In response to austerity measures, proposed as part of the bailout package offered by the IMF and European Union, workers throughout the European Countries are increasingly joining in strike actions. Ever since the Greek debt crisis surfaced, European governments as well as financial analysts and economists have talked and written about the need for maintaining fiscal discipline and reducing deficits and debts. The IMF has been pressuring European nations, particularly the countries under monitory union to implement austerity measures like spending cuts, jobs cuts and tax increases.
Greece to Hungary
When George Papandreou’s new socialist government came to power in Greece and revealed that Greece’s budget deficit was actually 12.7 (again modified to 13.6 percent by Eurostat in April) percent of GDP, more than twice the previously published figure by the previous government, the market began to panic. Doubts rose whether Greece could meet its debt commitments in time.
The problem was aggravated with the top three credit rating agencies – Fitch, Moody’s and S&P – went on to threaten investors by downgrading the sovereign debt ratings of Greece, Portugal, Spain, Ireland and Hungary. By the end of April 2010, Greece’s government debt was downgraded to junk status. Weather the actual situation led to downgrading or downgrading prepared the ground for the so-called fiscal discipline measures remains a matter of concern.
Meanwhile a sense of urgency for fiscal consolidation was instilled through print, audio and visual media into the minds of the people. The markets and the people were so prepared by the frequent media news and analyses that everyone from common people to top investors began to believe that some drastic measures were inevitable.
Aid (Debt) Package
The run up to the announcement of the joint aid package by the EU and IMF for Greece as well as the Euro Zone was a big fiasco as dramatic as the stage plays scripted by the great “Bard of Avon.” Greek Prime Minister Papandreou repeatedly requested a guarantee from the EU to prevent the rising sovereign debt costs. On one hand, Germany hesitated to announce any package; the reason given was that it feared it would have to bear a major part of the aid package and that it would face severe opposition from its people. On the other hand, bond yields demanded by the investors to invest in Greek debt, peaked to more than 22 percent (on 2-year note) at one point.
At last on May 2, with pressure from France and the so-called markets, the EU under the leadership of Germany, announced a 110 billion Euro aid package to be disbursed over three years, a third of which was agreed to be shared by the IMF. In fact, it was not an aid package but a debt package. It was a debt trap that added more debt to the debt-ridden Greece in the name of helping them resolve their fiscal burden. The IMF is already notorious for its deadly strictures to debt-ridden third world countries so as to make their economies subservient to the interests of the United States of America. The same conditions were stipulated to Greece when granting the aid package.
But, markets were not satisfied. Fresh doubts were raised whether Greece could deliver the required austerity measures along with spending cuts and tax increases. Their doubts extended to other euro zone countries. They continued to demand more profits from the sovereigns of the other highly indebted euro zone countries. Again, discussions, meetings, deliberations, conferences, analyses, pressures, statements, promises and warnings followed.
The situation reached a climax on May 10 with the announcement of 750 billion euros (nearly equal to one trillion dollars) of emergency financial safety net for the euro zone to calm financial markets and to avert contagion from the Greek crisis. With this safety net, the ECB is buying sovereign bonds whenever demand for bond yield soars.