Why Is Greece on Fire?

As violence surged over the weekend in Athens in reaction to a parliamentary vote on a harsh new fiscal-austerity plan, it became readily apparent that Greeks bearing gifts, however suspect, would be a welcome reprieve from the ones hurling homemade petrol bombs at banks and businesses. There have been innumerable showings of popular rage in Greece over the past couple of years, but here’s why this most recent one is important:

What’s at stake?

If we’re going to be dramatic about it, the future of modern Greece and the integrity of the eurozone—at least that’s how European leaders have been framing it. While hyperbole might well be the mother tongue of politicians, they have a point this time. Monday marked the deadline set by Greece’s troika of would-be saviors—the International Monetary Fund, the European Central Bank, and the European Commission—to accept and initiate a loan process that would allow Greece to stay solvent, providing the nation with $170 billion in relief.

Sounds peachy! What’s with all the riots?

As with most dealings in cold, hard cash, the devil is in the details. In return for the bailout money, the three lending organizations have demanded that Greece implement a strict austerity program. In a late-night, book-throwing vote, the Greek Parliament moved to pass the package. The measures include slashing the minimum wage by 22 percent with further cuts to come in the summer, along with a reduction of 150,000 in public-sector jobs by 2015. Automatic wage increases agreed upon through collective-bargaining actions will not occur until the country’s unemployment rate reaches 10 percent (the number now hovers just below 21 percent). So yeah, it’s pretty bleak. Hence the arson.

What’s with all the deadlines, though?

There’s nothing like a looming, doomsday deadline to sex up an international fiscal crisis, and what’s going on here is the perfect storm. By March 20, Greece needs 14.5 billion euros in order to pay back debts that it owes to the international community. If it doesn’t, the country will go into default. And if that happens, well, as medieval mapmakers once wrote to mark where they thought the edge of the world was, “after this, dragons.” Allowing Greece to default sets a dangerous precedent for the ailing European Union, and many member nations are worried that if disaster strikes Greece, it won’t be much longer until the gangrene makes its way up from the Peloponnese into the heart of the continent.  

What’s the debt “haircut”?

The term “haircut” has been bandied about in relation to the current round of Greek freak-out, and while cute, it is not particularly illustrative. Basically, the Greek government, like your screenwriter cousin Larry, owes a lot of money to a lot of people, and it doesn’t look like either of them is going to come by cash anytime soon. What the debt deal with the IMF, European Central Bank, and European Commission does is cajole private creditors into taking losses of up to 70 percent on Greek debt. These people are betting (with the whispers of powerful people in their ears) that the economic health of Europe in the long run will be better if they cut the Greeks some slack at this particular moment in time.

How’s this playing out in Greek domestic politics?

Terribly. The riots against the new austerity measures aren’t just taking place in Athens; unrest is rampant across the country, and it's no wonder why people, the young in particular, are upset. Greek unemployment has risen from 13.9 percent in 2010 to 20.9 percent in early 2012. Recent data show that 48 percent of Greeks between the ages of 15 and 24 are unemployed. Back in November 2011, former Prime Minister George Papandreou called for a vote by popular referendum on the austerity measures, saying that everyday Greeks needed to exercise their democratic power. A few days later, he withdrew his proposal at the urging of leaders across Europe and after securing assurances from the opposition party that they would support the debt deal and austerity measures.  Needless to say, the natives grew restless. Papandreou agreed to resign to help form a new unity government to oversee the debt-reduction plan, and Lucas Papademos assumed the role of prime minister. The mood of the country, however, remains bleak, with growing resentment toward European neighbors, who generally seem to view Greeks as over-tanned, overpaid layabouts.

Is this debt relief/austerity plan going to work?

Only the gods high on Olympus can know for certain, but the general consensus seems to be that there’s not much else to be done at the moment. “We’ve gone too far to turn back now; we have reached the source. The country must drink water,” said former Prime Minister George Papandreou in an appeal to the public to accept the idea of the severe cuts.

What are critics of the plan saying?

Around Europe, skeptics of this latest bailout plan abound. Many think that it’s only staving off the inevitable—a Greek default. The country has been in a recession for five years, and many have asked, quite rightly, how Greece entered the Euro Zone in the first place, as it has become clear that government officials fudged budgetary numbers significantly in order to get in on the common currency. Much doubt has been cast on the willingness of Greek political leaders to follow through on the austerity measures as campaign season ramps up and the very dissatisfied electorate make its voices heard. Adding to that, poor-performing GDP numbers show that Greece might be chronically under-competitive, and there are some who think that the country should devalue its currency and return to the drachma. The hope is that this will mean less wage deflation, and lessen the burdens that have already taken such a heavy toll on everyday Greeks.

Comments

Wait a minute...Greece gets to stiff the bondholders 70% and they still can't pay back the money they borrowed?

Fiscal dominos.
Greece defaults in March, IMF, Europe Money Folks, cry ouch, Italy, which is next in line, defaults in Late Spring, Spain in the summer, Portugal early fall.
Can you all see where this is headed.? An October Surprise for the US Electorate. These countries cannot be allowed to fail.... and the beat goes on
The Chaldean Hand has written on the Oval Office wall, and the US has been found wanting.
Semper Fi

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