Greek Crisis Going Global?

Sree Vidya Bhaktavatsalam and Christopher Condon of Bloomberg report, Pimco’s El-Erian, Loomis’s Fuss Say Greek Crisis Going Global:

Pacific Investment Management Co.’s Mohamed El-Erian and Loomis Sayles & Co.’s Dan Fuss said the European debt crisis may spread across the globe because of investor concern that governments have borrowed too much to revive their economies.

“After morphing into a regional dislocation, the Greek crisis is now going global,” El-Erian, the chief executive officer of Newport Beach, California-based Pimco, said yesterday in an e-mail. El-Erian shares the title of co-chief investment officer of Pimco with Bill Gross, who runs the world’s biggest bond fund.

U.S. stock markets plunged by the most in a year yesterday on concerns that the debt troubles in Europe will bring the global economic recovery to a halt. The Dow average slumped as much as 9.2 percent during the day before paring losses. European Central Bank President Jean-Claude Trichet resisted pressure to take steps to fight the spreading crisis, and said the bank didn’t discuss buying government debt when policy makers met yesterday.

Asian stocks fell today after the rout in U.S. equities. The MSCI Asia Pacific Index slid 1.6 percent to 117.88 at 9:22 a.m. in Tokyo, set to close at the lowest level since Feb. 25.

Fuss, whose Loomis Sayles Bond Fund beat 96 percent of competitors in the past year, said the euro crisis had reached a “critical” point.

“It’s a liquidity issue, so it’s not just over there, it’s over here,” Fuss said in an interview.

Dow’s Decline

The Dow Jones Industrial Average lost as much as 998.5 points before paring its drop to 347.80 points in New York. The Standard & Poor’s 500 Index fell 3.2 percent to 1128.15. The declines for both gauges were the most since April 20, 2009.

“The transmission mechanisms for this latest round include disruptions in European inter-bank lines, a flight to quality, and market illiquidity,” El-Erian said.

The euro tumbled the most since the collapse of credit markets in 2008, dropping 1.5 percent to $1.2620 and touching a 14-month low of $1.2529.

Amid protests, Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion euro ($139 billion) bailout.

Europe’s debt-ridden nations have to raise almost 2 trillion euros within the next three years to refinance maturing bonds and fund deficits, according to Bank of America Merrill Lynch data.

‘Defaults’

“The issues in Greece are a global issue,” Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California, said in an interview. “The recovery priced in that access to credit is available, and cheaply.”

Italy faces the biggest bill, followed by Spain. Greece needs 152.6 billion euros, while Portugal and Ireland each have to raise about 80 billion euros, the data show.

“There may well be some defaults. If not Greece then some other nation,” Merk said. That’s “hitting the banking sector particularly hard.”

Europe’s fiscal crisis could threaten banks in Portugal, Spain, Italy, Ireland and the U.K. as the risk of contagion grows, Moody’s Investors Service said in a report yesterday.

‘Dissolution of the Euro’

“If Merkel and Trichet don’t solve this, if they don’t work together, this could potentially mean the dissolution of the euro,” Ron Sloan, chief investment officer at Atlanta-based Invesco Ltd.’s U.S. core equity team, said in a telephone interview, referring to German Chancellor Angela Merkel.

Sloan added that there is a danger the debt crisis could spread to municipal debt issued by U.S. states that are struggling to balance their budgets.

“It’s the whole issue of risk appetite again,” he said. “If the euro sinks individual U.S. states will be the next step.”

The U.S. federal deficit is forecast to reach $1.6 trillion this year, or 10.6 percent of the economy, making it the biggest by that measure since World War II. Sloan manages the $5.5 billion Invesco Charter Fund, which has outperformed 97 percent of similarly managed funds over the past five years.

There are increasing worries that the revolts in Athens will spread throughout Europe. The Guardian's Stephen Moss writes on death and destruction in Athens:

It began as a fiesta, a mass march in the sun against the deflationary programme the Greek people are being told can alone save their country. At 10 on Wednesday morning, Klathmonos Square in Athens was filling with protesters. A union official was making an interminable speech (Greeks never use one word when 300 will do), and music was blaring out of vans – those Chilean-style revolutionary songs without which no demo is complete: "The people, united, will never be defeated." Not today, anyway.

