The financial press has for the most part looked at the possibility of sovereign debt crises in Greece, Spain, and Portugal through a deal-making window: will Germany and other EU surplus countries back a rescue package, and if so, with what strings attached? There has certainly been ample speculation, particularly since a bailout of Greece would be wildly unpopular in Germany, but some have though various finesseses, such as having various EU members guarantee Greek debt, along with imposing austerity measures (in particularl, raising the retirement age in short order from age 61 to 67) might be workable.
But even if a deal could be brokered, will the citizens accept it? Citizens in Greece could be every bit as big a stumbling block as those in Germany. From the Globe and Mail (hat tip reader John D):
… threatened to turn into a wider social and political emergency this week as general strikes and protests paralyzed Athens and Madrid, and Greek leaders lashed out at their German rescuers amid dark economic projections.
Protesters in Greece battled police using rocks and bottles last night at the end of the second day-long general strike. The walkout closed schools, hospitals and most forms of transportation, shutting down the economy as the government prepared to freeze pay, increase retail taxes and raise the
retirement age to 63 to reduce a huge deficit and attempt to pay off €53-billion ($75-billion) in public debt owed this year.
As European leaders scrambled to find a way to prevent the continent’s troubled southern nations from defaulting and jeopardizing the euro, citizens and some political leaders in those countries fought back, badly fracturing Europe’s cohesion. Greece’s general strike, the second in two weeks, followed a shutdown in debt-crippled Spain on Tuesday, with a countrywide general strike scheduled in Portugal next week….
In a shocking gesture that seemed to transform Europe’s bailout tensions into an outright political crisis, Greece’s deputy prime minister Theodoros Pangalos on Wednesday lashed out at Germany, the only country able to provide the money to rescue the balance sheets of Athens…
Some European officials seemed to lose patience with Greece. Otmar Issing, a former European Central Bank executive, warned the German parliament against using the country’s funds to bail out the Greek economy.
“The crisis is made in Greece,” he told the Bundestag. “It is the result of bad policy, not outside forces like an earthquake.”…
While protesters and union officials demanded that Greece hold back on austerity measures and spend more on stimulus instead, European officials said that Greece is likely to have deeper austerity measures, including an increase in the value-added tax beyond its current 19-per-cent level.
Greece has until March 16 to deliver its austerity measures, or more may be imposed by Brussels…
Greece will need to cut spending – by 10 per cent of GDP over 10 years – while raising revenue and cracking down on its untaxed black-market economy, which counts for as much as a third of all financial activity in the country. This combination could provoke further unrest, and may foretell
similar tensions in Italy and Portugal.
If Greece’s crisis and accompanying political unrest were an isolated case, it might be more manageable, but this week the turmoil seemed to spread across the belly of Europe.
On Tuesday, Spain’s cities were shut down by unionized workers protesting its left-wing government’s plan to raise the retirement age to 67 and cut spending in order to deal with its own serious fiscal situation….
And on Wednesday, Portuguese unions announced that they would hold a general
strike on March 4 to protest similar austerity measures.
Yves here. Other reports claim the majority of the Greek population supports the austerity programs, but that may prove cold cheer if opposition continues to be able to conduct effective general strikes.
Update: Two readers from Spain disagreed with the Globe and Mail’s characterization of the protests, saying they not large scale by Spanish standards and did not “shut down cities.” Back to the original post
These protests may seem barmy to some observers. Did riots in Thailand and Indonesia during the Asian crisis cut any ice with the IMF? Well actually, yes, the initial plan was not only too severe, pushing subject countries into a deflationary spiral, but they used the same template that was devised for Latin American countries, and many elements were inappropriate to Indonesia, Thailand, and South Korea.
Moreover, the assumptions about industrialization, progress, and class differ between the US and Europe. Americans do not identify with the image that many Europeans have of the industrial era: of people who lived in small towns suffering downward mobility in the first half of the 1800s, as home craft workers (particularly in the English countryside) and guilds were displaced by automated manufacture. In addition, in some areas, conditions were made more acute as commons, which were typically shared pastureland, were privatized. The loss of grazing land often pushed self-supporting households into poverty. That in turn led to an influx into the cities. A series of uncoordinated revolutions in 1848 swept the continent, and while only one overthrew the government (in France), those uprisings are now credited with producing significant political shifts in other countries.
By contrast, the popular history of the US in the 1800s is dominated by geographic expansion, conquest and settlement of the heartland, with the role of urban immigrants (who often worked in sweatshops), Chinese labor (critical to building the railroads) and newly freed slaves in taking up many of the most difficult jobs of the US industrial revolution often gets short shrift. Laura Ingalls Wilder is more widely read today than The Jungle.
That is a long winded way of saying those who view the protests as a futile protest against the inevitable may be looking at the wrong metrics for success. While they seem unlikely to achieve their narrow objectives of forestalling budget tightening, they may succeed in making sure that the burden of compliance does not fall unduly on the working man.
And needless to say, the political drama is at a minimum going to make it much harder to craft an economic deal. IMF mandated reforms helped make the world safe for America’s finest investment bankers and multinationals; Germany and the other EU creditors in theory have little upside (although the exposures of their banks to Club Med members does put them at considerable risk, readers tell me that saving financiers is ever bit as unpopular as rescuing Greek wastrels). And the rising tempers on both sides are certainly not helping.