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World Markets Under Pressure as Greece protests flare over austerity measures

By • May 7th, 2010 • Category: News & Analysis

Source: Christian Science Monitor –
By Ben Quinn, Staff writer
posted May 6, 2010 at 5:28 pm EDT
London —

The Greek parliament agreed to a raft of austerity measures imposed on the heavily indebted nation by the IMF and its European neighbors as the price of a €110 billion ($142 billion) bailout package, even as stone throwing protesters took to the streets of Athens. Stocks on Wall Street plunged Thursday, partly on concerns that Greece’s problems could spread to its neighbors and cool global demand for goods and services.

The benchmark Dow Jones Industrial Average fell over 8 percent in afternoon trading before making back most of its loses. The Dow closed down 347 points, or 3.2 percent, at 10,520. Later, it was reported that some of the initial eight percent plunge may be attributed to a trading error.

The protests Thursday in Athens were more muted than the day before, when a group that the police described as anarchists rampaged, firebombing and killing three employees at a local bank. Those were the first deaths caused by a Greek protest since the early 1990s.

Despite the money promised to Greece so far and the government’s pledge to rein in government spending, doubts remain about the economic effectiveness and political feasibility of package that, whatever its long term outcome, is certain to drive the Greek unemployment rate, currently at 12 percent, higher. Some economists fear the large amounts promised to Greece so far will mean money won’t be available for some of the eurozone members also struggling with large deficits if they get into trouble.

Greece is one of the so-called “PIGS,” whose other members are Portugal, Ireland, and Spain. While the fiscal outlook is not as grim for those three as for Greece, spooked debt market investors are demanding higher yields to hold those countries’ debt as well, which could make it harder for them to raise more cash, and perhaps could lead some of them to need assistance as well.

Greece today promised government pay-freezes, pension cuts, and a higher retirement age that foreshadow similar, if less drastic cuts that are likely to be made across Europe at a time when economic recovery is fragile, at best. The euro fell to a 14-month low against the dollar on Thursday, making US products more expensive for European consumers than local products.
British austerity

In Britain – where Margaret Thatcher set an international yardstick in the 1980s by subjecting the economy to its own shock therapy – it’s all painfully familiar.

But even here, the rigidity of the austerity plan now being imposed on Greece has sent a chill.

“What Mrs. Thatcher did was divisive – but it came in stages,” says Kevin Featherstone, a professor at the London School of Economics (LSE). “There wasn’t this pre-planned awareness about what was coming next, and of course in Britain there were choices that could be made.”

Mrs. Thatcher’s Conservative administration came to power in 1979, three years after a Labour government was forced to go to the International Monetary Fund (IMF) for $3.9 billion – the largest amount ever requested of the IMF at that time.

Over the course of the decade, she privatized state-owned industries and utilities, implemented strict trade union restrictions, and reduced social spending.
By 1982, the number of Britons without a job had risen above 3 million for the first time since the 1930s. The unemployment rate was as high as 20 percent in Northern Ireland and 16 percent in most parts of Scotland and the north of England.

Political analysts in the UK say they expect belt-tightening at home as well, no matter who won Thursday’s general election, where polls closed at 10 pm (5 pm EST).

Britons are once again bracing themselves for a return to austerity. After all, their country has the highest level of debt in Europe after Greece. All three of the major parties contesting the election were in agreement that Britain’s deficit needs to be brought under control.

Meanwhile, Greece is grappling with 12 percent unemployment at the very outset of its austerity measures and bailout, the first-ever financial rescue of a member of Europe’s 16-state eurozone currency area.

Their aim is to cut Greece’s public deficit from 13.6 percent of gross domestic prodcut (GDP) to less than 3 percent of GDP by 2014.

