Greece in crisis

on June 15 2011 11:13 AM
A demonstrator confronts riot police near the Greek parliament in Athens
European stocks fell Wednesday as investors looked beyond a confidence-vote victory by Greece's government to fresh evidence that the European consumer environment is showing signs of extreme stress. Reuters

The latest protests in debt-ridden Greece erupted in Athens Tuesday. Around 20,000 demonstrators amassed outside of parliament in order to voice their disapproval of proposed budget cuts and tax hikes. The rally, which took a violent turn, was part of a 24-hour labor strike organized by Greece's two state unions.

Public sector union Civil Servants' Confederation (ADEDY) and its private sector sister, The General Confederation of Greek Workers (GSEE), urged the Greek people to skip work and attend demonstrations. According to reports, schools, local government offices and media outlets closed, while public transportation was disrupted.

Greek parliament is currently debating the austerity program.

Prime Minister George Papandreou, of the Socialist party, is hoping that his parliamentary majority will push the measures through into law. However, one Socialist party member has abandoned his post, and another has pledged to vote down the proposal, leaving Papandreou with a very slight four-seat lead.

There have been demonstrations all across the country since May, although the current wave of social unrest started in the spring of 2010. Last March, thousands of Greeks took to the streets to rally against a similar austerity proposal. Like the demonstrations in the capital Tuesday, a mass of student and youth rioters broke store windows, burned cars and threw rocks and Molotov cocktails at the Greek police.

Along with the austerity measures, the country is also seeking yet another loan from the International Monetary Fund. In May, 2010, the IMF and Eurozone countries agreed to advance a total of 110 billion euro to Greece. The loan carries a 5 percent interest, considered high in such cases.

The problems in Greece stem from years of accumulated debt, which totaled more than the county's entire gross domestic product (GDP).

If the austerity program is passed, a 37.7-billion euro economic reform referendum would raise taxes and slash budgets for government-run programs. It would stay in effect until 2015.

The austerity measures are part of a promise to creditors who want to see Greece's economy re-start. The program, like the 2010 fire-sale of 5 billion euros worth of government-issued bonds, is meant to raise cash needed to pay off loans. Yet many in Greece are worried about the program's implications and fear that many more budget cuts and tax increases are on the way.

Europe has a vested interest in the outcome of the Greek crisis. Being on the Euro and a member of the EU, the devaluation of the Greek market could potentially bring a swift collapse to the Euro and therefore other European economies. It is a consequence of having a standardized currency; when nations do well, the wealth distributes, and vise-versa.

There is then the risk of a contagion effect. If the Greek economy collapses, other shaky European economies would also be affected from lack of investor confidence in the whole region. The other so-called PIGS countries, which include Portugal, Italy, Ireland and Spain, are of particular concern.

The credit crisis in Greece is the most recent of a growing number of reminders about the dangers of spending beyond one's means. It seems that the world economic disaster of 2008 is not yet resolved, and Greece, along with Spain, Ireland and a number of other nations, needs to turn its attention to reconstructing the system that originally amassed so much debt. There needs to be a shift in governmental policy in order to put an end to reckless spending and to encourage economic reform.

Otherwise, any solution that Greece or the EU decides on will only succeed temporarily before the cycle of debt and crisis refreshes.

In the meantime, the Greek people are hoping that a little social unrest will remind the democratic government that it exists for the people, and in the long-run, social and fiscal policies will have the citizen's best interests in mind.

 

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