People had said there would be no violence – or at least if there was, it would be "ritual" violence: a broken window here, a wrecked ATM there. One Greek journalist had told me the protests so far had been subdued – "equivalent to what would normally happen here if the electricity board sacked a few people". He said the public were resigned to the economic hardships to come – salaries of state employees cut by 25%, pensions to fall by 15%, unemployment likely to rise to 18% – and that they recognised the only alternative was national bankruptcy; not just junk bonds but a junk country.

A few hours later, three bank workers, one a woman who was four months pregnant, lay dead in a burned out bank on Stadiou Avenue, the victims of anarchist firebombs. Ritual violence this was not, and by Wednesday evening Athens feels drained and lifeless. "This will make people stop and think," teacher Anna Tsiokou tells me, as we stand beside the police cordon on the edge of the area where the firebombing had occurred. "The demonstrations will have to stop for the moment. We have legitimate grievances, but the anarchists are using the crisis for their own ends."

The writer Apostolos Doxiadis, whom I had met the previous day, rings me as I sit in a cafe close to Stadiou, and offers to come down from his office 20 minutes away and help me make sense of what has happened. Doxiadis has an interest in terrorism because last year his office was firebombed, after he and two fellow writers had taken a public stand against political violence and disruption of artistic events by sympathisers of the riots of December 2008 (when the police shooting of a schoolboy led to weeks of unrest).

"What's so surprising is that there haven't been more deaths before," Doxiadis says. "Those of us who have been outspoken against violence from the beginning are not, I'm sorry to say, surprised, because there's been extreme violence of many forms. But this tragedy will start to make people think seriously, and find other ways to register their dissent. We are in a complex situation, and we have reached a tipping point today."

Just before midnight on Wednesday, as Athens finally starts to rest after a fearful and violent day, I have a coffee with an anarchist in Omonia Square, the traditional heart of violent protest in the city. He tells me he was close to the attack on the bank. His emotions are confused. He is sorry for the deaths, but will not accept the anarchists are to blame.

"The government are presenting this as murder," he says, "but it was a tragic accident. Anarchism is about material damage; it is not about taking life." Perversely, he blames the bank for allowing workers to be there on a day when it should have realised banks would be targeted.

"I am shocked, devastated," he says. "It will make me rethink whether I will ever throw a petrol bomb again." Yet, a few minutes later, he tells me that he will do just that if faced with a line of policemen who threaten him and his "comrades".

"When one of us is killed in a non-combat situation, it doesn't even get reported. I said people were going to die in Greece. This isn't the G20 protest outside RBS; this is about people's lives. Everyone here will be affected in some shape or form."

He believes Greece is at a potentially revolutionary moment – a point of view held by virtually no one except anarchists, communists and the fringe left – and, while he sympathises with the three innocent bank workers, mostly he is disappointed that the cause has been set back, the revolutionary momentum lost. The deaths have given even the anarchists pause for thought, and the evening's battles in Omonio and the neighbouring district of Exarchia have been less extensive than might otherwise have been the case.

The general strike, the mass demonstration and the deaths occur on my third day in Greece, a country now in such crisis that it is being painted as an international pariah. "This is the biggest crisis for Greece since the dictatorship [the 'rule of the colonels' from 1967-74]," says novelist Petros Tatsopoulos, at his flat in the northern suburbs of Athens, two days before the killings. "But this is not only our fault. There has been a chain reaction from the [subprime mortgage] crisis starting in the US two years ago, and Greece was the weakest link in the chain in Europe. Traders have been gambling on the bankruptcy of Greece, and that is a very dirty game."

Tatsopoulos accepts Greece is now the "black goat" of Europe – it takes me a while to grasp the slight difference between the English and Greek expressions – but again stresses it is not solely the fault of his country. The collapse in relations between Greece and Germany – the latter was tardy in agreeing the loans needed to prop up Greece – becomes evident. "The Germans think we are the black goat, and that there would be no problems in the eurozone if Greece wasn't a member," he says. "But the Greeks think the Germans are the last people to talk, because they didn't pay reparations to us after the occupation in the second world war."