On Friday, the German parliament is scheduled to vote on its support for the package — something it is expected to approve. On May 2, European finance ministers endorsed the bailout, €80 billion of which will come from fellow eurozone members. The rest will come from the IMF. Germany will be contributing the largest European share of the money, €22.4 billion, something that has angered many German voters. Should other country’s request bailouts, the political ability of Greece to pay could be more constrained.
Greek promise

To receive the loan, the Greek government agreed to freeze public sector salaries until 2014, cut state pensions, and raise the average retirement age from 61 to 63. Laws limiting layoffs in the private sector to 2 percent of the workforce are also being scrapped.

Struggling to service a ballooning national debt, Greece has been locked out of the normal source for government borrowing, the bond market. Investors have been demanding high interest rates that Athens can’t afford to pay.

The hope behind the plans is that market fears can be soothed, as they were by recent belt-tightening by another eurozone member, Ireland.

Seeking to satisfy nervous lenders last year, Ireland raised taxes, slashed government spending, and imposed public sector pay cuts of between 5 and 15 percent.

But a crucial difference in context between the countries underlines the stark reality confronting Greek workers, according to Professor Featherstone.

“In Greece, the talk is of defending hard-won privileges, which might to some outside observers have seemed to be over the top in some ways. But it’s important to remember that they are in a context of a country in which there is very little welfare state, and a corresponding fear of unemployment,” he says. “Unemployment benefits last only in the very short term, perhaps only a few months.”

Few observers have been surprised at the level of anger now being unleashed on Greek streets in response to the austerity plan – described by Greece’s largest umbrella union, GSEE, as “the harshest, most unfair measures ever enacted.”

“The Greek population is of a rather different character to the British population,” says Peter Nolan, a professor of industrial relations at Leeds University.
“Greece had the highest level of general strikes of all southern, northern, and central European countries,” he says, “so the Greek populace will take to the streets very quickly if they feel their way of life is under threat.”

“In the Britain of the ’80s, I think no one really believed [Thatcher] was going to let unemployment soar, that she was not going to prevent the closures of manufacturing of steel works and of course the coal mines. Not only was she not going to do anything [to prevent it], but she was going to actively promote it.”

In March, Britain’s Chancellor of the Exchequer warned that the next round of public spending cuts would have to be “tougher and deeper” than those implemented by Thatcher.

Greek debt crisis: What does it mean for the US?

New York

On Tuesday as the news spread that Standard & Poor’s had downgraded the government of Greece’s debt to “junk” status, the US stock market stumbled.

Again, on Wednesday, the market’s gulped as Spain’s debt was downgraded. But by the end of the day, the Dow Jones Industrial Average had shrugged off the news, closed up 53.28 points at 11,045.27.

Other than the stock market, what other affect could Europe’s debt crisis have on the US economy?

At the moment, economists believe the fallout from Athens’s or even Madrid’s financial problems may have only a modest impact on Main Street.

* Some US companies that export to Europe may have a harder time competing if the Euro continues to weaken.
* A stronger US currency might cause some German or French tourists to reconsider a trip to New York or Miami.
* US banking regulators will be questioning the largest banks to determine how much they could potentially lose if a European nation somehow defaulted on its debt.

IN PICTURES: The top 10 things Greece can sell to pay off its debt

“At the moment it’s something we need to watch but not fear,” says Nariman Behravesh, chief economist at IHS, Inc., an economic research company in Lexington, Mass. “The US is growing almost three times as fast as Europe and the biggest impact is likely to be as Europe grows slowly, our exports to them grow slowly.”
How big a trading partner is Europe?

The slow growth may come about since economists expect European nations, such as Greece, Portugal, Spain, and Ireland to cut spending and perhaps raise taxes.

“Raising taxes and cutting government spending means relatively weak economic growth,” says Jay Bryson, international economist at Wells Fargo Economics in Charlotte, N.C.

The actual impact of this slower growth and fewer tourists walking around the US will be relatively small but measurable, says Mr. Behravesh. “If we’re growing at 3 percent, it could take a couple of tenths off our growth,” he says.

