Fiddling while Greece burns

Global financial markets were roiled overnight as Greece’s political situation deteriorated, fanning fears that the country will ultimately decide that defaulting on its debts is an easier route than ongoing austerity.

Greek Prime Minister George Papandreou reportedly spent the day in intense negotiations with his main political opponent, Antonis Samaras, leader of the centre-right opposition New Democracy Party, in a bid to forge a national unity government.

Papandreou even offered to step aside as prime minister, provided that the new government agreed to accept the stringent conditions that the European Union and the International Monetary Fund imposed on Greece as a condition of last year’s €110 billion ($US156 billion) bailout.

But Samaras was not satisfied with Papandreou’s resignation as head of government. He insisted that the terms of Greece’s rescue package had to be renegotiated. As a result, the two leaders were unable to reach agreement.

In a televised speech overnight, Papandreou said he would form a new government today, and seek a vote of confidence from parliament. "I will continue on the same path”, he vowed. At this stage, it is unclear whether Greek finance minister George Papaconstantinou, who has taken much of the blame for Greece’s unpopular austerity measures, will retain his post in the new government.

The political drama unfolded as tens of thousands of protesters marched in Athens to oppose the Greek government’s latest round of austerity measures for the debt-laden country, and as services across the country were cut as a result of a general strike called by Greece’s two major unions.

Although the protests were largely peaceful, there were several violent skirmishes, with some demonstrators throwing rocks, chairs, bottles and firebombs at police, who responded with tear gas and stun grenades. Papandreou’s car was pelted with oranges as it passed.

The scenes of mass demonstrations unnerved investors, who dumped Greek bonds. As a result, Greek bond yields are now at the highest level since the country joined the eurozone, with two-year bonds now yielding more than 26 per cent, while the yield on 10-year bonds has climbed to 17.7 per cent.

The nervousness spread to Ireland and Portugal, which have also received EU-IMF bailouts, pushing their bond yields higher. There are also growing fears about the risk to the eurozone’s banks from a Greek debt default, especially after the rating agency Moody's put French banks BNP Paribas, Société Générale and Crédit Agricole on review for a possible downgrade, owing to their holdings of Greek bonds.

The embattled Greek government now faces the daunting task of pushing through a new round of austerity measures by the end of this month, as a precondition of the country receiving its next instalment of its bailout money. The budget cuts are also seen as crucial for securing a fresh financing package – estimated at more than €100 billion – desperately needed by a country which once again finds itself on the brink of bankruptcy.

But the latest austerity measures – which include a 20 per cent cut in the government payroll, and a total of €28.4 billion in budget cuts by 2015, a 20 per cent reduction in the government payroll and a massive €50 billion privatisation plan – have sparked growing sense of disillusionment with the Greek government.

Many Greeks feel betrayed that the financial sacrifices they have already made have not been sufficient to restore the country’s finances. The mood is even more bleak as Greece’s unemployment rate has now climbed above 16 per cent, and is expected to rise further as the economy remains mired in recession.

Investors are watching anxiously to see whether the Greek government can somehow manage to push through with the latest round of deeply unpopular spending cuts, or whether the cuts trigger such political unheaval that further austerity becomes impossible. 

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Anonymous,

A Greek tragedy indeed and one which starkly demonstrates the utter absurdity of the whole euro project (See Fiddling while Greece burns, June 16).
How did the Eurocrats ever believe that one could have a common currency between such diverse countries without a common and binding fiscal policy. Absent a United States of Europe with a common language as well as other features it was an unrealistic pipe dream; as is any ESE.

Anonymous,

All this mess points to the fact that the era of pursuing growth at any cost but particularly with huge debt needs to come to an end (See Fiddling while Greece burns, June 16).
This is something that both government and business will need to learn to live with whether they like it or not because as a consumer my job is not keep spending just to keep them both happy.

Anonymous,

Default is the only option (See Fiddling while Greece burns, June 16). Austerity begets reduced revenues. Reduced revenues begets more austerity.
The cycle can only run so far before the loans, made in better days based on long forgotten assumptions, become completely untenable.

Anonymous,

Karen, I think the euro experiment is starting to die and smell in the test tube (See Fiddling while Greece burns, June 16).
Democracy and those controlling the money will now start a big bun fight in the laboratory.
Let's put on our protective clothing now.

