ATHENS— Early this morning, under heavy guard from riot police, as buildings burned across central Athens and violence spread around the country, the Greek Parliament, defying tens of thousands of people massed in the streets of the capital, approved a deeply unpopular package of spending and wage cuts to secure a second European Union /International Monetary Fund bailout.
While protests raged in the streets, the Greek Parliament, by a 199-74 vote, approved another round of austerity measures, to avoid national bankruptcy.
The package, which includes deep cuts in government spending, wages and pensions, will help pave the way for eurozone finance ministers to sign off on the new €130 billion ($172.6 billion) bailout deal. Greece needs the funds to meet €14.5 billion in debt repayments due next month.
The bailout deal, which would result in significant losses for bondholders, is intended to help reduce Greece’s debts to 120% of Gross Domestic Product by 2020, from about 160% currently.
BY ALKMAN GRANITSAS, ANDREA THOMAS AND NEKTARIA STAMOULI
ATHENS—Clashes broke out in central Athens Friday as Greece’s major unions launched a 48-hour nationwide strike to protest new austerity measures demanded by the country’s creditors, adding to social tension in a country now in its fifth year of economic recession.
Hundreds of hooded youths in the main Syntagma Square in Athens attacked riot police with gasoline bombs and other projectiles, smashing objects in and around the square.
Police fired tear gas and staged running charges to scatter the youths. At least one person was detained.
For years, the successive governments of Greece like many others governments of the world today, have been spending money they didn’t have. As a result, the country ran up a massive deficit, reaching an estimated 13.6% by 2010.
To deal with it, Greece started to misreport its official financial statistics and actually paid hundreds of millions of dollars to banks such as Goldman Sachs to have them initiate baseless financial transactions that would hide Greece’s true level of spending and debt. All of this made Greece extremely vulnerable to a financial crisis such as the major recession that struck the world in 2007.
By 2009, Greece was collapsing under its crushing debts, by then estimated to be over $410 billion, thus growing 20% larger than the entire country economy.
The banks Greece had borrowed from were only making the problem worse: To hide the fact that Greece could soon go bankrupt, they started to charge Greece higher rates of interests when the country tried to borrow more money.
As a result, by 2010, revealing the true levels of spending and deficit that had accumulated over the years, Greece was forced to ask for outside assistance and was downgraded to the lowest credit rating in the euro zone.
With investors now viewing the country as a financial black hole, it made it difficult for the Greek government to receive outside help. Accordingly, the European Union allowed Greece to borrow from other European countries as well as the International Monetary Fund, in what became the largest bailout package in recent history. In return, Greece was forced to drastically cut back its spending.
Government corruption, large increases in taxes, and cuts to public social programs resulted in widespread civil unrest during the year 2011.
In March 2012, Greece will begin to default forcing a further restructuring in which the government will only able to pay back around half of what is owed. This will result in the country essentially being removed from the euro zone and Europe as a whole will be economically battered, along with every other countries which are now trading with Greece. The value of the euro will fall stressing the economies of the European Union with Spain, Italy and Portugal suffering the most.
Final result: the ongoing decline in value of the European currency will negatively affect stock markets around the world for years to come.