All US exports represent about 11 percent of US gross domestic product (GDP). Of those, 20 percent go to Europe. So, about 2 percent of the nation’s GDP is involved in exports to Europe.

“Any reduction in exports is not a good thing, but it probably won’t drive the US back into a recession,” says Mr. Bryson.

But, at the same time as some European nations have to tighten their belts, the European Union may have to mount a massive bailout of European banks that own much of the downgraded sovereign debt. Behravesh estimates it could cost as much as €600 billion ($800 billion) to rescue the banks.

The US Troubled Asset Relief Program (TARP), which funneled money into the US banks, cost about $700 billion.
Greek bailout not a sure thing

If the Europeans are going to bailout Greece, a lot of the money will have to come from Germany, where public polls indicate opposition to the rescue. “It’s not a sure thing,” says Bryson. “It may not get done.”

And, as other economists point out, throwing money at Greece might be just the first step.

“The problem, of course, is that if Greece is bailed out, then surely Portugal, Ireland, Spain, and perhaps even Italy may not be too far behind,” writes David Rosenberg, chief economist at Gluskin Sheff, a Canadian wealth management company, in a report.

In the case of Spain, he writes, the amount of debt it has to refinance in the coming year is as large as the Greek economy. “So this is not even a case of being too big to fail as much as being too interconnected globally to default,” he concludes.

Exactly how much Spanish debt is on the books of the US banks is not clear. But Behravesh does not think it presents a major risk to the US banking system.

“There is always the risk to individual banks,” he says. “But it does not present a systemic risk to the US.”

Will the Greek debt crisis affect Asia?

The Greek debt crisis, which has sent bonds tumbling across southern Europe, has had a knock-on effect on stock markets in Asia. But one analyst says Asian banks and governments have limited exposure to Greek debt, so should weather the storm relatively unscathed.

By Carol Huang, Staff writer
posted April 28, 2010 at 11:59 am EDT
Dubai —

Greece’s debt problems rippled all the way to Asia Wednesday, but may pose just a mild threat to the region.

Stock markets across the continent sank one day after Greek government debt was downgraded to junk status and Europe remained divided over how to contain the risk. The Japanese Nikkei Index fell 2.6 percent; Hong Kong’s Hang Seng Index lost 1.5 percent, and China’s Shanghai Stock Exchange dropped 0.3 percent.

Yet Asia can take comfort in the fact that it has little immediate risk in the eurozone crisis because banks in the region are not believed to have much exposure to Greek debt.

IN PICTURES: The top 10 things Greece can sell to pay off its debt

“I don’t see a direct impact on Asia,” says Peter Treadway, an independent analyst based in Hong Kong. “The No. 1 impact on Asia would be the banks, and I don’t see any major Asian bank exposure to Greece.”

Asia had more at stake in the United States’ crisis over subprime mortgages – since some banks in the region had invested in them – but was able to absorb that blow, he says. “They had to take a hit, but it didn’t make a major impact.”

The region (and the rest of the world) will have more reason to worry if Greece’s crisis spreads across Europe and drags the Continent back into recession. Many Asian countries, including big economies like China, Japan, and South Korea, rely heavily on exports to Europe.
Other looming problems

Looming larger than the Greek crisis are economic problems at home. Japan’s exports continue to suffer under a steadily surging yen, which makes Japanese products more expensive in US and European markets. Inflation in China has raised red flags among a growing number of economists and government officials, with Prime Minister Wen Jiabao identifying it this year as a major problem.

For financial analysts, another major concern is US pressure for tougher regulation of banks amid popular anger at Wall Street, encapsulated Tuesday in a daylong grilling by Congress of executives from Goldman Sachs.

“The markets have had such a good run that I think the [Greece and Portugal] downgrades were just an excuse to sell,” Chris Blair, an adviser at Patersons, a stockbroking firm in Australia, told MarketWatch. “I think the bigger problem will be regulatory pressure on the US investment banks.”

