June 24, 2011
Markets got very excited yesterday about the news that Greece had whipped up an austerity plan draconian enough to satisfy the EU and the IMF. Greeks, on the other hand, were not so excited. They might have a point.
A new poll puts the Greek opposition, which objects to the austerity plan, ahead of the party of Greek Prime Minister George Papandreou. There will likely be more protests ahead of next week’s parliamentary vote on the plan, which is no sure thing.
Passage of the austerity plan is necessary for Greece to get continued handouts from the EU and IMF. It’s easy to see why the Greek government is desperate to get it passed — Greece will default without it.
But this short-term solution may lead to longer-term problems down the road. The plan’s bundle of tax increases and new taxes — assuming the Greeks, notorious for tax avoidance, are actually forced to pay them — are going to be a drag on the Greek economy.
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