“We are a breath away from ground zero.”
Early Monday morning, after three days of intense negotiations, the Greek government approved the latest austerity measures demanded by other EU nations, the International Monetary Fund (IMF) and the European Central Bank (ECB) by a vote of 199 to 74. In return, they get the latest bailout of $171 billion that nation needs in order to avoid default on March 20th, when a $19.1 billion payment on its debts is due--if EU finance ministers approve the accord when they meet on Feb. 15. Greek Prime Minister, Lucas Papademos, who addressed the nation on Saturday night, had urged the Cabinet to approve the deal, warning of "social explosion, chaos" if it failed.
“We are a breath away from ground zero,” Mr. Papademos said in a televised address to the nation ahead of the critical vote, further noting that the envisioned austerity program will “restore the fiscal stability and global competitiveness of the economy, which will return to growth, probably in the second half of 2013.”
It's been a tough sell. More than 3,500 people converged on Syntagma Square in Athens Saturday, marking the second day of protests and a general strike. Hundreds of riot police stood guard as a result of clashes that erupted during rallies on Friday, one of which illuminated the almost schizophrenic mindset that has arisen among the Greeks themselves: Greece's largest police union, representing more than two-thirds of Greek policemen, threatened to issue arrest warrants for officials from Greece's EU and IMF lenders because of their demands for the next round of austerity measures. "Since you are continuing this destructive policy, we warn you that you cannot make us fight against our brothers. We refuse to stand against our parents, our brothers, our children or any citizen who [protest and demand] a change of policy," said a letter obtained by Reuters.
After Greece's Parliament approved the measures, the violence got even worse. In Athens, a crowd estimated at over 100,000 vented their frustration. Rioters destroyed or seriously damaged 93 buildings and least 45 others were burned, including nine listed as national heritage sites. More than 150 stores were looted or smashed. On Monday morning, clouds of tear gas used to disperse the rioters still hung in the air, traffic lights at many major intersections were out after being smashed, and cleanup crews gathered up as much as 40 tons of broken marble and rocks from the streets of the center, while railings, drainage covers and paving stones from sidewalks also suffered extensive damage
Riots spread to the cities of Thessaloniki, Patraas, the islands of Corfu and Crete, and towns in central Greece as well. Marfin bank, the same building where three bank workers died during similar uprisings on May 5, 2010, has been burned to the ground. Two central branches of the National Bank of Greece and Eurobank EFG were also firebombed. More than 170 people were injured, with 106 police needing medical care after being assaulted by gasoline bombs, rocks and other objects hurled at them, while 70 protesters were also hospitalized. 74 people were arrested and an additional 92 were detained.
All of the mayhem has been engendered by the latest austerity measures that call for a 22 percent cut in the minimum wage to $742 per month, $397 million in pension reductions, and the elimination of 150,000 public sector jobs over the next three years. Furthermore, the approval of the measures requires a written commitment from the leaders of Greece’s two main parties, the PanHellenic Socialist Movement and conservative New Democracy party, to fully implement the program, regardless of who wins the general election expected to take place in April. "Greek promises aren't enough for us anymore," said German Finance Minister Wolfgang Schaeuble, echoing the demands of the European Union and International Monetary Fund, and underscoring the reality that Greece failed to implement the fiscal and structural reforms that were part of the $145 billion bailout they received in 2010.
The ability to continue down the path of austerity after the April election is critical. It is highly unlikely that public anger will be dissipated by that time, and EU leaders must be assured that, no matter how the people vote, the austerity program will remain on track. That assurance is necessary to complete the other part of the debt deal, a bond swap in which private-sector investors take a 70 percent "haircut" that will reduce Greece's outstanding debt by $132 billion. The new bonds will have an average interest rate of 3.5 percent for bondholders, along with a warrant linked to Greek growth. German Finance Ministry spokeswoman Marianne Kothe says the bond swap deal must be completed before EU ministers finalize the bailout.
Yet even as the package was approved by Parliament, there was much dissent. The socialists and rival conservatives, who comprise the majority of Greece's interim coalition government, expelled 22 and 21 rebellious lawmakers, respectively. Furthermore, conservative New Democracy leader Antonis Samaras, the current frontrunner to be Greece's next Prime Minister and a man who believes the country should focus more on stimulating growth with tax cuts and privatization, still believes some additional wiggle room is possible. "I am calling on you to vote for the new loan agreement because I want to avoid falling into the abyss, to restore stability," he said during Sunday's parliamentary debate, "so that we can have the possibility tomorrow to negotiate and change the policy that is being imposed upon us today." Vassilis Korkidis, head of Greece's Commerce Confederation, was far more pessimistic. "Yesterday's vote in the parliament may have saved the country temporarily from default, but the Greek economy is going bankrupt and the country's political system is failing," he contended.
Meanwhile, the people seethe. The country is in its fifth year of recession, unemployment is over 20 percent (rising to 50 percent for younger Greeks), and many of the country's citizens are inclined to believe that the unknown factors of national bankruptcy might be no worse than the assurance of several years of painful austerity. "We need these protests," said Babis Xerikos, who runs a stationery shop. "We have filthy politicians who steal from Greece so we need to protest against them." "Greece will become a protectorate," said Natalia Stefanou, 45, a shoe store employee. "It’s not me I’m worried about, though," she added. "I’ve got two children, aged 14 and 15. What kind of country are we going to leave them?"
Much of that anger is focused on Germany. "Greece will pay its debts back, if you let us. But not with a German knife held to our throats," said Eleftherios Basdekis, who spent part of his life living under the specter of Nazism. “This is worse than the ’40s,” said Stella Papafagou, 82. “This time the government is following the Germans’ orders. I would prefer to die with dignity than with my head bent down.”
Lost in much of the violence and anger is the daunting reality that this deal, even if all parties manage to get to the finish line as currently envisioned, does nothing more than buy time. “It’s a pause, it’s a relief,” said Milton Ezrati, senior economist and market strategist at Lord Abbett & Company. “But it’s short-lived and everyone knows that. We’re buying a few more months before the next round of trouble." Jerry A. Webman, the senior investment officer and chief economist for Oppenheimer Funds, echoed that sentiment. “It doesn’t solve the problem,” he said, “but it gives everybody the political cover to look for ways to solve the real Greek problem, which is how to get the country and its economy back on more stable footing.”
At this point, it may take a miracle. Without some method of promoting economic growth factored into the austerity equation, all this deal does is temporarily slow down an apparently unavoidable death spiral. Greece is the first European nation that will inevitably "run out of other people's money to spend." It will likely not be the last. As for the road ahead, perhaps Spiros Papachelas, a 22-year-old student, expressed it best. "We're finished. There's no future here. As soon as I can, I'm going abroad."
If the European Union continues to embrace the destructive socialist policies that have brought, not just Greece, but Ireland, Spain, Portugal, Italy and possibly France to the brink of insolvency, Mr. Papachelas and others may discover yet another daunting reality: they're running out of places to go.
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