Global financial markets are braced for a nervous week as investors wait to see whether Greece’s governing Socialists can ram the country’s latest bitter austerity measures through parliament in the face of mounting opposition.
Fresh protests are expected to erupt in Athens today, and a two-day general strike is scheduled for Tuesday and Wednesday as the Greek parliament conducts a three-day debate on its latest austerity program, which aims to slash the Greek government deficit to 1.1% of GDP by 2015. The measures will be put to a formal vote on Wednesday.
On the weekend, the Greek government expressed “total confidence” that it would be able to get the tough new budget through parliament this week. According to the French newspaper, Le Monde, Greece’s deputy prime minister and newly appointed finance minister, Evangelos Venizelos, warned that rejecting the measures meant the country faced the risk of an “exit from the eurozone, while our national strategic choice is to stay there”. But with several Socialist deputies publicly threatening they will not support the package, the atmosphere remains fraught.
Billionaire hedge fund manager George Soros told a conference in Vienna yesterday that it was probably inevitable that a weaker country would end up leaving the eurozone.
According to Bloomberg, Soros also warned the world faces growing risks. “We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread.” The financial system, he added, “remains extremely vulnerable”.
His comments come as US investors are rushing to remove cash from money market funds that have heavy exposures to short-term debt issued by European banks, because of growing fears that Greek default could cause crippling losses for European lenders, and spark a financial crisis in the eurozone. At the same time, US banks are becoming increasingly wary of lending to their European counterparts because of fears over their exposure to Greece.
Greece’s parliament has to approve the country’s latest €78 billion austerity package before the European Union and International Monetary Fund agree to release a further €12 billion in funding from Greece’s existing rescue package, and start working on the details of a second bailout for the country that is weighed down with €350 billion of debt.
But the package — which includes higher property taxes and a “solidarity tax” of up to 5% on salary earners — has proved hugely unpopular, with many feeling that lower- and middle-income earners are bearing the brunt of the sacrifices, while tax evasion remains rife among professionals and wealthy business interests.
In an interview published in Greek newspaper Kathimerini on Sunday, the head of Greece’s central bank, George Provopoulos, criticised the austerity measures, saying they focused too much emphasis on tax increases, rather than spending cuts.
“The package doesn’t give enough emphasis, in my opinion, to cutting expenditure,” he said. “The extra burden on those already being taxed has exhausted the possibilities.”
The central bank chief also argued that countering tax evasion was crucial.
“Tackling tax evasion is essential … to strengthening a sense of justice and increasing the degree of consensus for the medium-term program.”
German finance minister Wolfgang Schaüble has said that the eurozone is making contingency plans, and will cope if the latest rescue plan for Athens proves unsuccessful.
“We are doing all that we can to avoid a perilous escalation for Europe but at the same time everything must be organised to withstand the worst,” he said in an interview published in the German newspaper Bild am Sonntag on Sunday.
Schaüble also warned the stability of the eurozone could be jeopardised if the Greek parliament rejects the latest austerity plans. “We have to rapidly ensure that the risk of the contagion to the entire financial system and to all of the member countries of the eurozone is under control,” he said.
*This first appeared at Business Spectator.