Greek Parliament Passes Austerity Plan After Riots Rage
By NIKI KITSANTONIS and RACHEL DONADIO
ATHENS — After violent protests left dozens of buildings aflame in Athens, the Greek Parliament voted early on Monday to approve a package of harsh austerity measures demanded by the country’s foreign lenders in exchange for new loans to keep Greece from defaulting on its debt.
Though it came after days of intense debate and the resignation of several ministers in protest, in the end the vote on the austerity measures was not close: 199 in favor and 74 opposed, with 27 abstentions or blank ballots. The Parliament also gave the government the authority to sign a new loan agreement with the foreign lenders and approve a broader arrangement to reduce the amount Greece must repay to its bondholders.
The new austerity measures include, among others, a 22 percent cut in the benchmark minimum wage and 150,000 government layoffs by 2015 — a bitter prospect in a country ravaged by five years of recession and with unemployment at 21 percent and rising.
But the chaos on the streets of Athens, where more than 80,000 people turned out to protest on Sunday, and in other cities across Greece reflected a growing dread — certainly among Greeks, but also among economists and perhaps even European officials — that the sharp belt-tightening and the bailout money it brings will still not be enough to keep the country from going over a precipice.
Angry protesters in the capital threw rocks at the police, who fired back with tear gas. After nightfall, demonstrators threw Molotov cocktails, setting fire to more than 40 buildings, including a historic theater in downtown Athens, the worst damage in the city since May 2010, when three people were killed when protesters firebombed a bank. There were clashes in Salonika in the north, Patra in the west, Volos in central Greece, and on the islands of Crete and Corfu.
Greece and its foreign lenders are locked in a dangerous brinkmanship over the future of the nation and the euro. Until recently, a Greek default and exit from the euro zone was seen as unthinkable. Now, though experts say that the European Union is not prepared for a default and does not want one, the dynamic has shifted from trying to save Greece to trying to contain the damage if it turns out to be unsalvageable.
“They’re trying to lay the ground for it, trying to limit the contagion from it,” said Simon Tilford, the chief economist at the Center for European Reform, a research institute in London. Still, he added, letting Greece go would set a dangerous precedent, and it would be “fanciful” to think otherwise.
Greece’s limping economy yields large trade and budget deficits, and none but the European Central Bank, the European Commission and the International Monetary Fund — known collectively as the troika — are willing to lend the nation the money it needs to stay afloat. The troika is demanding more concessions to placate Germany and other northern European countries, where the bailout of Greece is a hard sell to voters. For its part, Greece is trying to preserve social and political cohesion in the face of growing unrest, political extremism and a devastated economy that is expected to worsen with more austerity. And the feeling is growing here and abroad that the troika’s strategy for Greece is failing.
The leaders of two of the three major political parties in Prime Minister Lucas Papademos’s interim coalition government — the Socialists and the center-right New Democracy party — agreed on the new round of austerity after days of tense debate, maneuvering and threats. The leader of the third, the right-wing Popular Orthodox Rally, refused to endorse the measures and later withdrew from the coalition.
In the debate on Sunday night before the vote, Mr. Papademos appealed to lawmakers to do their “patriotic duty” and pass the measures, saying they would be saving Greece from bankruptcy in March, when a bond issue comes due that Greece cannot repay without foreign help.
In a sign of how the crisis has frayed the political order in Greece, the three leading political parties all moved swiftly to expel lawmakers who had broken ranks with leaders in the voting.
Mr. Papademos is a former vice president of the European Central Bank who took office in November with a mandate to negotiate the new loan agreement before new elections are held, perhaps as soon as April. He acknowledged on Sunday that the program “calls for sacrifices from a broad range of citizens who have already made sacrifices.” But the alternative, he said, “a disastrous default,” would be worse.
European Union finance ministers, who were expected to approve the agreements with Greece at a meeting in Brussels last Thursday, instead sent a vote of no confidence, asking Greece for another $400 million in spending cuts.
