandreou's government was teetering on the brink following violent protests against the new austerity measures.

The French government called the Greek confidence vote "a very important step" towards more European aid for Greece, while the European Commission promised cash to kickstart the Greek economy if the austerity measures are passed.

Tensions remained on the streets of Athens, with 100 members of the powerful GENOP electricity workers union occupying the Transport Ministry on Wednesday to protest plans to privatise their company. Workers began rolling 48-hour strikes on Monday causing brief, country-wide blackouts.

"Our struggle is to protect the last big public business of the country," Nikos Fotopoulos, the union president, said. "Electrical energy is a public good and should not be played with."

Default feared

Greece is being kept financially afloat by a $157bn package of bailout loans granted by other eurozone countries and the International Monetary Fund last year, and has implemented strict austerity measures in return, cutting public sector salaries and pensions, increasing taxes and overhauling its welfare system.

But the country has struggled to meet its targets, missing many, and is now in negotiations for a second bailout, which Papandreou has said will be roughly the same size as the first.

Many financial experts believe that despite his best efforts, the task is too great and Greece is heading for a default.

A default could drag down Greek and European banks, endanger the finances of other weak eurozone countries such as Portugal, Ireland and Spain, and spark financial uncertainty across world markets.

Papandreou was meeting party legislators on Wednesday to shore up support.

All 155 legislators from Papandreou's Socialist party voted to back their leader in the 300-seat parliament, eliminating the chance of early elections.

As they voted, several thousand protesters outside Parliament chanted "Thieves! thieves!" and riot police guarded the building.

"I understand the anger, the fear, and the question whether we will make it,'' Papandreou said. "My answer is that we have been making it every day for the last 20 months, with difficulties and mistakes, with a price to pay and with sacrifices but we are succeeding."

Greece crisis and the best way to cook a lobster

There's an old joke about politicians and the best way to cook a lobster.

The Conservative throws the animal, live, into a pot of a boiling water. The Marxist smashes it over the head with a hammer, then puts it in the boiling water. The Liberal puts the lobster into a pot of cold water, then slowly heats it up.

The international community's approach to the Greek crisis is starting to remind me of the third option.

I'm in Brazil today, and it's the kind of joke they used to tell here. Until recently, this was a continent that used to practise extreme economics. There were dramatic booms and busts, and not much in between.

This did not have a lot to recommend it. It's hard for businesses and economies to develop if the prospect of a national financial crisis is always just around the corner.

Short-lived pain

But, as Jonathan Anderson at UBS has pointed out (in a different context), emerging market crises do have one big advantage over crises in so-called mature economies: they are over quickly.

"In emerging markets... most crises in the past two decades have proven to be liberating events, with both a rapid recovery and a considerable trend increase in growth.

"How can this be? In our view, precisely because of the cathartic dual impact of bankrupting capacity and writing off debts."

When crises struck in Asia and parts of Latin America in the 80s and 90s, emerging markets didn't get given a lot of room for Keynesian stimulus or "kicking the can down the road".

Instead they went straight to "Austrian-style" deep cleansing: currencies collapsed, foreign money evaporated, and credit shortages forced large parts of the corporate sector out of business.

This is not fun. On average, the emerging market crises in the 90s involved a peak-to-trough decline of 12% of GDP in the space of a few quarters - roughly twice what happened in advanced economies in 2008-2009.

Also the exchange rate, on average, fell by 40% in real terms (meaning a much larger drop in the nominal exchange rate.) That's roughly twice the size of the fall that occurred in the UK, and we are on the extreme end of experience for developed country currencies.

Benefits of default

These, then, were cataclysmic events which no sane country would choose to suffer. More like an economic collapse than a recession. In Thailand and Indonesia, for example, construction fell by 45% in one year.

With all this came massive writing down of private (in Asia) and public debt (in Argentine, Russia and Ukraine). According to the IMF, the public debt ratio fell by nearly 80 percentage points in Argentina, 45 points in Russia and 30 points in Ukraine.

But there was an upside: within 12-18 months, the average crisis economy was already in a rapid recovery, and growth in each of the following 5 years was much faster than before the crisis.

Not exactly what we've seen recently in Japan and other advanced economies coming out of debt crises.

Interestingly, Mr Anderson believes the main factor supporting these recoveries wasn't the devaluation of the currency but the early and dramatic return of private credit, itself made possible by massive default and writing down of debt.

On average, credit grew by 15-20% a year in these countries after the crises. "This quite simply has no analogue whatsoever in major developed country experience, past or present," he said.

In his view, this was only possible because private businesses - and in some cases, governments - had the option to default. Or more precisely, they had that option because there were no other options available.

Limited options

Greece was saved from that calamity a year ago by the first EU-IMF bail-out. That 110bn euros was the reward for having joined the club of "serious" European economies a decade earlier (even though such safety nets were not strictly supposed to exist).