The number of tourists from Germany is predicted to drop by two-thirds this summer, a further disaster for an economy dangerously dependent on tourism and the service sector. Tatsopoulos foresees the severe public sector cuts and tax rises imposed by the EU and International Monetary Fund – the quid pro quo for their £95bn bailout package – provoking a social crisis; particularly as the country is being led by an ostensibly socialist government. "The Greek people can't stand any more," he says. "Greece is a very expensive country; prices are very high, but salaries are already low, and they won't be able to take more cuts in wages. There will be a revolt in the streets."

The taxi driver who takes me from Tatsopoulos's flat to Syntagma Square, home of the Greek parliament, tells me in broken English how fearful the public are. In part, he blames journalists. "They have made the people scared. The people don't know what they should do to get out of this." He also says journalists should have warned of the gathering crisis. "I think they are taking money from the government and the banks," he says. Greeks, several people tell me, are great conspiracy theorists.

There have been smaller daily demonstrations in Syntagma Square in the run-up to Wednesday's mass demo. Now it is the turn of the town hall workers, and John Maravelakis, who is selling copies of Workers Solidarity, explains why he has come. "If the working class succeed in their conflict with the government and stop this offensive, things are going to be better for Greece. Otherwise, we are going to live in hell. Working conditions will be destroyed, we will earn less, and there will be no jobs for younger people."

Maravelakis describes his paper as representing the anti-capitalist left, and has no time for George Papandreou's government. "We have a socialist government like Stalin was a socialist in Russia. They did not vote for Papandreou last October to implement monetarist policies. That is why people are angry."

That anger is palpable everywhere. That afternoon, I am sitting outside a cafe close to Syntagma, when a waiter offers to put up an awning. "No, I like the sun," I say, "the good Greek sun." "That's all we have left," he says. I laugh. "Don't laugh," he says. "We don't have the motivation right now to go to work. We hear bad news every day, and that affects us in a bad way. We are responsible for this, because we are electing the same people every time to be the government. They took the money, most of them; they are corrupt. And now they ask us to make sacrifices. We didn't steal the money. My salary here is €700 a month. I can't afford to pay more taxes or lose my Christmas and Easter bonuses." Greeks call those bonuses the "13th and 14th salaries", and the fact they are being removed is cited repeatedly.

Why has Greece reached this desperate state, I ask Alexis Papahelas, executive editor of the national newspaper Kathimerini and Greece's best-known journalist, when I meet him at his paper's offices overlooking the Aegean. "Politicians failed to exercise any kind of leadership," he says. "They let populism take over. And the public have been in denial. Somebody said to me recently it was all media hype, just like swine flu – that nothing would happen in the end. Well, we are going through the realisation process right now, and this week's announcements were the final shock. People now recognise it's for real, it's going to change our lives, and there's no going back. But somebody has to sell them some hope. We need a positive narrative about how Greece can get out of this."

What will the political impact be? "It's very hard to predict," Papahelas says. "People are looking for a messiah. They'd like some successful businessman, a Berlusconi figure, to come forward, and that is a scary thought. Papandreou has one more chance to re-establish his government, but I think the period of pain will be too long."

Like many pundits in Greece, Papahelas points to the dead weight of the public sector as the single biggest factor dragging Greece down, making the government deficit impossible to deal with, and killing enterprise. "It's been the dream of every kid coming out of high school or university to be appointed somewhere in the state apparatus – to get a permanent job on good money and not necessarily work hard. That's over. It delivered jobs for a while, but now the state is bankrupt."

Tax evasion is also endemic: the black economy accounts for almost 30% of the total economy. Inefficiency is rife: everyone points to the education system, where the pupil-teacher ratio is the lowest in Europe (about seven to one), yet standards in state schools are relatively poor.

