Greeks rage against austerity while EU squabbles
Striking Greeks raged against a new wave of austerity on Wednesday after eurozone finance ministers failed to agree how to make private creditors contribute to a second bailout for their indebted country.
As workers staged a national strike, thousands of protesters—some chanting “Thieves, traitors! Where did the money go”—massed at Parliament to try to prevent lawmakers enacting more tax hikes, spending cuts and sell-offs of state property.
Socialist Prime Minister George Papandreou must push through a five-year deficit reduction and privatisation programme to continue receiving aid from the European Union and International Monetary Fund and avoid default after Greece fell behind on its first €110-billion ($158.1-billion) rescue plan.
In Brussels, finance ministers of the 17-nation single currency area debated late into the night how to make private bondholders share the cost of the second rescue in two years without triggering even worse turmoil in financial markets.
They are aiming for a deal at a European Union summit on June 23-24 and will meet again on Sunday evening in Luxembourg. However Tuesday’s apparent impasse, and the absence of the usual news conference, sent the cost of insuring Greek debt against default rocketing to an all-time high.
Highlighting contagion risks from the Greek crisis, shares in top French banks tumbled after credit ratings agency Moody’s said it might downgrade them because of their exposure to Greece’s debt-stricken economy.
Greek bank stocks also fell by as much as 7% on growing political uncertainty.
The French government sought to deflect market pressure by noting—perhaps pointedly in the light of differences between Paris and Berlin over the Greek bailout—that German banks were actually more exposed.
“French banks are exposed to Greece… [but] they are less exposed than the German banking sector, for instance,” Secretary of State for European Affairs Laurent Wauquiez said.
However, figures from the Bank for International Settlements show that France has the highest overall net exposure to Greece with $65 billion, compared to $40-billion for Germany and $41-billion for the United States.
A leaked European Commission working paper on options for private sector involvement, published by the Financial Times, showed the difficulty facing euro zone ministers in avoiding creating market havoc.
A voluntary rollover of bonds at maturity, favoured by France and the European Central Bank, offers the lowest risk of causing a credit downgrade for Greece and leading to wider contagion, but it would be impossible to quantify the private sector contribution in advance.
That means official lenders would have to provide more of the required €120-billion in funding, of which €30-billion are expected from privatisation revenues.
Furthermore, ratings agencies have said they could classify even an ostensibly voluntary debt swap as a “selective default”, since it is hard to imagine a rational investor maintaining Greek exposure without coercion.
A bond exchange involving a generalised renewal of exposure for seven years, favoured by Germany and The Netherlands, would raise the most money but carry the highest risk of contagion as investors in other sovereign bonds took pre-emptive action to avoid similar measures elsewhere, the paper said.
A middle option of a voluntary rollover with some limited positive incentives could draw broader participation and make it possible to estimate the private sector contribution in advance, but it would raise the risk of a Greek downgrade and contagion.
The northern eurozone creditor states are demanding private sector burden-sharing in response to strong public opposition, expressed in national Parliaments, to any further bailouts.
Greece’s Papandreou also faces public protests and resistance from a conservative opposition that has surpassed his Socialist party in opinion polls, but backbenchers in his own parliamentary caucus are also threatening to reject the plan.
About 1 500 police closed a swathe of central Athens and erected two-metre metal barricades to protect Parliament and surrounded it with police vans and a water canon.
The latest austerity plan foresees €6.5-billion in tax hikes and spending cuts this year, doubling measures agreed with bailout lenders that have pushed unemployment to a record 16.2% and extended a deep recession into its third year.
The government has appealed for national consensus on the laws, on which the EU and IMF have conditioned the release of another €12-billion in aid next month that Athens needs to pay off maturing debt or face default.
“We are fighting the battle to serve the common good, in the most crucial moment in the country’s modern democracy,” government spokesperson George Petalotis told reporters.
The mid-term plan includes new luxury taxes, a crackdown on tax evasion, increased taxes on soft drinks, cars, swimming pools and real estate, and cutting the Mediterranean state’s 750 000-strong public workforce by a fifth.
But markets are overwhelmingly sceptical that Greece can ever repay its debt mountain, which has reached €340-billion or 150% of the country’s annual economic output. Many expect a painful debt restructuring in the medium-term.
One Socialist deputy defected from the government camp on Tuesday, reducing its majority to 155 of Parliament’s 300 seats.
Another lawmaker has said he will not back the package.
“You have to be as cruel as a tiger to vote for these measures. I am not,” George Lianis said in a letter to Parliament Speaker Filippos Petsalnikos on Tuesday.
Many others oppose the plan. Public sector union ADEDY, representing half a million workers, said it would join other demonstrators in peaceful protest. Trains were due to stop, ports close and hospitals were due to cut staffing.
Airports will stay open. - Reuters