Tens of thousands of Greek public servants, students and pensioners hit the streets overnight to protest against the government’s latest austerity measures, as traders continued to bet that a Greek default was imminent.

Around 20,000 protesters marched to central Syntagma Square in Athens, holding banners saying “Erase the debt” and “The rich must pay”. Close by, in the national parliament, Greek politicians were debating proposals to hold a referendum on the country’s worsening fiscal crisis. The 24-hour strike halted trains and air traffic, closed schools and forced hospitals to run on emergency staff. Several scuffles broke out, with riot police firing tear-gas at youths who broke up marble paving slabs in Syntagma Square and hurled the chunks at police. Other protesters made an attempt to storm the Economy Ministry building, shattering heavy glass at the entrance.

On Sunday, the Greek government revealed that this year’s budget deficit would blow out to 8.5% of GDP, well above its target of 7.4%. As a result, eurozone finance ministers decided to delay a decision on whether Greece will receive the next €8 billion ($US10.7 billion) payment from its bailout fund.

In what Greek newspaper Ta Nea described as “Chinese water torture”, officials from the “troika” — the European Council, the IMF and the European Central Bank — are now demanding the Greek government find additional savings before they will recommend that the €8 billion be paid. According to reports in the local Greek media, the troika is now demanding total savings of €9 billion in 2011 and 2012 (compared with the €6 billion initially required), as well as additional efforts in 2013 and 2014.

But with the country now facing an unemployment rate of more than 16%, there are fears that further government cutbacks will only worsen the recessionary spiral.

The Greek economy, which was expected to contract by 3.5% this year, now looks set to shrink by 5.5%, according to the latest forecasts from the Greek government. As the economy contracts, the government’s revenues are shrinking, at a time when it is being forced to spend more on areas such as providing unemployment benefits. And Greece is not doing any better on the export front. Sluggish demand for its exports means that the country’s trade deficit is likely to remain above 11% of GDP this year.

Even worse, the shrinking economy is making Greece’s €350 billion debt burden even more grinding. Greece’s debt is expected to climb from 143% of GDP in 2010, to more than 160% this year. Next year, the ratio is expected to soar even higher.

As a result, a tone of pessimism has settled over the country. In an interview with German weekly Die Zeit, the Greek minister for the economy, Michalis Chryssohoïdis said the situation was now “quite desperate” for the country.

“[That’s] because we’re continuing to make drastic cuts in people’s income. For Greeks, the present situation is very painful. When are we going to see the light at the end of the tunnel? We cannot say.”

The Greek government, he said, continued to find itself isolated in its reforms, with the opposition claiming it could renegotiate the terms of Greece’s loans while the radical left was pushing for the country to leave the eurozone. Greece’s main problem, he said, “is insecurity”, fed by the widespread belief that Greece was about to default on its debt.

But with the Greek economy continuing to wither, and with opposition to the government’s austerity measures becoming more entrenched, markets continue to believe that a Greek default is the most likely outcome.

*This article was first published at Business Spectator

Peter Fray

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