Can the Crisis in Greece Be Contained?

ARIS MESSINIS / AFP / GETTY
Anger Three died when protesters laid siege to this Athens bank on May 5

The words scrawled in green and black spray paint on the sidewalk outside Greece's parliament summed up the mood: "George get out. Out IMF and U.S. and E.U." A few days earlier, Prime Minister George Papandreou the George in question had the unhappy duty of telling Greeks that the bill for past excesses had come due. On May 2, he and other Greek ministers had filed into an extraordinary Cabinet meeting where the terms of a bailout deal hammered out with the International Monetary Fund (IMF) and European states was confirmed. After months of tense negotiations, and failed attempts to convince markets that European pledges to help Greece were more than talk, Papandreou handed over Greece's sovereignty in exchange for a rescue. Now he's not only fending off bankruptcy, but rebellion on the streets too.

Violent protest is as Greek as feta, but it's usually calculated, part of the country's intricate political theater. On May 5, however, anger at Papandreou's government for agreeing to slash $38 billion from the state budget over the next three years boiled over with deadly consequences. Three bank workers died in a blaze set by rioting protesters at Marfin Egnatia Bank, as fierce battles between police and angry citizens raged on the streets of Athens. The government had hoped that Greeks would accept the austerity program with stoicism, but those hopes are now in tatters. With Greece teetering on the edge of bankruptcy, Papandreou's government agreed to harsh measures which include deep cuts to civil-service pay, higher taxes and sweeping reforms to pensions and labor laws as a condition of $146 billion in loans from other euro-zone countries and the IMF. It will be the largest such bailout ever, and questions remain about whether it will even work. During talks over the terms of the bailout, the Greek government had warned that there was only so far the Greek people could be pushed. "We will be in the streets for as long as it takes," says Christos Sarris, 40, a professor at a private university. "It's our only chance, otherwise we will be full of unemployment and poverty. It's our responsibility to ourselves and our children."

Many Greeks, even those who joined the protests, disapprove of the violence. But few believe the bailout will bring better times soon. According to a new poll for the Greek newspaper To Vima, only 14.8% percent of Greeks were relieved at the bailout, compared to 31% who were angry and nearly 23% who felt ashamed. For Greeks, who are proud of their contribution to Western culture but have felt squeezed by foreign powers for much of their modern history, it's humiliating to have to beg from Germany and play by the IMF's tough rules on conditionality. Out on the streets in a May Day march in Athens, computer engineer Dimitris Mitrovgenis said many young Greeks like himself are thinking about leaving Greece for places where the economy is better and merit, rather than connections, is rewarded. Even before the crisis, Greece suffered from a brain drain of its young talent and now there are rising fears that the crisis will spark a wave of mass emigration.

Ripple Effects
The question bothering world leaders now is whether Greece's problems will be exported, just like its talented young people. Just about everywhere you look these days, the green shoots that began to sprout in the global economy late last year are blossoming and bearing fruit. The IMF in April upgraded its 2010 forecast for global economic growth once again to 4.2%. Hopes were buoyed that the all-important American consumer has started spending again after the U.S. economy expanded at an annual rate of 3.2% in the first quarter of 2010. In emerging markets, the recovery is zooming ahead. Singapore's gross domestic product grew an annualized 32% in the first quarter, while China posted 11.9% GDP growth, compared to the first quarter of 2009.

But we haven't shaken the gloom from the Great Recession just yet. "Even if the recovery is stronger and faster than expected, it is fragile," IMF Managing Director Dominique Strauss-Kahn said in late April. "The world is still a dangerous place and I would not like that too many people have in mind that the crisis is over and that we can go back to business as usual." Private demand and investment is still weak, especially in the advanced economies, financial sectors are not fully repaired and unemployment is still extremely high.