Greece lies bankrupt, humiliated and ablaze: is cradle of democracy finished?

Helena Smith guardian.co.uk, Monday 13 February 2012 21.37 GMT

The violence, looting and chaos engulfing the country underlines growing rift between the Greek people and their politicians

Police clash with protesters during an anti-austerity strike in Athens. Photograph: Louisa Gouliamaki/AFP/Getty Images

Greece got rid of its military dictators in July 1974. But almost four decades later, as the debt-stricken country endures a crisis that some might say is almost as bad as the long dark night of their rule, it is still impossible to protest in the cradle of democracy.

When tens of thousands of Greeks tried to demonstrate peacefully in front of the large sandstone parliament building on Sunday night, they were met almost immediately with volleys of teargas. The toxic fumes were the authorities' answer not only to the popular opposition unleashed by the prospect of yet more austerity but the fear that underpins it. For angst, like uncertainty, is now haunting Greece.

What followed was textbook chaos: a familiar mix of young punks with no relation to ordinary protesters going on the rampage, setting fire to banks, stores and cafes. Scenes of bedlam and mayhem that ensured the event taking place inside the Athens parliament – a ballot on deeply unpopular measures in return for the rescue funds that will keep bankruptcy at bay – was thoroughly drowned out.

Buildings burned into the early hours. By the time Athenians awoke, the historic heart of their ancient city resembled a war zone. Shops along busy boulevards lay looted, their shutters shattered and smashed. Mangled bus stops lay strewn among the detritus. The charred remains of two of the capital's oldest cinemas smouldered, and, with the stench of teargas still hanging in the air, newspapers proclaimed the vote had been passed.

"All this," said Angela Economou, a student taking in a blackened edifice that had once been a bank, "when all we had wanted to do was exercise our democratic right.

"It is not the politicians who are suffering, it's the people. And these are measures that don't only kill your creative flame, they make you despair."

As Europe's great debt drama intensifies, it is clear that in the country where it began nothing is going to plan. Teetering on the edge of economic collapse, Greece is also on the brink of becoming ungovernable; its politicians panic-stricken and discredited; its institutions barely functioning; its people ground down by waves of budget cuts.

Three years into the crisis and the crushing austerity demanded by the EU, ECB and IMF, the country's troika of creditors, is clearly having a devastating effect.

Unemployment, once among the lowest in the EU, is nudging 21%, an all-time high, industry has all but collapsed, and nationwide hundreds of small businesses, once the lifeblood of the Greek economy, are closing by the day. The desperate and poor can no longer be hidden. Begging has proliferated. So, too, have the homeless, mostly men who can no longer afford a roof over their heads who crouch in doorways or lie strewn across pavements, buried under blankets, hands outstretched.

As recession stretches into a fifth straight year, the spectre of yet more wage, pension and job cuts – the price of €130bn in further aid from foreign lenders – has not just startled Greeks but united them in rage.

Tellingly, more members of the well-dressed, well-shod middle class rushed to participate in Sunday's protests than ever before. Thronging the area around Syntagma square, surgical masks often hanging about their necks, their presence was the strongest sign yet that the savage measures exacted in exchange for aid have begun to affect people who not that long ago might have considered themselves "well-established".

"I can still remember as a boy how it was during the great famine and great freeze of the winter of 1941," said Panaghiotis Yerogaloyiannis, a former mariner now surviving on a pension of €500 a month.

"We have a different sort of war now, one that's economic, that's not fought on the field. But it's still the same enemy, the Germans. And today you are not even allowed to protest. I carry this around," he said producing a wooden baton from a plastic bag, "to protect myself from the police and thugs who hijack our demonstrations."

More and more Greeks believe they are "at war". For the political class, joined in an uneasy power-sharing alliance under Lucas Papademos, the technocrat prime minister, it is a war that "must be won."

War is unfair, officials say. There's collateral damage, innocents get hurt, some even die. "There was never not going to be victims," said one economist employed by the government. "It is the price that has to be paid getting from point A to point B. We had a system based on debt and it was totally unsustainable. It had to change."

Fear is the strongest force keeping the alternative – default, bankruptcy and eurozone expulsion – at bay. Five weeks separate Athens from hypothetically having to renege on its massive debts – by 20 March it has to have €14.5bn to meet loan repayments.

Once the latest rescue programme gets under way, starting with a private bond swap deal that will automatically reduce Greece's €350bn debt pile by €100bn, Papademos says the economy will be given the "breather" that will allow it to regain stability and slowly recover. Bankruptcy, said the leader, invoking apocalyptic scenes ahead of Sunday's vote, would be the death of Greece, a proud nation that within living memory had survived Nazi occupation, civil war and a military coup.

Even those who rue the day they gave up the drachma for the euro – and they are a growing contingent – would be hard pressed to disagree.

But that is the good scenario. For many, Greece has already lost its war.

Corrupt, bloated and inefficient, its public administration has come to a standstill; tax officers no longer able to receive bribes or kickbacks have simply stopped working which is partly why the economy has deteriorated rather than improved since Athens received its first, €110 bn bailout in May 2010. And with liquidity drying up payments are drying up too – companies providing the state with medicines and other supplies have not been paid for months.

Greece appears, increasingly, to be caught between two evils: avoiding official acceptance of bankruptcy and enacting reforms that, having already killed the market, now stand to exacerbate the very thing that will hurtle the country into greater poverty: recession. Growth and development, the two things that could provide a ray of hope, do not have pride of place in the fiscal remedies currently being advocated by Berlin, the main provider of rescue funds to date.

Far from deferring the day of reckoning, many believe that acceptance of the draconian conditions attached to the latest loan deal will only bring it closer to the precipice.

"Yesterday's vote in the parliament may have saved the country temporarily from default," said Vassilis Korkidis who heads the National Confederation of Greek Commerce. "But the Greek economy is going bankrupt and the country's political system is failing."

Paul Krugman, the Nobel economics laureate, expressed a similar view, if more forcefully, last week. "The Greek situation is essentially impossible. They will default on their debt. In fact they already have. The question is whether they will also leave the euro."

If the country is to be saved at all many believe it will have to be "rebooted" by starting all over again, from the beginning, when democracy was first reintroduced with the collapse of military rule.

"I would love it if a panel of outside judges came in and tested everyone I have to work with," said one civil servant complaining about the lack of meritocracy in his field. "I am sick of working with people who got where they are through rousfeti [political patronage in return for votes], who are totally incompetent and, yet, expect to be paid."

Resistance to reform – at the heart of Athens' failure to enact long overdue change and worsening relations with the EU – is likely to mount as opposition to the cuts also grows. A general election in April has added to worries that Greece is also braced for political tumult with powerful leftwing groups who are fierce opponents of cost-cutting reforms coming to the fore. Forced to leave their hotel in Athens by the backdoor because of daily protests, Troika officials openly say social unrest is their biggest concern.

As politicians on Sunday engaged in fierce debate over the controversial rescue package, with leftwing leaders furiously decrying the deal as "a blow to democracy," the finance minister, Evangelos Venizelos, admitted that, like many Greeks, he felt "as a refugee" in his own country.

Nothing was the same. Nothing would be the same. It was all about to change. And he prayed it would be in the right way.

Greece lies bankrupt, humiliated and ablaze: is cradle of democracy finished? | World news | guardian.co.uk