Debt woes in Greece turn violent as fears spread to other European countries
Thursday, May 6, 2010
MADRID -- Violence erupted in Greece on Wednesday when tens of thousands of demonstrators protesting stringent economic measures hit the streets in Athens, rioters heaved Molotov cocktails and three bank employees died after their building was torched.
The protesters were objecting to cuts in government wages and pensions required by a deal announced Sunday that would give Greece $141 billion in loans from the European Union and the International Monetary Fund, but only if the government promises to restore its tattered finances by imposing program cuts and tax increases.
Police resorted to barricades and tear gas, according to news media reports. Meanwhile, a growing fear that Greece's debt troubles and civil unrest could soon spread to other European nations spooked investors.
"A demonstration is one thing, and murder is quite another!" Prime Minister George Papandreou bellowed in Parliament during a session to discuss the economic reforms.
The chaos in Greece has raised the pressure on other countries in Europe, such as Spain and Portugal, where the government debt is staggeringly large and the economy relatively weak.
Although the streets of Madrid were quiet and average citizens described themselves as sheltered, at least for now, from the chaos in Athens, the European markets had the jitters once more. Spain's Ibex 35-stock index lost 2.3 percent. The euro dropped. And in Portugal, Moody's Investors Service announced that it had put the government bond rating under review for a possible downgrade based on the country's finances.
In Germany, Chancellor Angela Merkel urged lawmakers to approve their country's share of the international rescue package for Greece with a dramatic warning.
"Nothing less than the future of Europe, and with that the future of Germany in Europe, is at stake," Merkel told lawmakers. "We are at a fork in the road."
In the United States, administration officials and members of Congress are also closely monitoring the situation for signs that a feedback loop of bad news could send the economies in some fragile European countries spiraling downward. U.S markets registered a second day of losses: The Dow Jones industrial average slipped 0.5 percent, the Standard & Poor's 500-stock index dropped 0.7 percent, and the Nasdaq composite index fell 0.9 percent. The declines extended into Asia Thursday, with Japan's Nikkei average down more than 3 percent in early trading.
The United States should move aggressively to prevent a European sovereign debt crisis, said Rep. Mark Steven Kirk (R-Ill.), a former staff member at the World Bank and member of the House subcommittee that arranges funds for the International Monetary Fund.
"We need to urge Portugal and Spain to cut back on government spending," he said.
If the "contagion" in Greece spreads to other countries, he said, the United States might be called upon to offer direct assistance, as it did with Mexico in 1982.