The pain of Greece's crisis

@CNNMoney June 15, 2011: 6:07 PM ET
Austerity measures to combat Greek debt crisis trigger protests

Greek protesters are enraged at the prospect of additional austerity measures, and the worsening job market.

NEW YORK (CNNMoney) -- Once again, Greeks are protesting new austerity measures being forced upon them by their European neighbors in exchange for relief from a debt crisis. The streets of Athens are rife with rioters throwing fire bombs and clashing with armored police.

These scenes of violent turmoil beg the question: Just why are they rioting, anyway?

Last year, when protesters firebombed a bank in Athens and killed three workers, the chief source of their rage was the austerity provisions imposed for the debt crisis bailout.

Those provisions, according to Standard & Poor's analyst Marko Mrsnik, led to Greece's economic malaise: an ongoing recession and rising unemployment. Mrsnik said the Greek unemployment rate is currently at 16.2%, significantly above its March 2010 rate of 11.6%.

Austerity measures implemented to combat the debt crisis last year included pension cuts; a sales tax boost; excise taxes on fuel, cigarettes, alcohol and luxury goods; tougher eligibility for disability benefits; and a hike in the retirement age to 65 from as low as 61.

"This year, the protests are also against further austerity given the new reform package," said Mrsnik, the lead analyst in S&P's downgrade of the Greek credit rating on Monday to just two notches above default status.

Mrsnik said the new measures include reductions in the pay of public workers and an increase in the attrition of public jobs, placing further pressure on Greek workers.

He said the new measures would also include a reduction in social security funding, the streamlining of social spending, reduction of defense spending, restructuring of state-owned enterprises, and the merging or closing of public entities.

S&P downgrades Greece

Mrsnik also said the government is ramping up its focus on tax compliance, with an increased focus on tackling social security contribution evasion and a reduction of tax exemptions.

"It's all about collecting the taxes," he said.

Part of the drive behind increasing austerity measures is that Greek Finance Minister George Papaconstantinou is trying to secure a second bailout deal this month, despite the consternation of his European neighbors. The Germans are particularly angry, because they feel that they're bearing the brunt of funding the bailout.

Much of the drive behind the austerity measures, and the reason for the downgrade, is the fear that Greece could default on its debt payments. Greece has "heavy near-term financing requirements," according to S&P, with about $135 billion in government debt maturing between now and the end of 2013. An additional $82 billion is set to mature in 2014.

On June 9, the Greek cabinet approved a five-year plan containing additional austerity measures in order to quality for the fifth tranche of its $163 billion bailout from the European Union and the International Monetary Fund.

The cabinet introduced a bill in Parliament to put the measures into effect, but tens of thousands of protesters have vowed to form a human chain around Parliament to prevent any further action by lawmakers. To top of page

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