Greece reaches the brink

TENS OF thousands of protesters surrounded Greece's parliament building in Athens June 15 and clashed for hours with riot police as politicians debated a new round of austerity measures that would further slash living standards.

The day of protests Wednesday was the latest in a wave of demonstrations, and included a 24-hour general strike called by the country's two largest unions--the public-sector union ADEDY and the broad federation GSEE. This was the third general strike this year to protest the government's plan to sell off state assets, raise taxes and lower wages as required under a European Union-led bailout package worth $111 billion.

According to Bloomberg News:

Police fired teargas at demonstrators who threw firebombs and rocks at the Finance Ministry and banged on hotel shutters. Earlier, protesters rushed police guarding the parliament as union supporters joined up with demonstrators who have been camped out in front of the building for almost three weeks. Ports, banks, hospitals and state-run companies ground to a halt today as the two biggest unions went on strike.

There were a number of 24-hour general strikes last year as the economic crisis unfolded and the government sought to impose austerity to meet the demands of the European Union and International Monetary Fund, which provided a bailout to stop the country from defaulting on its debts.

But this year's demonstrations have even broader support--and they also feature a movement of mainly young people who have occupied the public squares in Greece's cities in recent weeks, like the movement of the Indignados (the Indignant) in Spain, who themselves imitated the Egyptian revolution's mass mobilizations in Tahrir Square.

The spreading resistance has thrown the government of Prime Minister George Papandreou and his center-left PASOK party into turmoil. Papandreou first offered to step aside as prime minister. Then he began talks with the other major party in Greece, the center-right New Democracy, with the apparent aim of forming a coalition government of budget-cutters. On Wednesday night, he went on television to announce a reshuffling of his cabinet and a coming vote of confidence in parliament.

PASOK, which is similar to the center-left British Labour Party or France's Socialists, started out with a slim majority of 155 out of 300 parliamentary deputies, but Papandreou's dedication to pushing through austerity has already driven two members of parliament to resign in protest, and more will certainly be soon to come.

The turmoil within the Greek political establishment has further spooked investors and international markets. Financial investment ratings agencies earlier this week downgraded Greece's debt, making it the lowest-rated government-issued debt in the world. In other words, Wall Street and other international financial players are betting that Greece will eventually be forced to default.

The U.S. media coverage of the Greek protests tends to be nonexistent, unless it is focused on clashes between police and protests. But according to BBC reporter and author Paul Mason:

The violence is a sideshow: it is the political paralysis of the Greek government that is of world importance because--while the European Union bickers about how much bankers should lose versus how much the EU should lose as Greece defaults--you are seeing the lines of defense against financial and social chaos within this part of Europe getting very frayed.

WITH EACH passing day, the capacity of the European Union to keep Greece's debt crisis from infecting other governments facing mounting debt crises--such as Portugal, Ireland, Italy and Spain--diminishes. That's because the worsening situation in Greece is pushing up interest rates which Greece--as well as every other financially strapped government--must pay to borrow money and remain solvent.

The shock waves from the spiraling crisis in Greece are spreading outward. French and German banks in particular hold a lot of Greek government debt--$53 billion and $34 billion, respectively. When the ratings for Greek government bonds were downgraded, three French banks--BNP Paribas, Crédit Agricole and Société Générale--were put on notice themselves by ratings agency Moody's that they could in turn be downgraded because of the effect a Greek default would have on their balance sheets.

Though French and German banks have the most direct exposure, U.S. banks and insurance firms are likewise vulnerable to a default in Greece--in particular because they have sold so-called "credit default swaps" as a form of insurance for investors if Greece does default.

That outcome in Greece would have stark consequences in southern Europe, the rest of the continent and beyond--certainly the biggest financial shock since the financial meltdown of 2008.

Last year, the EU and IMF insisted that Greece force through a draconian austerity package in exchange for a $146 billion bailout. That bailout was supposed to "fix" Greece's debt problem and, after some hardship, put it back on a path of sustainable growth. But while the austerity measures imposed incredible hardship on Greek workers, the bailout hasn't restarted the economy. On the contrary, gross domestic product dropped by 4.8 percent in the last year, industrial production is down 8 percent, and consumer prices are up 4.8 percent.

According to official statistics issued by the Greek government, "The unemployment rate [in the first quarter of 2011] was 15.9 percent compared with 14.2 percent in the previous quarter, and 11.7 percent in the corresponding quarter of 2010." And the unemployment rate for those under 30 is 31 percent.

It shouldn't be surprising that raising taxes on working people and cutting wages had the effect of stifling Greece's already weak economy. But now, with the crisis getting deeper, Europe's financial elite is demanding even more from working people.

If a year ago many in Greece were resigned to the pain of austerity measures, today, the mood is different. In the wake of the revolution in Egypt and now ongoing protests across Spain, bitterness is turning to radicalization. There is growing support for strikes and protests to oppose privatization, austerity and cuts.

Europe's ruling class would like to quarantine the Greek debt crisis by making the Greek working class pay for all of it, but Greek workers have a different idea: Fight back, just as growing numbers of workers are doing from Madrid to Damascus.