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« Nigel Farage: Bankers+politicians = ‘unholy alliance’ vs people | Main | EU split over plan for second bailout of Greece »
Wednesday
Jun152011

Greek debt crisis deepens

Guardian 16 June 2011.JPG

As Greece teeters on the brink of bankruptcy, protesters blockade parliament while EU ministers seek to stem panic

Greek Debt.JPG

The debt drama engulfing Greece deepened as Euro group finance ministers met in emergency session to discuss ways of resuscitating the country's ailing economy and protesters in Athens threatened to thwart passage of further austerity measures by blockading parliament on the eve of a mass general strike.

Tensions escalated as George Papandreou's socialist government confronted negative polls and a relentless stream of demonstrations initially inspired by Spain's peaceful indignados three weeks ago began showing signs of becoming increasingly explosive.

"All it will take is one mistake and the joviality that has marked the protests so far will end in a second," said veteran photographer Spyros Tsakiris, sitting in the heart of the tent city that has formed in central Syntagma Square, site of the Greek parliament.

"The mood has changed noticeably. I watch these people and honestly, I am afraid. At any moment things could go wrong and Greece could go up."

Greek Riots 16 June 2011.JPG

With Europe's debt crisis intensifying by the day, fear appears to be the single biggest factor motivating those in charge of policy on the common currency. But as finance ministers from the 17 euro countries debated how to bail out Greece for a second time in a year, before an EU summit on 25 June, the signs are not promising.

In Athens, a day after Standard and Poor's gave Greece the lowest rating of any country it covers – lower even than Pakistan and Ecuador – the omens appeared to be particularly poor.

Differences over involvement of private investors in the rescue package – which is seen as the key to getting Europe's paymaster, Germany, to agree to it at all – this week pushed the cost of insuring Greek government debt against default up to 1,600 basis points, a record high even by the standards set so far.

More than ever, Papandreou appears stuck between a rock and a hard place. Faced with a €340bn (£300bn) debt projected to hit 160% of GDP by 2012, Greece is teetering on the brink of bankruptcy.

Although his government last year slashed the deficit by €12bn – through wage and pension cuts, tax increases and benefit losses – the steps have only exacerbated Greece's economic plight.

In a country plagued by a shadow economy that accounts for almost 30% of GDP, the medicine prescribed by the EU, IMF and ECB in exchange for €110bn of emergency loans last May, has resulted in a deeper than expected recession with further cost-cutting measures now seen as crucial if Greece is not only to rein in its debt but make it sustainable.

For many – including Papandreou's MPs – the prospect of more austerity is the tipping point. Tax increases announced last week – on everything from property to restaurant bills – in addition to the sale of state assets and closure of public utilities, have sparked outrage at a time when seven out of 10 pensioners are forced to live on €700 a month and civil servants, the bulk of the Greek labour force, have had a 20% pay cut.

With unemployment at 16%, 42% of whom are aged between 20 and 35, the measures have sent thousands of Greeks who would normally never protest converging on city squares.

"The biggest challenge facing the ruling party is to convince Greeks that these measures are necessary, because there is no guarantee. A year ago people were told the same thing and look what happened," said political commentator Manolis Kapsis, of the nightly news show Mega TV. "The bailout failed."

But while Greeks say they are not prepared to bankrupt themselves to save their country from insolvency, Athens has been told that without further austerity there can be no more aid – not even a fifth instalment drawn down from the country's original bailout, which is vital to paying state pensions and wages this month.

Tomorrow's general strike by workers and civil servants will, say unionists, be the first step in a relentless wave of industrial action against the measures parliament is poised to debate. Next week, the country's biggest electric power company will begin rolling strikes.
Protesters say they will form a human chain around the parliament to prevent deputies from debating the measures and threatening legal action against those who vote in favour.

But Greece is also attracting help from unlikely places. On Tuesday, scores of Chinese business leaders, financiers, entrepreneurs and academics piled into a hotel in Athens for a "premier conference" aimed at increasing Chinese investment in Greece, where foreign direct investment remains among the lowest in Europe.

After taking over day-to-day running of Piraeus, the biggest harbour in the Med, China has signalled it wants to buy the loss-making railway company OSE, as well as other infrastructure projects.

Chinese officials admit they see Greece as the perfect gateway to markets in the Balkans and Europe beyond.

"One of the good things about this economic crisis," said Lefteris Anastassakis, a manager with the Greek cement giant Titan, who is learning Chinese, "is that it has made China's entry easier and also easier for us to accept. Ten years ago it would have seemed a science fiction that the Chinese would be the people who would help save Greece from economic collapse."

Some of the world's wealthiest financiers, bankers and real estate tycoons of Greek descent also arrived for a "power summit" aimed at exploring business opportunities. "There are a lot of people of Greek descent out there who would love to help this country," said Nikos Gitsis, a Greek American who co-founded South East Asia Airlines in the Philippines.

"Greece is virgin territory for investment," he said. "If it could guarantee fair play, rules and the eradication of corruption and bribery, we would be here helping it get out of this drama."

As we see it its time for the Greeks to cut and run, pouring austerity on unemployed youth is a very dangerous game to play.



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