The last-minute cancellation of a eurozone ministerial meeting to confirm a joint European Union-International Monetary Fund package worth €130 billion exemplifies the chaos and mistrust around the eurozone's attempts to rescue the Greek economy, despite the fact that Prime Minister Lucas Papademos has got an austerity plan passed by 199 to 74 in the 300-seat Hellenic Parliament. The plan itself requires reductions worth €3.3 billion in wages, pensions, and jobs during the first year alone; in return, a bond swap is to cut the country's €350-billion debt by 100 billion, reducing the debt burden to 120 per cent of GDP. The Greek parliament has also voted to recapitalise banks, a process which could involve nationalisation. The public, however, has for months shown its anger at the cuts, and in the protests leading up to the February 13 vote in Athens the trade unions added to a 48-hour strike by calling for a demonstration on the voting day itself. While the media focused on violence in which 120 were injured and several buildings burnt down, 100,000 people stayed on through the violence and the tear-gas. Furthermore, New Democracy party leader and coalition supporter Antonis Samaras says he cannot promise not to revise the deal's terms after the April general election. He has thereby infuriated the eurozone leaders but he is hardly alone, as nearly 40 MPs in two of the coalition parties, his own and the Panhellenic Socialist Movement (PASOK), voted against the package.
Opposition to the rescue plan may well be justified. Even the business body, the Federation of Hellenic Enterprises (SEV), resists the proposed 22 per cent cut in the minimum wage and the probable end to various bonuses in private-sector jobs. Secondly, it is not clear if saving the banks will mean buyouts or bailouts; if it means the latter, then Greece could, like the United Kingdom, find that rescued banks worsen the recession by curtailing their lending. In addition, hedge funds have a vested interest in the plan's failure, as they can profit from insurance they have taken out against a national default. Above all, the evidence gives clear cause for concern. Privatisation realised only €1.7 billion in 2011 as against the projected 5 billion, but more privatisation is part of the package. Most importantly, salary cuts and slashed public spending have caused a slump in demand and, therefore, in tax revenues, with consequent calls for yet more state cuts. What Greece needs instead is systemic improvement of its ramshackle tax-collection system and far more investment in solid production, but the eurozone proposals neglect that and will almost certainly exacerbate Greece's problems.