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Fears Of Greek Debt Crisis Mount As Workers Strike

Ryan Faughnder |
May 11, 2011 | 1:33 p.m. PDT

Senior News Editor

Workers staged massive strikes across Greece Wednesday, effectively shutting down services such as airports and ports, in protest of the country’s severe austerity and privatization measures aimed at solving its debt crisis, according to reports.

(Creative Commons)
(Creative Commons)

The strikes come as auditors from the International Monetary Fund are working in Greece to decide whether to sandbag the country's fiscal house with yet another payout of 12 billion euros. If approved, this would be the fifth infusion of cash to Greece from the international community.

Greek labor unions say the cuts are too severe and have resulted in crippling unemployment. 15,000 people marched to parliament, Al-Jazeera reported.

From Al-Jazeera English:

This month, the government is planning to pass further measures aimed at saving an estimated $33bn through 2015.

"We strongly protest against the unfair and harsh policies that have pushed up unemployment, widen false employment and trample on worker rights," GSEE, the leading Greek union, said as the strike began.

In Athens' port of Piraeus striking ferry electrician Athanassios Sidiropoulos said the government was trying to scrap rights won over the course of decades by working classes.

"All seamen should have pension and healthcare rights, collective labour contracts, healthcare contributions,'' he told the AP news agency.

See the video below for Al-Jazeera's report previewing the general strike:

It has been nearly a year since Greece received a 14.5 billion euro loan from the European union. Reuters has a helpful timeline of the Greek debt crisis. Some wonder whether another bailout would be worth it, considering that the last round was not seen as successful. Greek debt is still projected to surpass 160 percent of its gross domestic product.

The IMF is essentially evaluating Greece’s ability to pay back its debt. Economists posit that there is no guarantee Greece will be able to repay what it owes, even in the event of another round of bailout money from the European Union.

From Martin Wolf of The Financial Times:

Assume that interest rates on Greek long-term debt were 6 per cent, instead of today’s 16 per cent. Assume, too, that nominal GDP grows at 4 per cent. These, note, are highly optimistic assumptions. Then, even to stabilise debt, the government must run a primary surplus (before interest payments) of 3.2 per cent of GDP. If Greek debt is to fall to the Maastricht treaty limit of 60 per cent of GDP by 2040, the country would need a primary surplus of 6 per cent of GDP. Every year, then, the Greek people would need to be cajoled and coerced into paying far more in taxes than they receive in government spending.

What might persuade investors that this is sufficiently likely to justify funding Greece? Nothing I can imagine. But remember that 6 per cent would be a spread of less than 3 percentage points over German bunds. The default risk does not need to be very high to make this extremely unappealing.

In short, Greece is in a Catch 22: creditors know it lacks the credibility to borrow at rates of interest it can afford. It will remain dependent on ever greater quantities of official financing. However that creates an even deeper trap.

Economist Jacques Cailloux explained to Bloomberg the level of uncertainty surrounding Greece’s fiscal position.

“The IMF needs to decide whether Greece is on a sustainable path or not,” he said. “There’s a big question mark. 99 percent of market participants, I think, think it’s unsustainable.”

The crisis is of course not limited to Greece. Portugal recently asked the IMF for a bailout, resulting in humiliation for that country’s leaders.

Julian Callow of Barclays Capital said in an interview with Bloomberg that Greece’s fundamental problems stem from its lack of economic growth. “Ultimately, governments can only repay their debts if they grow,” he said.

The Greek debt crisis has exposed the key problems with the European Union’s single currency system, in which countries with their fiscal houses in order are still hurt by crises in countries with massive, unsustainable debt.

Callow emphasized that the future of the euro would ultimately depend on decisions made by, and economic growth of, Germany, which is the largest economy in the EU. Germany is expected to post strong GDP numbers on Friday.

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