In Brussels Fiddles While Athens Strikes seven weeks ago, the Neronic allusion was intended half in irony, half as warning: This week Athens burned; and it is not yet even summer, the season known in southern Europe for wildfires.
On Wednesday, three people died in Athens when a bank was set on fire in the course of furious popular protest - the third one-day general strike in as many weeks - against the austerity measures agreed by the Greek government with Brussels and the International Monetary Fund (IMF), which the country’s parliament was making ready to ratify into law.
This tragedy follows monthly one-day general strikes since the start of the year, which have since April become weekly with next week no exception.
The taproot of Greek torment
Remarks made by a civil servant in the Greek Finance Ministry during an interview given anonymously to a BBC correspondent are revelatory. Explaining first that “Greek people are willing to contribute and make sacrifices[, … b]ut first of all they want to stop political corruption [and] see the people responsible for this … brought to justice,” he confided further: “We knew for years in the ministry about the wrong figures being shown to the world about our GDP and our debt. We protested to our seniors but again no one would listen. We are very unhappy about it: taking to the streets is really our only option.”
Indeed, the main burden will fall on broad strata of the population who are not responsible for the economic policies that created the current situation. Among other measures, the retirement age will be raised and there will be large cuts in public pensions; taxes will increase and public services will be reduced or privatized. It is a palpable sense of unfairness that drives the popular discontent.
The most highly qualified members of the European financial elite have been caught out by the rapidity with which events have developed. As recently as six weeks ago, the president since 2005 of the Eurogroup (as the ministerial meeting of finance ministers of countries using the euro is called) Jean-Claude Juncker, who has also been Luxembourg’s prime minister for the last decade and a half and its finance minister for two decades until last year, stated to the press his confidence that Greece would not need any of the more modest help then being designed.
Into the labyrinth
Towards the beginning of this year, figures in the range of €20-30 billion were mentioned as the proper amount of a rescue package, later raised to €30-45 billion, but nothing was done at the time. In the event, the package finally agreed amounts to no less than €110 billion and brings in the IMF, an eventuality that the Europeans had earlier excluded. Yet these events were not unforeseeable; it did not have to be like this.
As Elisa Parisi-Capone, senior research analyst at Roubini Global Economics (RGE), told ISN Security Watch, even though the problem was recognized as one of potential insolvency of the state rather than just not having enough cash on hand, “an early disbursement of liquidity assistance would have prevented market uncertainty and contagion from spreading out of control, and it would have bought more time for an orderly resolution.”
Parisi-Capone underlines that it would have been even “better to use official resources to absorb the collateral damage of a debt restructuring” rather than to help out private investors, since doing the latter “will eventually not prevent an unavoidable debt restructuring.”
Moreover, “if the planned fiscal adjustment under [the adopted plan] fails to materialize, [then] there might not be enough funding left to implement” the strategy that RGE consistently advocated as ‘Plan B,’ namely, the pre-emptive restructuring of Greece’s debt to give the country more time to pay it off. Plan B would use the dedicated funds “to stave off an inter-bank run and prevent contagion to other periphery countries.”
Banking, the nerves of finance
One of the seldom-mentioned elements linking the Greek crisis with other countries in the eurozone periphery is that Portuguese banks are overextended in Greece, and Spanish banks are overextended in Greece and Portugal. Thus there is the danger of the effects of the crisis rebounding. And this issue is technically separate from others such as the finance crisis among Central and Eastern European EU members who do not use the euro, where Austrian banks happen to be overextended.
Parisi-Capone mentions that, “given the large market share of Greek subsidiaries in Bulgaria, Romania and Albania, stress on Greek bank liquidity would likely have an adverse effect on the ability of Greek banks to maintain stable financial services to foreign subsidiaries.”
So far as Greece is concerned, the current €110 billion package covers the maturing debt and additional deficit funding needs from now to end 2012. Parisi-Capone explains that “under the joint agreement the first disbursement will occur on 19 May when €8.5 billion in bonds mature. July and October see further refinancing needs of about €2 billion each. In 2011, March, May and August see funding spikes.”
But this is the first act and not the final. Recent bank analyst estimates of the hypothetical financing needs necessary to support Portugal and Spain, should the same conditions apply to them as to Greece, reach figures over €450 billion (this table is in euros), and already reports circulate of Spain seeking help in the range over €280 billion, although the country’s prime minister denies it.