Eurozone Act 5

Mark Sandford - September 2012
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In recent weeks, both Greece and Spain have witnessed violent street protests against austerity programmes being implemented by government in both countries to deal with an overhang of public debt. This week, Spanish police barricaded the nation's parliament in Madrid as protests erupted over the government's plan to unveil further cutbacks in public expenditure. At least 20 arrests were made and a dozen persons were injured. Thousands of people massed in Plaza de Neptuno in central Madrid to march on Parliament. The authorities massed hundreds of riot police and blocked access by use of metal railings. Unemployment is now raging at 25% amid a second recession in three years.

Spain's regions are also demanding extra funds from the central government which adds to the pressure now on the centre right government. Andalucia is prepared to request a 4.9 Billion Euro emergency credit and other regions such as Valencia and Murcia are liable to do the same. Prime Minister Mariano Rajoy is determined to resist demands for a bailout to rescue the country's banks that have been clobbered by a collapse in property prices after the end of a construction boom.

In Greece, trade unions called a one day national strike that practically brought the country to a total standstill. The protest was joined by doctors, teachers and air traffic controllers amongst others. Banks and historic sites across the country also closed their doors on the day of the protest, as did schools and government services. The strike was called over planned spending cuts of 11.5 billion Euros. This is part of a package of reforms that Greece has to undertake to receive the next tranche of bailout funds, amounting to 31 billion Euros. If it does not receive these funds, the country would face bankruptcy within weeks.

There are also signs now that the so-called troika including the IMF and European Central Bank are prepared to give Greece a little more time to push through austerity measures. In Germany, the Constitutional Court blocked an attempt to stop further taxpayers money going into the so-called European Stability Mechanism, but has stated in black and white that any increase in contribution by the German electorate has to be ratified by the country's parliament, the Bundestag. In principle, this is only proper and fair.

The demonstrations in both countries have become a futile exercise as both nations need to sort out their own affairs over time. Unemployment has rocketed in both societies and this illustrates the need for supply side reforms to make both countries competitive and attract inward investment. Marching in the streets is never liable to cure huge national debt and neither would screaming polemics and insults do so at all. There has to be a concerted effort by all to generate real wealth and only this will prove to be a lasting solution.

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