The chances are they will now get another one, conditional on further cuts and reforms.

Because they are supposed to be a serious economy, and because they chose to cement their new status by giving up their currency, they have this "rescue" option which emerging market economies don't get when they run up gargantuan debts.

But when Greece opened the door to a bail-out, they also closed several others.

Giving up the euro would be much harder for Greece than even Argentina's painful escape from its currency board 10 years ago.

Likewise it would almost certainly be more painful now - for Greece and the rest of the world - for Greece to go through an Argentine-style disorderly default on government debt.

Serious eurozone economies can't get thrown into boiling water when they misbehave. A year ago that may have seemed a blessing for Greece. It's starting to look like a curse.

Your comments (67)

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Economics editor

Greece: the default calculus

08:01 UK time, Tuesday, 21 June 2011

Who would lose most from a Greek debt default? Greece or the eurozone?

Read full article

Greece and the eurozone: Accept reality – and default

Instead of postponing the inevitable Greek default, it would be far smarter to prepare for it
Seen from Brussels, Berlin or Frankfurt, the crisis playing out in Athens this month looks almost simple, and linear in its direction. The Greek prime minister, George Papandreou, wins a confidence vote, as he did on Tuesday night. The government gets MPs to approve its package of austerity measures, set for a vote next week. Then comes the next slug of cash from the IMF and the eurozone, plus the agreement of another massive loan, worth tens of billions of euros. This isn't easy, European policymakers admit: it requires adept political management, courage, and the ability to stay the course. But the alternatives don't bear thinking about: the first-ever default by a sovereign member of the European single currency, the possible toppling of the Greek banking system and other institutions around the world in a repeat of the panic that followed the collapse of Lehman Brothers in 2008 – and an existential threat to the entire European project.

Right on the risks, but wrong on the policy prescription. After a month of mass demonstrations in Greece, and the near-dissolution of the government last week, this takes too little account of reality, either domestic and political or international and economic. Not only has Mr Papandreou to get parliamentary approval for €28bn of spending cuts, tax increases and privatisations, he must begin implementing this draconian programme by 3 July, in time for the next extraordinary meeting of eurozone ministers. Even in ordinary times this would be regarded as ambitious, but to do so amid the worst recession the country has seen in four decades would require a miracle of collective discipline. The new finance minister, Evangelos Venizelos, has already tried to change the plan to answer a key grievance of protesters, by dropping an increase in fuel tax and a property tax, and trying to increase Greece's notoriously leaky tax take by targeting the self-employed.

But these are small compensations to a Greek teacher who has seen her salary cut by 25%, an employee of the Piraeus port authority who suspects his company is about to be sold to the Chinese amid thousands of job losses, or a freshly minted graduate who knows they will struggle to get any kind of job.

An abrupt and drastic drop in living standards has been imposed on the Greek people – ultimately to keep afloat banks across Europe that have lent recklessly. The vehement message that has come from the Greek people over the past month is that they will not stand for it – and nor should they. What in José Manuel Barroso's words is good news for the EU is terrible news for those who have to live with the consequences.

Greece's main opposition leader, Antonis Samaras, for one, is no longer buying it. His economic logic is impeccable: the imposed cuts are squeezing demand at a time when the economy is in deep recession. Indeed, it is already happening: 50,000 businesses went bankrupt last year and the economy is in its third straight year of recession. The fact that the main conservative opposition points this out, however, is a big new twist.

Economically, socially and now politically, the status quo is unsustainable. Instead of postponing the inevitable Greek default, it would be far smarter to prepare for it. Eurozone policymakers need to recapitalise Greek and other eurozone banks with major Greek exposure in return for equity stakes. They also need to reaffirm their commitment to stand behind European interbank lending, and to keep pumping money into the system. There should follow an ordered default on Greek sovereign and commercial debt, including an audit of the outstanding obligations to see if some of the debt is odious and should not be repaid at all. And there must be a sharp relaxation of the austerity plans. Let us not kid ourselves that this will be easy – but at least it will not be as impossible as achieving the kind of suicidal austerity that Greece is being forced to follow.

Some Greeks Fear Government Is Selling Nation

ATHENS — They are the crown jewels of Greece’s socialist state, and they are now likely to go to the highest bidder: the ports of Piraeus and Thessaloniki; prime Mediterranean real estate; the national lottery; Greek Telecom; the postal bank and the national railway system.
And then comes the mandated deeper round of austerity measures, which will slash the wages of police officers, firefighters and other state workers who are protesting in Athens, and raise the taxes of citizens already inflamed by a recession-plagued economy and soaring joblessness.

After winning a pivotal confidence vote on his new cabinet on Tuesday, Prime Minister George Papandreou now has an even tougher task: to carry out a radical remedy of forced auctions and fiscal austerity for a sickened economy already in a deep slump.

