Will Greek Austerity Measures Work?

Today the Greek Parliament, flying in the face of violent and deadly protests, voted to adopt austerity measures designed to reduce Greece's mountainous debt and settle very shaky nerves in the euro zone.

Even if this plan is passed, though, will the euro - and the EU - be on the path to recovery?

It's hard to say, but I believe that the austerity plan - while not perfect - takes sufficient aim at Greece's bloated public sector.

Greece is notorious for being a state consumed by the public sector, which amounts for about 40% of its GDP. The average retirement age in Greece's public sector is 61, well below what it should probably be. The austerity plan should help with these matters.

What is not being addressed, however, is corruption. Corruption is widespread in the Greek public sector, causing hundreds of millions of euros to be paid out each year in under-the-table bribes for basic public services. In fact, corruption may be one of the key reasons why the Greek economy is so weak - systemic reasons aside.

Corruption has to be addresed by the Greek government in order for any austerity plan to be successful. Pay cuts, salary freezes, and layoffs may work to a degree, but corruption and grafts have to be squashed as a part of any package dealing with the public sector.

It's too early to say if these plans will work or not. Besides, even if they do, you still have a dire situation in Italy, Portugal, Spain, and Ireland that has to be handled. But, the markets will probably view this as a positive development, and in the short term, things could be worse.

Protest Violence Before Key Greek Austerity Vote

Greek police clashed with protesters trying to block the way into parliament on Wednesday as signs grew that the government would succeed in passing a sweeping austerity plan demanded by international creditors.

With Greece risking bankruptcy if the measures are blocked, parliament was expected to vote in the afternoon on the mix of spending cuts, tax increases and privatizations to be implemented as conditions for a massive bailout by the European Union and the International Monetary Fund.

After the start of a 48-hour general strike and violent clashes on Tuesday that transformed the central Syntagma Square into a battle zone, fresh protests were planned on Wednesday and thousands had gathered in front of parliament by midday.

Late on Tuesday, the government of Prime Minister George Papandreou received a boost when one of three rebel deputies from his PASOK party backtracked on his previous opposition and said he would vote for the package.

"I have made the decision to vote for the plan because national interests are more important than our own dignity," the deputy, Thomas Robopoulos, told Reuters.

A parliamentary official said the vote would probably take place between 2 and 5 p.m. (1100-1400 GMT).

One communist deputy was pelted with yoghurt as she made her way into parliament and three people were treated for minor injuries as protesters clashed with police during an attempt to bar the way into the chamber.

The communist-affiliated PAME labor group held a rally in the morning and several other meetings were expected during the day, culminating in a major demonstration by public service union ADEDY and private sector union GSEE at 7 p.m. (1600 GMT).

Greece's central bank governor, George Provopoulos, warned that a "no" vote would be catastrophic for Greece.

"For parliament to vote against this package would be a crime - the country would be voting for its suicide," he told the Financial Times.

The measures demanded by international lenders as the price for continuing to support Athens have caused bitter resentment among Greeks coping with the deepest recession since the 1970s and now facing years of grim austerity.

Another PASOK rebel, Panagiotis Kouroublis, said he still objected to the plan but declined to say whether he would vote against it. "I will speak to the Parliament later and you will hear what I have to say," he told Alter TV. "Nothing is more important than my dignity and my love for my country."

SLIM GOVERNMENT MAJORITY

Papandreou's Socialists hold a narrow majority with 155 seats in the 300-member legislature and with Robopoulos, the most prominent of a handful of potential rebels, backtracking on his opposition, chances of the vote going through improved.

In a sign of growing optimism on financial markets about the outcome, Greek bank stocks opened up 3 percent on Wednesday, while Greek bond yields fell.

However even with approval on Wednesday, there will still be a risk of lawmakers rejecting detailed austerity bills in votes on Thursday on the implementation of different elements of the plan, such as tax rises and the sale of state assets.

The EU and the IMF have said the entire plan must be passed this week for Greece to obtain the next, 12 billion euro ($17.3 billion) tranche of emergency loans under the bailout.

Greek officials have said the country needs the money by mid-July to continue paying its debts.

Despite heavy international pressure, the center-right opposition declared ihttp://www.blogger.com/img/blank.gift would vote against the package but close attention was being paid to a splinter group of conservative deputies led by former foreign minister Dora Bakoyanis.

Bakoyanis, who broke party ranks to vote in favor of Greece's first EU/IMF bailout last year, said on Wednesday she would abstain from voting this time. The other four deputies in her group would vote according to their consciences.

"The government cannot govern and apply the program and the political opposition is lying, this is the problem. It does not dare to tell people that there are no magic solutions, that sacrifices are necessary," Bakoyanis said.

View original source: Reuters.com