Anonymous,

What about the Queensland Government? The pollies do not know what is going on.
I have claimed here on Business Spectator that we are bankrupt. Andrew Frazier (Treasurer) now advises we will have $85,000,000,000 debt in/by 2014/15.
What does their latest budget do; they borrow more/raise more debt. But are they starting to manage the business of government; the biggest business in the state? No.
They do not know how to.
And where has the proberty of the Labor Government been? Where has the proberty of opposition been?
These fools lead us to believe that they can continue to provide us with the service of government underpinned by debt equivalent to $188,888 for every man, woman and child for cheaper than elsewhere in the country.
We have buffoons managing/operating the show. They have no idea what they are doing, and then when we jump up and down, they try to put us down.
Don't worry Karen, you have your finger on the pulse. Your investigative journalism is great (See Fiddling while Greece burns, June 16).
On Business Spectator during GFC I said this government/country is going to need our resources for a rainy day. The federal government then brought on stimulatory packages, stimulating, for example, overseas car manufacturers, with our hard earned taxes. Small targeted packages even food stamps would have been better value for money and gone further.

Anonymous,

With the IMF saying it won't put money into Greece and now the ECB saying they too won't put money into Greece, there is no more pretense that something is in place to rescue Greece, so no wonder the Greek PM offered to resign (See Fiddling while Greece burns, June 16).
The sadness of this matter is the lack of leadership within the EU.
And with no money coming in to pay its bills Greece has to default, getting a coalition together to deal with that seems to be the current Greek push.
No doubt Greece will renegotiate after a default and the ECB will take a writedown as will all those banks affected with Greek debt.
Kicking Greece out of the EU to allow them to work through this default seems to be a good start.
Let's hope the EU can stay together afterwards, but the template is now in place to deal with a default.
a) PM resigns or forms a coalition.
b) Country gets kicked out of EU and devalues.
c) Renegioations take place.

Anonymous,

Yes, Karen, I suppose that if there is a moral to this Greek tragedy it would be for all politicians to be very, very careful about what they give, for they may later have to take away (See Fiddling while Greece burns, June 16).

Anonymous,

Okay, bail out the Greeks in return for mortgaging their beautiful islands. If they default, confiscate their islands – then they will understand (See Fiddling while Greece burns, June 16).

Anonymous,

I feel for George Papandreou. He is genuinely trying to pull Greece out of a mess that previous governments of both political persuasions have helped create. (See Fiddling while Greece burns, June 16). The problem is that the Opposition leader, Samaras, is a pure opportunist who sees the present crisis merely as a means of gaining power. He has no vision whatseover and merely opposes for the sake of opposition. As an aside, aren't we lucky that we don't have that in Australia! Back to Greece, what they need is a government of truly national unity just as they did when democracy was restored back in 1974 after the fall of the junta. They cannot get that with Samaras the opportunist.

Anonymous,

The commentary that's missing in this debate is the culpability of the banks in lending such huge amounts to Greece when Blind
Freddy could see that they were never in a position to repay (sound familiar)? The catchwords in years to come, when this whole scenario is played out is ...giant haircut for the banks. (See Fiddling while Greece burns, June 16).

Anonymous,

Tragedy indeed, on a world scale, that democracy was subsumed by capitalism, capitalism by mendacity, and mendacity by derivatives. (See Fiddling while Greece burns, June 16). Now we have devolution rather that evolution. Maybe nature is delivering a prescription of natural disasters to bring back lost perspective and a grasp of reality.

Anonymous,

There seems to be a lack of understanding that the austerity measures will be needed, default or not (See Fiddling while Greece burns, June 16).
While the bankers have shown a high degree of stupidity in lending the money, does anyone seriously expect that in the event of default, they will start lending again to fund the same sized budget deficit. Greece cannot print euro to "fund" the deficit.
If the next alternative is default and returning to the New Drachma, so the government can print money, the resulting hyperinflation will see a bigger fall in living standards than would seem likely from the current austerity measures.
To balance the budget there has to be a fall in living standards, ie through less spending and more tax, and an increase in productivity.
The pain will be far less by doing this within the euro and not defaulting. Think of who gets to political power when hyperinflation hits.

Anonymous,

Some commentators hope the EU will survive the crash of the Euro. (See Fiddling while Greece burns, June 16). That's mistaken. The EU is a socialist dictatorship. The average European doesn't have a clue who runs the EU and doesn't even bother to vote. The new constitution was rejected by voters in the countries that allowed a vote on it, so they renamed it a "treaty" and went ahead with it anyway. The EU is the continuation of the central planning, anti-individual, philosophy that led to two World Wars.