Source Of Greek Crisis?

A Nation In Denial European leaders are scrambling to save Greece from a debt default that could c ause global economic turmoil, but the Greeks themselves seem in denial. In a rea ction that is causing frustration and anger abroad, the Greeks seem more incline d to blame others for their troubles than accepting that something is deeply wro ng with their country and painful medicine is urgent. "The ordinary people don't understand the seriousness of the situation...not onl y for Greece, but for the whole world economy," said Jan Randolph, director of S overeign Risk Analysis at IHS Global Insight on Fruday, June 17. Violent protests against austerity measures demanded in return for an internatio nal rescue worth billions of dollars have combined with political infighting and euro zone dithering to severely spook international markets. No single element of society appears to have fully embraced the gravity of the s ituation, analysts say, and investors fear political wrangling and opposition to austerity measures could push the country into a messy default on its sovereign debt, which totals 340 billion euros ($480.8 billion). While countries like Latvia have taken IMF medicine, suffered quick but painful contractions, and are now on paths of recovery, analysts said Greece's case incr easingly threatens to resemble Argentina, which defaulted in 2001 and is still s hut out of financial markets. Greece's bailout lenders, the European Union and International Monetary Fund, ha ve called for national consensus behind reforms to win a new financing package b ut in the country itself a great deal of time is spent pointing fingers rather t han looking for solutions. Government and opposition paint each other as obstructing a solution, private co mpany workers blame the bloated public sector, civil servants blame tax cheats a nd most Greeks say corrupt politicians are the main problem. "The big problem of Greek society is the tendency to consider somebody else is r esponsible for everything that goes wrong," said Theodore Couloumbis, of the ELI AMEP think-tank. "It's like someone who suffers from a severe disease and wants to know what caused it rather than taking precautions to cure it." PAINFUL MEASURES The government has reduced public sector wages by a fifth, raised the retirement age for women, cut pensions by more than 10 percent, and cut temporary public c ontract jobs. But the underlying budget problems remain. Tax evasion is still rampant -- the l abour minister has estimated a quarter of the economy pays nothing -- and loss-m aking public firms cost the state 13 billion euros from 2004 to 2009, their work ers virtually immune from being fired. "Ninety-nine percent of the Greeks' problems are of their own making," said Rand olph. "If everyone had been paying their taxes, we wouldn't have a budget defici t this high." Greeks are upset with austerity and in a poll held last month, 80 percent of res pondents said they refused to make any further sacrifices to get more EU/IMF aid . Workers at banks and state utilities heading for privatisation, public sector co ntractors, and even doctors have taken to the street of Athens in almost daily p rotests to oppose deregulation, sell-offs and liberalisaton of a highly bureaucr atic economy. Those demonstrations turned violent on Wednesday. Analysts say another problem is that Prime Minister George Papandreou's governme nt appears to have failed to explain to the public how desperate the situation i s -- that default will have a major impact not only in Greece but beyond its bor ders. French and German banks have the most exposure to Greek debt. If Greece went und er, market pressure would increase on other indebted euro zone countries such as Ireland, Portugal and maybe Spain. A confusing internal political battle seems to have compounded the problems, wit

h Greek politicians still eyeing a domestic audience rather than thinking of the broader picture. That may have played a role on Wednesday, when Papandreou initiated and then bro ke off talks with the conservative opposition on creating a unity government to push through new austerity measures. He later announced he would reshuffle his c abinet instead, adding to international jitters. Pundits said there was a small chance Papandreou thought a unity deal was possib le, although the conservatives have for months demanded the renegotiation of Gre ece's 110 billion euro bailout from the EU and IMF last year. "I can't believe they are doing this with all the money they are being offered," one frustrated European Central banker said. Papandreou may also have wanted to scare wavering deputies into voting for the n ew five-year, 28 billion euro austerity package that is an IMF and EU condition for continued aid. "The real risk to the next package is coming from within Greece itself," J.P. Mo rgan wrote in a research note. "The prime minister is losing support within his own party, and there is huge co nflict across the political spectrum and the population as a whole." DISAPPOINTMENT IN EUROPE The confusion roiled markets globally and shocked European Union officials who h ave appealed for Greece's political elite to unite behind the reforms. Analysts said it looked as if Greece was drifting away from a Latvia-style situa tion. The Baltic state took an EU-IMF bailout in 2008 to avoid bankruptcy. It imposed spending cuts and tax hikes worth about 15 percent of gross domestic product over three years, including wage cuts for teachers and health workers of up to 50 percent. The measures triggered an 18 percent economic contraction in 2009 but Latvia's e conomy began growing again last year and it has returned to borrow on internatio nal markets. By comparison, Greece managed to cut its budget deficit to 10.5 percent of GDP l ast year, from 15.4 percent in 2009. But it has fallen behind on the targets it has agreed with the EU and the IMF, a result that led to the cabinet agreeing to the new belt-tightening campaign that sparked the protests. Markets are sceptical that Greece can be saved, not least after Wednesday's viol ence. Combined with resignations by several deputies from Papandreou's party and persi stent differences between euro zone policymakers trying to arrange further aid f or Athens, some analysts see the chances of a messy default rising. "The protests are not going to go away and the Greeks can't deliver ... it looks like you're seeing growing divisions between the IMF, EU and ECB," said David L ea, western Europe analyst at Control Risks. "I think we're moving inexorably to default."