Economy Watch: Athens Burns, But Bailout Deal Might Be Done
- Feb 13, 2012
The Greek parliament voted on Sunday to enact new austerity measures by 199 to 74, with 27 abstentions or other non-votes, and also to give the government authority to complete the haircut deal with the country’s creditors. The new measures include a deep cut—22 percent—in the nation’s minimum wage, more government layoffs over the next few years, and other tough-to-swallow measures for a country whose economy is contracting while its unemployment rate expands above 21 percent. In short, Greece had to choose between the chaos of default and the bitterness of economic depression.
A number of members of the Greek government resigned late last week over the austerity demands, including the memorably named deputy foreign minister Xenogiannakopoulou, as well as two members of the rightist LAOS party. “Whomever opposes the bailout doesn’t belong in government,” Greek Prime Minister Papademos said on Friday, and apparently those ministers took him quite seriously. Also serious was the rioting over the weekend at Syntagma Square, near the Greek parliament, including firebombing and looting, and leaving a number of destroyed buildings in its wake.
The Greek parliament met late into the night Sunday to debate the austerity measures demanded of it by the “troika”—the IMF, EU and the ECB—in return for the next round of bailout money. If the measure had failed, the Greeks wouldn’t have received the money, which in turn would have deep-sixed the haircut deal with Greek creditors, besides pushing the country into default, with unknown consequences for the euro-zone. In the end, a majority did indeed support the deal, despite the obvious pain it will cause. All bets are off on what it means for the Greek elections in April.
Clashing budgets emerge from Washington
Though it’s going to be formally released on Monday, the details of President Obama’s proposed fiscal 2013 budget were well known by the time the weekend was over. In its broad outline, the president is proposing his standard combination of budget cuts—some $4 trillion over the next decade, but most of them in later years—and higher taxes for the wealthy a good deal sooner. Most the Bush-era cuts for the less-than-wealthy would continue, however. “The time for austerity is not today,” White House chief of staff Jacob J. Lew said on Meet the Press on Sunday.
The budget is, of course, a political document as much as a fiscal one, and Republicans will soon respond with their own standard proposals, which will also be political in nature, focusing on budget cuts alone. If recent years are any guide, the odds of passing any budget for fiscal 2013 before the election, much less either the president’s budget or the Republican version, will be slim indeed. There will, on the other hand, be a great deal of talk–and posturing–about the relative merits of both proposals.
Consumer sentiment down this month
The Reuter’s/University of Michigan’s Consumer Sentiment Index edged down a little for a mid-February reading of 72.5, which is lower than January’s reading of 75, the highest the index has been in about a year. It was an unexpected retreat, though the index remains higher than the final December reading of 70. The current conditions component dropped the most, down 4.6 points in mid-February to 79.6, for a return to December levels. All of January’s gains in current conditions thus vanished, but it still wasn’t that bad compared with readings in mid-2011.
The February mid-month expectations index lost ground as well, dropping 1.6 points to 68. But that’s still better than December’s reading of 63.6 and the especially gloomy month of October 2011, when the reading was 51.8. So consumers are still fairly hopeful about the future, though not quite as much as at the beginning of 2012—possibly because of the way gas prices have edged up lately, or perhaps because of worries that Europe is going to drag the rest of the world down with it.
Wall Street ended last week down on Friday. The Dow Jones Industrial Average lost 89.23 points, or 0.69 percent, and the S&P 500 was down 0.69 percent as well. The Nasdaq declined 0.8 percent.