Greeks protest austerity package
By David J. Lynch
ATHENS
The streets say it’s too much. The markets say it’s not enough.
A 110 billion euro rescue program may have bought Greece some time to finally fix its ailing finances. But it has not ended the debt crisis gripping the 16-nation eurozone.
Opposition to the government’s austerity package, which includes tax increases and a three-year wage and pension freeze, is expected today to spill into a massive protest rally in front of parliament. The public-sector workers union has called a strike, which is expected to shut most businesses and government offices, and cancel all flights at Athens International Airport.
“There will be a series of demonstrations because … practically everyone is being affected by the austerity package,” said George Pagoulatos, a professor of political economy at the Athens University of Economics.
Communist Party protesters briefly occupied the nation’s best-known tourist attraction Tuesday, draping banners over the Acropolis reading: “Peoples of Europe Rise Up.” The night before, representatives of the teachers’ union, among the public-sector employees who will bear the brunt of planned belt-tightening, disrupted the state-run broadcaster’s flagship news program.
The 110 billion euro (roughly $145 billion) lifeline from Greece’s European neighbors and the International Monetary Fund requires painful changes in the country’s tax and spending policies. In a somber televised address Sunday, Prime Minister George Papandreou described the harsh cuts as necessary to avoid national bankruptcy and to create “a different Greece.”
So far, global markets have seen the aid as a temporary salve. The euro fell Tuesday to a one-year low of $1.30 against the dollar, on worries that Europe’s sluggish recovery will be hurt. The yield on the two-year Greek bond rose almost 3.8 percentage points Tuesday to more than 14%. Bond yields, which rise as prices fall, also ticked higher in Portugal, Ireland, Spain and Italy.
“Markets have given a clear ‘thumbs down’ to the Greek aid package,” Win Thin, senior currency strategist at Brown Bros. Harriman, told clients.
Investors are skittish about potential fallout from the Greek crisis. German and French banks, already damaged by toxic securities from the United States, are owed more than $123 billion by Greece, Citigroup says.
Thanks to the EU-IMF cash, Greece will make an $11 billion debt payment on May 19. But most analysts say the government ultimately will be forced to restructure its outstanding loans. After years of overspending, Greece’s debts exceed an entire year’s worth of gross domestic product. Its annual budget deficit is 13.6% of its GDP, well above the 3% limit for eurozone members.
Its economy is expected to shrink 4% this year. That leaves Greece in a trap of spending cuts, which hurt the economy and lower government revenue, making the deficit worse. “The recession will be significantly deeper than anticipated, and the question is: Does it hold together? Can the Greeks take this much punishment?” says Uri Dadush, a former World Bank economist.
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