Financial Times
June 26, 2011
The Greek parliament is today scheduled to start the most important parliamentary debate in the country’s recent history. If a majority approves the agreed austerity package in a vote due on Tuesday, all is well. For now. The European Union and the International Monetary Fund will continue to provide credits. If not, Greece might default within days.
How should Greek MPs vote?
Until last week, I would have said: definitely Yes. The country is running a large primary deficit. The austerity imposed by the EU and the IMF is mild compared with the austerity that would be required if the country were to be cut off from any source of external finance. A messy default would destabilise the global financial system and could force Greece to abandon the euro.
Such an argument is vulnerable to relatively subtle shifts in circumstances. One such shift may have occurred last week, when EU and IMF negotiators imposed a new tranche of austerity. The measures included a cut in the tax-free allowance, and a tax levy of €100-€300 for the self-employed. The decision triggered angry protests in Athens. I see it as a political provocation and an act of economic vandalism. It could derail the entire crisis resolution process.
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