Europe's $955 billion rescue package, Greek austerity, and moral hazard
Markets across the world soared after the European Central Bank promised the creation of a $955 billion rescue fund for eurozone countries with debt problems. But some economists are worried about moral hazard – bailouts leading to reckless spending.
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Over the course of the decade, she privatized state-owned industries and utilities, implemented strict trade union restrictions, and reduced social spending.Skip to next paragraph
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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.
Tougher in Greece
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 from 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 steelworks 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."
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 May 6 UK election were in agreement that Britain's deficit needs to be brought under control.
In March, the 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.
Yield is effectively the price investors demand to hold a government or corporation's debt. The more likely default seems to investors, the higher the price they demand.
Investors had been deeply afraid in recent weeks that Greece would default on its debt, pushing yields past 12 percent on Friday. But those fears appeared to calm Monday, with yield on the Greek government's 10-year bond plunging down to 8 percent.
To be sure, investors still see Greek debt as risky and at 8 percent are demanding more than 5 percentage points in additional yield to own it than to own the European benchmark German 10-year, which was priced to yield about 2.8 percent on Monday.
German debt yields rose slightly on Monday, since the country will lead the way in paying for the debt of any European country's that seek help. The ECB has effectively signaled that it will spread the cost of the borrowing taken on by its heavily indebted members to the financially stronger European states and their taxpayers, something that alarms some economists.