The European Union, the European Central Bank and the International Monetary Fund, known as the “troika,” say that is the only way out for a heavily indebted Greece, while some economists say the program resembles medieval bloodletting — a dose of pain highly unlikely to revive the patient.

Mr. Papandreou’s first task is to persuade his governing Socialist Party to pass a bill that would save or raise about $40 billion by 2015, equivalent to 12 percent of Greece’s gross domestic product, through wage cuts and tax increases, at a time when the economy is shrinking.

To put that in perspective, spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion, considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit. And Greece has promised to generate another $72 billion by selling off prime state assets, which many Greeks consider a fire sale of national patrimony.

While the commitment to austerity will allow Greece access to a fresh infusion of international aid, a growing chorus of economists say that the government’s new program will at best delay default and a restructuring of its debt, which is already more than 150 percent of the country’s gross domestic product. Steeper budget cuts and tax increases, they say, are the enemy of economic growth, which Greece desperately needs to make its debt burden lighter.

“You cannot keep on milking the cow without feeding it,” said Konstantinos Mihalos, the president of the Hellenic Chamber of Commerce in Athens.

In fact many economists fear Greece has already entered a “debt trap,” where paying the interest on its mound of debt requires more and more loans. “The Greeks have been told to accept more of the medicine that has already failed to treat the disease,” said Simon Tilford, chief economist at the Center for European Reform in London.

The Greeks have already reduced their deficit by five percentage points of the gross domestic product, “unprecedented cuts in a modern economy,” Mr. Tilford said. “But the cuts have had a much stronger negative impact on the economy than the troika imagined, and fiscal austerity has pushed the economy deep into recession. Debt can only be paid out of income, and that means growth.”

Greece does not have access to many tools to fight recession, like devaluing its currency or cutting interest rates, at least as long as it remains a member of the euro zone. Its monetary policy is controlled by the European Central Bank.

Some independent economists accept that Greece has no choice but to try a fresh round of cuts. Edwin M. Truman of the Peterson Institute for International Economics in Washington said Greece had to go through more pain because it had run a budget deficit even before making payments on its debt, meaning it needed loans to pay off its loans.

Only after Greece reorganizes its budget, tax collection and labor market and is running a surplus — not including interest payments on the debt — can economists begin to calculate how much in debt payments Greece is actually able to afford, and then figure out how big a debt restructuring it needs.

“As long as they’re running a primary deficit, they need to keep tightening the belt,” Mr. Truman said. “Rescheduling now doesn’t relieve Greece of the burden of fixing the economy to create a surplus.”

It is not getting any easier. In the year since its first bailout, Greece has cut $17 billion through across-the-board wage cuts, layoffs and attrition in its bloated state sector, which employs 800,000 people, a quarter of the Greek work force. But given its recession, the economy shrank and tax revenues fell, meaning that Greece did not meet the original target of a government deficit of 9.1 percent of G.D.P. as agreed with its foreign lenders, prompting them to demand more cuts.
European demands have placed Mr. Papandreou in an increasingly untenable position. He must sell the increasingly restive Greek people on more austerity with no clear signs of recovery. And he has to persuade his Socialist Party on reforms that undo almost everything the party has stood for in the past.

At least one Socialist member of Parliament, Alexandros Athanasiadis, has already announced that he will not vote for the new austerity measures, citing his opposition to selling part of the state’s stake in the electricity utility whose power plants dominate his district in northeastern Greece.

On Wednesday, members of the public power company union, Genop, occupied the Transport Ministry and orchestrated some power failures to protest the sale, which seeks to reduce the state’s stake to 34 percent from 51 percent in the profitable company.

To many Greeks, selling that and many other state-owned companies and assets, even those that currently lose money, is tantamount to a loss of sovereignty — especially if wealthy investors from Germany and the other big European powers pushing austerity of Greece end up purchasing the assets for a hefty discount.

“We’ve always been advocates of privatization because the national state cannot play the role of the entrepreneur and has in fact proven to be a complete disaster every time they attempt to do so,” said Mr. Mihalos of the Athens Chamber of Commerce.

“But at these extremely low levels, especially for those companies quoted on the stock exchange, we have to be very wary,” he added. “If we go by today’s values, as a result of the recession and the crisis the country finds itself in, it will be really selling the crown jewels at a pittance of their cost.”

Mr. Papandreou’s government has not managed to make a convincing case for the sell-off to many Greeks, where the idea of a fire sale has taken hold, setting off a wave of national indignation. “Imagine if you asked me for my apartment, and I gave you the whole building,” said Dorothea Ekonomopoulou, a public school teacher in Athens, as she stood among demonstrators in Syntagma Square this week.

Rachel Donadio reported from Athens, and Steven Erlanger from Paris.