As Athens protests, Germany scoffs over Greece debt bailout

Protesters took to the streets of Athens on Thursday over government austerity measures. But anger is also growing in Germany at being asked to finance the Greece debt bailout.

By David Francis, Correspondent
posted March 11, 2010 at 6:18 pm EST
Berlin —

More than 20,000 Greeks took to the streets of Athens on Thursday to protest planned government spending cuts to ease the Greece debt crisis.

Protestors fought with riot police, smashed storefront windows, and set fire to cars and buses as law enforcement authorities responded with tear gas and stun grenades. Such protests have occurred regularly in recent weeks over the government’s cost-cutting measures in response to Greece’s ballooning national debt. Austerity steps taken so far include raising the retirement age from 63 to 65 and lowering government workers’ wages 8 percent.

Anti-German sentiment has tinged the protests, since the European Union’s wealthiest nation has hesitated to finance a bailout for its southeastern neighbor. Greece was further inflamed when two German legislators suggested Greece sell some of its islands to pay off its debt, and one newspaper even suggested they sell the Acropolis.

IN PICTURES: Top 10 things Greece can sell to pay off its debt

Tensions eased last week when German Chancellor Angela Merkel met with Greek Prime Minister George Papandreou. She said the two reached “an understanding,” though their truce did little to quell anger on both sides of the aisle.

Germany’s politicians and public have asked why they should be on the hook for Greece’s debt. They’re enraged that the Greeks have dredged up World War II memories, with one Greek lawmaker demanding Germany pay reparations for the Nazi occupation. German workers, who recently saw their retirement age rise from 65 to 67, want Greece workers to chin up, too.

“There is the impression in Germany that the Greeks are not doing enough to reform their system,” says Joerg Wolf, author of the Atlantic Review, a popular blog that tracks German politics. “They rely on others to bail them out without making sufficient efforts themselves.”
Tabloids fuel populist anger

The Bild newspaper – regarded here as the paper of the people – has led the populist backlash against Greece. Inflammatory headlines and editorials have run nearly every day since the crisis started, feeding directly into the rising sentiment that Germany’s responsible work, social, and business habits have supported other lazy Europeans.

“Here, nobody needs to pay a 1,000 euro bribe to get a hospital bed in time,” the newspaper wrote in an open letter to Papandreou.

While some German politicians have suggested Greece sell islands or art to raise money, Bild told Greeks to wake up earlier, work harder, and quit lying about the state of their finances.

The euro has dropped steadily in value since the crisis began. Jorgo Chatzimarkakis, a German of Greek heritage who serves in the European Parliament, says fear that a country like Greece could sink the euro is behind Germany’s growing anger.

“After 1945 … the Germans developed a quasi-patriotism around the deutsche mark,” says Chatzimarkakis, who has been a key player in talks between Berlin and Athens. “Our soccer team and the deutsche mark were all we were allowed to be proud about. The Germans sacrificed the deutsche mark for the euro and were promised it was going to be stable, more stable than the deutsche mark.”
Crisis shakes confidence

Both Chatzimarkakis and Mr. Wolf said that inflammatory rhetoric overlooks the eurozone benefits for Germany. The eurozone has expanded German export markets, which in turn strengthened the German economy and made Germany.

“Germans owe their reputation as an import-exporter to the eurozone,” Chatzimarkakis said. “German products are everywhere in everyday European life.”

But Wolf warned that a prolonged crisis in Greece – which could lead to a spread of default worries to heavily indebted states like Spain, Portugal, or Italy – and the continuing decline of the euro could have long-term effects on the German public’s attitudes.

“There is a concern that Greece is like [the failed US bank] Lehman Brothers,” he says. “If the crisis gets bigger and starts to include other eurozone countries, it would have lasting, negative repercussions on the German attitude about Europe.”


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One Response »

  1. Greece and Spain won’t pay back. The only thing Germans can do is:
    REPOSES 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
    U.S.A must REPOSES 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
    Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.

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