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.
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.
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.