November 8, 2012
Greece faced massive strikes turned riots yesterday as its government passed a new round of fiscal consolidation, designed to shrink the budget €18.5 billion by 2016. The contents of the austerity plan hardly seems like the stuff to drive Greeks to firebomb riot police; among the measures under debate were a two-year rise in the retirement age and measures to make it easier to fire public employees. One suspects the anger is only slightly about the day's legislation. Rather the tension is probably best explained by the continuing pressure on an imploding Greek economy.
Greece has been in recession for over five years. In August the unemployment rate rose for the 39th consecutive month. Joblessness among all workers stood at 25.4%, while unemployment for those aged 15-24 soared to 58%. More sobering still, the European Commission's latest economic outlook forecasts a contraction of 4.2% for the Greek economy in 2013. The Commission reckons the Greek economy might expand by 0.6% in 2014. It is frightening to think how the Greek political situation might evolve between now and then.
In fact, the economic outlook for the whole of the euro area is pretty lousy. After contracting this year, the Commission expects the euro zone economy to grow 0.1% in 2013. But that's a downward revision—in the spring it projected growth of 1.0%—and continued contraction seems a real possibility. The European Central Bank declared today that it was taking no additional action to help the situation. Says Reuters:
The ECB is by and large done," Draghi told his monthly news conference when asked what the bank could do for Greece.More
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