29th Mar 2020

More unrest in Greece amid talk on second bail-out and default

Amidst yet another general strike against EU-IMF austerity in Greece that brought the country to a standstill, youths clashed with riot police on Wednesday, with protesters hurling rocks in the face of tear gas and stun grenades.

Port workers, teachers, civil servants, professors and nurses stayed off the job in some 14 cities across the nation, with schools closed, public transport halted, hospitals providing only emergency services and flights in and out of Athens airport grounded for four hours.

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  • Tear gas amidst the protests (Photo: Contact)

The second general strike this year and the tenth since the start of the crisis comes as Prime Minister George Papandreou tries to hold his government together, with growing numbers of MPs and ministers coming out publicly against austerity measures and privatisation.

The industrial action is the first in the wake of announcements from the government of a fresh €26 billion round of cuts and tax hikes and a €50 billion privatisation plan and at a time of record, 15 percent unemployment, three years into a recession.

The cabinet is to consider tough revisions to the country's fiscal plan to 2015 next week, hoping to convince the European Commission, European Central Bank and International Monetary Fund troika of their commitment to reducing the country's €326 billion debt pile. On Tuesday, the finance ministry said that the central government's deficit had increased 14 percent on last year for the first quarter.

On Wednesday, senior officials from the troika descended upon Athens to push for more thoroughgoing cuts and structural reforms.

Meanwhile on the same day, Greek daily Kathimerini reported that the IMF is currently putting together a €80-100 billion rescue for the country, employing unacknowledged sources. Other domestic media put the figure at €50-60 billion.

The rumours come after the government denied on Tuesday that it was engaged in any such negotiations. However, European citizens have habituated themselves to denials by ministers over such matters that days later are confirmed.

The quid pro quo would likely be further austerity amounting to €7 billion, firing more public sector workers, a commitment to fully privatise the Hellenic Telecommunications Organisation, the country's electricity firm and the Athens airport, as well as putting up government property as collateral against the new round of cash.

EU finance minister meeting on Monday will consider what strategy to take, although no decisions are expected until the troika inspectors return with their verdict on the situation.

Leaders are divided as to what approach to take to confront the dawning reality of a pro-cyclical austerity policy that offers ever-widening public debt and little likelihood of a return to growth, with Greece returning to the markets for funding in 2012 a virtual impossibility.

Also on Wednesday, the European Commission reiterated its stance that "restructuring is excluded" as an option, a position underlined by French finance minister Christine Lagarde the same day speaking in centre-right daily Le Figaro.

"We totally exclude it in any form. Nor is there any question of Greece leaving the euro zone," she said, but hinted at a possible second bail-out.

"Nobody wants to keep funding countries in difficulty like this," she continued. "But we absolutely must do it because a sovereign debt restructuring would send such a negative message to investors that the whole zone would suffer, the cost of refinancing for all its members would soar," she said, adding however that no decision had yet been taken.

She stressed that an acceptance of restructuring would result in a hike in interest rates for all eurozone government borrowing and the ECB would be saddled with considerable losses.

Some in the German finance ministry are understood to be considering restructuring finally, despite the losses to banks that such a move would entail, accepting that the current policies are not working, that endless funding of the Greek state is not politically viable and that a controlled restructuring could limit the losses.

At the same time, the country's finance minister, Wolfgang Schaeuble, reportedly told MPs behind closed doors that an interest rate cut or an extension in the loan repayment period for Athens was a possibility.

Austria's ECB board member, Ewald Nowotny, for his part, said he opposed restructuring, as it would "only heighten the crisis" and produce "massive consequences" for all of Europe's banking system, not just that of Greece.

"It does not have to be fresh loans. It could also be a question of the time horizon of how long one has to repay," Nowotny told Austrian radio.

In the end, policy makers have a choice between indefinitely extending aid to Greece - and potentially Ireland and Portugal - and accepting the costs of restructuring.

What must be avoided at all costs, as Schaeuble impressed upon MPs, is a Greek exit from the euro. On Friday, Spiegel Online reported that Greece was considering such an option, a move since vehemently denied by Athens.

"Everything would be better than an exit," he told the deputies.

Such an outcome would lead to massive losses for German banks in the face of the certain collapse of the Greek banking system that would result from such an exit. Moreover, the ECB itself would be facing up to €110 billion owed by Greek financial institutions, requiring a recapitalisation of the central bank.

Nevertheless, beyond the Spiegel report, three days ago, Hans-Werner Sinn, head of the influential Munich-based IFO Institute for Economic Research, recommended the country leave the single currency.

"If Greece were to exit the euro, it would be able to devalue its currency and thus become competitive once again," he said, adding: "If Greece decides to attempt a so-called internal devaluation - that is by cutting salaries and prices within the country - it would risk setting off civil war."

His comments find an echo in Greece, where a recent poll for Mega Television reported that 60.3 percent want to renegotiate the EU-IMF bail-out and over a quarter now want the country to exit the bail-out programme altogether as well as the euro.

Amateur footage of unrest in Athens

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