European Monetary Union Update: Greece Passes Another Austerity Plan

    The Greek Parliament approved another harsh austerity plan in order to receive the latest tranche of bailout money from the European Monetary Union, the European Central Bank and the International Monetary Fund to avoid default on its sovereign debt or having to leave the eurozone.

     Debt-ridden Greece's creditors had demanded it approve the plan in order to receive over $170 billion in bailout loans because the Greeks had failed to implement fully the necessary spending cuts after receiving the first tranche of $145 billion.  The latest Greek austerity package saves an additional $5 billion in spending by sharply cutting the minimum wage and pensions and eliminating tens of thousand of public sector jobs, among other cuts.  The austerity plan will also facilitate a separate deal with Greece's bondholders to write off a large percentage of Greece's tens of billions of dollars of sovereign debt.

     The austerity program had been approved by Greece's caretaker national unity government led by Lucas Papademos, meaning that it was approved by most of the main parties, including both the socialists and conservatives.  Only one smaller party in the coalition opposed the measure, although some members of the two major parties also did.  Cabinet members who opposed it were fired and members of parliament who voted against it were expelled.  Both major parties have agreed in writing to implement the program, regardless of which one wins snap elections in April, as demanded by the European creditors, who will only release the money once the plan is implemented. The measure still passed easily, despite violent popular opposition. 

     Papademos had identified overspending as the cause of the debt.  In opposition to further spending cuts, Greeks have been rioting and striking, which not only harms the economy that has been mired in a deep recession that is unlikely to end in the forseeable future and thereby adds to the public debt, but undermines investor confidence in Greece.  Although the riots have been particularly violent in Greece, the same phenomenon has hampered the efforts of other European governments to reduce debt.  Europeans, especially Greeks, had become so accustomed to government largess that they fail to recognize that the benefits to which they were encouraged to feel entitled were the cause of the debt, for which they rightfully must share the burden, as I have noted before.  I also understand, as previously noted, the Greek loss of sovereignty, as Greeks feel as though they are being dictated to by Europeans, especially Germans.  The Greek national unity government deserves praise for recognizing that it had to approve the harsh, unpopular measures, lest even greater ills befall the country.   

     I also note the uncertainty over the passage of the plan affected the markets adversely, as has the passage of every new plan by every government in the eurozone affected by the sovereign debt crisis, even though the governments have majorities to approve the plans in parliament.  Although the uncertainty is partly understandable because of popular opposition, I cannot help but suspect, as Italians did during Silvio Berlusconi's premiership, that speculators benefit from market fluctuations based upon exaggerated fear.  These uncertainties result in higher interest rates on sovereign debt, for example, which make it even more difficult for governments to afford to service their debt.  There ought to be some confidence that these governments will continue to act responsibility, despite the political challenge, which would be beneficial for all.  It would help if people refrain from violence and strikes.  If anyone takes to the streets to demonstrate peacefully, it should be the supporters of the governments to give them, their creditors and the markets the confidence they need during this crisis.