Neoliberal economists, such as former finance minister Stefanos Manos, believe Greece needs a Margaret Thatcher, willing to take on vested interests, sweep away the occupational closed shops, and sack hundreds of thousands of state employees. Others, while admiring his ideological purity, think the cure would probably kill the patient.

The problem for those who oppose the austerity package is that they end up merely defending ancient privileges. As critics like to point out, the Greek left is deeply conservative – and hopelessly factionalised, too. On the morning of the big demo, I talk to two communists who are putting up posters on the street where the murders will later take place. They seem less interested in policy than in claiming to be the one true Stalinist faith.

"We are the true Communist party," one says. "The other Communist party are reformists." As elsewhere in Europe (New Labour springs to mind), the traditional left has become technocratic and managerialist, and the parties further to the left largely irrelevant – although Greece's communists, alone in Europe, retain some residual strength,and can close the Parthenon when the urge takes them.

The novelist and cultural commentator Takis Theodoropoulos, whom I meet at the foot of the Acropolis shortly after it has been occupied by protesting trade unionists, likens Greece's current condition to emerging from a nightclub at dawn. A cultural conservative with a shock of grey hair, he believes that the past five years have been a social, as well as an economic, disaster, marked by an obsession with materialism, the rejection of traditional Greek values, and a belief that people could spend as much as they liked without ever having to pay.

"We transformed Greece into a nightclub," he says, "but how long can you live in a nightclub? It's not only a matter that at five in the morning, you have to pay the bill. There's also the fact that psychologically you get out and you are ruined. You are a wreck. This is a society which is tired and depressed, profoundly depressed. That is not just a privilege of Greek society – the whole of European society is more or less depressed – but I don't know how we are going to get out of here."

Theodoropoulos, who has mined Greek history in his novels and essays, says that in many ways Greece's travails mirror the collapse of Athenian society that Plato described in The Republic. Perhaps the mention of Plato cheers him up, because he suggests the current crisis might offer a form of catharsis. "In Greek, the word 'crisis' has two meanings," he explains. "One is the same as in English, a situation which is uncertain and not under control. But it also means the intellectual energy you need in order to realise what's happening to you. In Greek you can say, 'This man is in a crisis', but you can also say, 'This man has crisis'. That is our only hope."

Theodoropoulos may be able to see the cathartic benefits of social purification, but the workers I meet each day protesting in Syntagma Square think more viscerally. When the teachers hold their own demo on Tuesday afternoon, I ask Elena Tsiadi whether she really believes the protests will achieve anything. "I don't know if we are going to achieve anything," she says. "Realistically speaking, I don't think we will. But when you are led to the corner, you have to react. We want someone to pay for what we will suffer. In Iceland, they went bankrupt and already six ministers are on trial. Here, we have a series of governments which have committed crimes, and no one is paying. They are asking us to pay the bill. Greeks are a particular kind of people who say, 'We are willing to work, willing to suffer, willing to make sacrifices,' as long as we have leaders who pay first. Somebody has got to set an example."

The following day, I am back in Syntagma with the huge crowd – estimated by the police at 30,000, by the protesters at almost double that – marking the day of the general strike. For an hour or so, the crowd confronts the police ringing parliament. Even before the masked anarchists in their black uniforms arrive, there are violent scenes, with bottles, sticks and metal railings being thrown by small groups of protesters on the ramparts at each side of the building. This, though, is containable, and has a theatrical element, the crowd venting their feelings like an audience as the mini-battles play themselves out.

But once the anarchists enter the square, with the police in pursuit firing tear gas, the atmosphere changes instantly. The gas chokes you and makes your eyes stream. Anarchists wielding heavy mallets, with which they break off pieces of concrete to use as weapons, are arguing furiously with middle-aged women in the fleeing crowd. The latter accuse them of having wrecked the march, though the extent of the disaster is not yet clear.

I try to take refuge alongside other journalists in the parliament building, which commands a view of the entire square – by now a battlefield. But the policeman on the gate tells me I lack the necessary permit. "No money, no honey," he says with a laugh. I pass a man in an immaculate suit who is clutching a handkerchief to his mouth, and ask him whether he works in the parliament building. "No, I am an honest Greek," he responds in a flash. He tells me he is a lawyer. "I wanted to be in the square with the people, but the stench is too much."

