A crisis in Athens and a looming disaster for Europe
European policymakers need to face up to some harsh realities
Friday, 17 June 2011
The Greek government finds itself trapped between Scylla and Charybdis. The European Union and the International Monetary Fund are demanding drastic spending cuts and large tax rises in return for their emergency funding. But those austerity measures have brought tens of thousands of protesters on to the streets of Athens. And those protests have turned violent. The pressure from above and below is in danger of crushing George Papandreou’s government to death. One attempt by Mr Papandreou to get his new budget through parliament has failed. With a revolt in his own Socialist party and a refusal from the opposition to co-operate, it is unclear whether a second will succeed.
The Greek state certainly needs to reduce its spending and to curb its borrowing. Successive governments overspent during the boom years. They also faked their national accounts in order to conceal the true level of public borrowing. There are also huge structural problems in the Greek economy (from excessively early retirement for state employees, to endemic tax evasion) that must be addressed.