When they meet again on Wednesday, they are expected to sign off on the measures and raise the stakes. A major topic of discussion is expected to be establishing an escrow account that would hold new money lent to Greece, and using it first to pay creditors, before the Greek government can tap it for any other purpose. The idea, backed by Germany and the Netherlands, may make further loans to Greece more palatable to German voters, but many Greeks see it as a fundamental loss of sovereignty and feel that they are being pushed into poverty to appease banks.
“Greece will become a protectorate,” said Natalia Stefanou, 45, a shoe store employee at a protest outside the Parliament on Sunday. She said she had not been paid since September and may soon lose her job entirely. “It’s not me I’m worried about, though,” she said. “I’ve got two children, aged 14 and 15. What kind of country are we going to leave them?”
Anti-German sentiment is also on the rise in Greece, where memories of the Nazi occupation during World War II are still vivid. “This is worse than the ’40s,” said Stella Papafagou, 82, who wore a surgical mask at the demonstration to fend off the tear gas. “This time the government is following the Germans’ orders. I would prefer to die with dignity than with my head bent down.”
European leaders, fearful that Greece’s crisis will undermine efforts to help other euro nations like Portugal and Spain, have been trying directly or indirectly in recent days to paint Greece as a special case, whose leaders have failed to transform its troubled and corrupt state fast enough. In an interview last week, the Italian prime minister, Mario Monti, said that in the highly unlikely event of a Greek default, “there would be extremely strong political policy and political responses to prevent any such phenomenon to go beyond Greece.”
Similarly, Fabrizio Saccomanni, the director general of the Bank of Italy, told reporters last week, referring to the risk of “contagion,” that “market indications seem to suggest that this problem is seen as minor.”
But others say that is wishful thinking. “If one country in the monetary union can default, so can another — that is one simple inference that bank managers and hedge fund mangers can infer, no matter what Mrs. Merkel or Mr. Sarkozy may say,” said Costas Lapavitsas, an economist at the University of London, referring to Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France.
“Portugal and Ireland have unsustainable debt,” he said. “Put two and two together, and it makes four.”
Mr. Lapavitsas, who has been calling for Greece to go ahead and default on its own terms, added that it was “absolutely unacceptable that this huge amount of Greek debt that ties the country hand and foot should be dealt with by some unnamed and obscure technocrats and unelected people.”
If Greece dug itself into a hole by borrowing beyond its means, as many argue, there is also a growing sense that the troika’s austerity regimen of spending cuts and tax increases is burying Greece alive in that hole. “The reason Greece is in this position is because of the strategy the troika imposed upon it,” said Mr. Tilford, of the Center for European Reform.
“The I.M.F. has never approached a country like this,” he said. “With this much austerity, it would always have a huge devaluation, too.”
Financial analysts said they expected investors to welcome news of the vote in Parliament.
“It’s a pause, it’s a relief,” said Milton Ezrati, the senior economist and market strategist at Lord Abbett & Company. “But it’s short-lived and everyone knows that. We’re buying a few more months before the next round of trouble.”
Jerry A. Webman, the senior investment officer and chief economist for Oppenheimer Funds, also struck a cautious note.
“It doesn’t solve the problem,” Mr. Webman said, “but it gives everybody the political cover to look for ways to solve the real Greek problem, which is how to get the country and its economy back on more stable footing.”
With more wage cuts and tax increases expected, Greeks are growing increasingly angry at their own lawmakers as well as the troika of lenders.
“They’ve all sold out in there, they should be punished,” said Makis Barbarossos, 37, an insurance salesman, as he waved a cigarette toward Parliament on Sunday. “We should put them in small, unheated apartments with 300-euro pensions and see, can they live like that? Can they live how they’re asking us to live?”
Niki Kitsantonis reported from Athens, and Rachel Donadio from Rome. Julie Creswell contributed reporting from New York, and Elisabetta Povoledo from Rome.