Blogs & Comment

Greek tragedy gets violent

Down a long, dark tunnel in Southern Europe.

Greek ‘Indignants’ protest in front of the Greek parliament for the fourth continous week against the new austerity package on June 19, 2011 in Athens (Photo: Louisa Gouliamaki/Getty)

Everything is not all right in the world economy. And things are going to get much worse, insists Gerald Celente, publisher of Trends Journal. “The economy is on the threshold of calamity,” he says. “Wars are spreading like wildfires. The world is on a razor’s edge.” 

When it comes to the state of the world economy, Celente argues world leaders and mainstream media can’t be trusted to tell it like it is. He warns people “to expect the unexpected and prepare for the worst, which in these perilous times could be a declaration of economic martial law.” He also advises them to remember his Three-G survival strategy: “Guns, Gold and a Getaway plan.”

Arming yourself, of course, may not be the best way to deal with market turmoil, despite the fact that Celente has been called a modern Nostradamus. Nevertheless, some investors might soon wish they bought into his rants about a looming financial system collapse, especially the bullish ones who ignored what is happening in Greece and went on an equities buying spree on June 14.

According to simplified newspaper logic, that short-lived market rebound was fueled by the release of better-than-expected data related to U.S. retail sales and Chinese industrial production. But those economic indicators may not amount to a hill of beans if thousands of Greek citizens get what they want, which is an abrupt end to the austerity measures being forced upon the fiscally-challenged nation by its troika of masters: the International Monetary Fund, European Central Bank and European Union policy makers. 

Credit rating agency Standard & Poor’s recently slashed Greece’s rating to CCC, the lowest amongst states with a sovereign debt rating. “The downgrade reflects our view that there is a significantly higher likelihood of one or more defaults, as defined by our criteria relating to full and timely payment, linked to efforts by official creditors to close an emerging financing gap in Greece,” the agency said.

To secure enough external funding to prevent a default on its debt, which could topple banks around the world, the nation needs to get its fiscal house in order via tax hikes, spending cuts and privatization of state assets. But the political will to do what is required is weakening thanks to growing public unrest.

How bad is it? The Greek situation is so dicey that the Financial Times bought and published a rumour that said local government officials are so afraid of the angry masses that they ordered an escape route readied out of old tunnels that link Greece’s parliament to the port of Athens. 

Whether the escape plan exists or not, avoiding the public is not a bad idea for Greek politicians. Indeed, more than 25,000 anti-austerity protesters hit the streets of Athens on June 15, when they attempted to blockade politicians from attending a scheduled debate on state asset sales and another round of cutbacks needed to secure more bailout funding from international creditors.

Protesters attacked police with everything from home-made bombs and stones to yogurt. Police fought back with tear gas and batons. The ongoing battle for Greece, where labour has launched a general strike, has already claimed the lives of three people, who died earlier this year when a bank was set ablaze.

Prime Minister George Papandreou’s Socialist government, which was forced to abandon a pledge not to impose new taxes to appease creditors, has seen its popularity plummet. As the BBC reports, a recent opinion poll gave opposition conservatives a four-point lead over the Socialist party, a first since 2009. “You have to be as cruel as a tiger to vote for these measures. I am not,” said MP George Lianis, a MP who recently defected from Papandreou’s ranks, leaving the ruling majority only 155 of 300 seats in the Greek House.

The Wall Street Journal reports that the cost of insuring Greek debt hit record levels as violence roiled Athens on Wednesday. But there is no question that a debt restructuring will happen, says Stern School of Business economics professor Nouriel Roubini in a Financial Times essay. The only question, he argues, is how and when it will happen and whether or not it will be disorderly enough to put an end to Europe’s monetary union as we know it today. 

And if history is a good judge, Papandreou’s plans for an orderly solution to Greece’s debt woes will fail, says Dani Rodrik, Harvard University political economy professor. He thinks the world needs to remember how politics played a role in dealing with international creditors in interwar Britain, and, more recently, of Argentina and Latvia. 

“For the Greek program to have any chance,” he says in a newspaper commentary on Greece, “the Papandreou government must mount a monumental effort to convince its domestic constituents that economic pain is the price they are paying for a brighter future … not just a means to satisfy external creditors.”

After all, as Rodrik notes, “when the demands of financial markets and foreign creditors clash with those of domestic workers, pensioners, and the middle class, it is usually the locals who have the last say,” at least in a democracy.

In other words, there isn’t a tunnel long enough to allow Greek politicians to avoid the will of the people, whether it is justified or not.