While the battle rages and before news of the deaths has emerged, I have to go to do a prearranged interview with Antonis Liakos, professor of modern history at the University of Athens. This must be the strangest interview I've ever conducted, because it takes place in a cafe only a couple of hundred metres away from Syntagma, in a pedestrianised street where people are still sitting outside, despite the whiff of tear gas from the square.

Liakos is critical of the austerity measures, and says the approach needs to be more "nuanced". A government with more bargaining power would, he suggests, be able to pick and choose which of the measures to apply. Like several of those I talk to, he argues that you can't have European monetary union without political union, because the states will never be in synch economically. Many leading figures in Greece now back political union, and it is possible to foresee inexorable pressure towards a superstate that would leave the UK, always lukewarm on matters European, entirely out in the cold. The Greek crisis is the first chapter of a Europe-wide story that could go anywhere.

Liakos believes there is a danger that, as in the 1930s, economic crisis may encourage the rise of anti-democratic groups across Europe. "We don't know how things are going to change in the rest of Europe," he says. "If Spain is in the same situation as Greece, then the whole euro stability pact will come under threat. The worst scenario is that European monetary union is going to sink. Imagine you are living in 1932: you can't anticipate the second world war and the catastrophe that was derived from the economic crisis. Perhaps we, too, can't see what is before our eyes."

After the meeting, I return to the square. The battle is over, an eerie calm has descended, and the pall of gas is dispersing. The police are still lined up in front of the Tomb of the Unknown Soldier, just beneath the parliament, but the only people left are two young men sitting on the kerb holding red flags. One, a student who has smothered his face in special white paint that mitigates the effects of the gas, tells me his friend has two degrees but can't get a job, and he doesn't want to be in the same position when he graduates.

I ask whether, at the height of the battle, the Tomb came under assault. "No," says the student, "we respect the monument. It is not the enemy, the cops are not the enemy – it's the people inside the parliament who are the enemy, but they don't come out."

At that point, another young man who has been listening to our conversation approaches. He disagrees with the student. "Just look at this," he says, pointing to the line of policemen in front of the Tomb. "People gave their lives in the war so that this monument to freedom could be built. Now the police stop the people from getting to it. The monument is shit. Today we have lost our freedom."

We don't know it yet, but on the broad avenue that leads down to the square, three people have lost much more – their lives. This peculiar calm in Syntagma, with Japanese tourists taking pictures of the debris, policemen slowly removing their gas masks and lighting cigarettes, and a young man walking past holding a broken violin, precedes a storm that will shortly break, exploding the myth that violence can be ritualised, theatrical, innocent.

The staff of the ornate Grand Bretagne hotel, which adorns one side of the square, are already scrubbing the anarchists' graffiti from its marble facade, but the lives lost today cannot be restored. Greece's monumental debit column now has its starkest entry.

It pains me to watch what is going in in Greece right now. I have family and friends there and I am deeply concerned about the country I love and call my second home.

My heart goes out to the families of those victims that died. I hate anarchists with a passion. If you want to protest, protest peacefully. Don't go into banks, killing innocent workers (including a 32 year old pregnant woman) who had nothing to do with the debt crisis. What's missing in Greece is the "levedia" of the older generation. The culture of entitlement has destroyed the country.

What I find tragic in all this is that the people will endure harsh austerity measures for years to pay debts owed to European and American banks. Greeks aren't stupid; they know the cost of the EU and IMF package. They know that their fate is sealed, and faced with insurmountable obstacles, they choose to revolt. If things get real bad, this revolt may bring down the government.

Finally, listen to the Russia Today interviews below and Katie Couric's interview with journalist John Psaropoulos. I fear that the Greek crisis is going global and people aren't going to sit passively by while banks get bailed out and they get austerity measures shoved down their throats. At the end of the day, the global debt supercycle exacerbated income inequality, and Greece may very well be the straw the breaks the camel's back.