Greece has been witness to numerous remonstrations in the recent past but none like the violence that occurred over the past few weeks, spilling over into the whole of Europe, from Madrid to Moscow and even to Turkey. Triggered by the questionable police shooting of a teenager on the 6th of December, the protests lasted ten days and have taken a severe toll on not just people’s minds but also the economy. Already seething with anger against inept leadership, high youth unemployment, and a plunging economy, young people and self-described anarchists used the shooting as an excuse to vent their emotions. Shops and buildings were set ablaze, causing heavy damages.
The Greek riots are noteworthy because they are the first widespread and virulent expression of urban anger in Europe since the financial meltdown began in September. Resentment has long been expressed by many who feel that the social system encourages the interests of the rich and politically-connected over the unemployed and underprivileged. Greece hit one of the highest youth unemployment rates in the European Union in 2008, with the country’s under-25 jobless rate becoming the second highest in the EU.
Overall so far, the unrest has set back the Greek economy by $1.5 billion and still counting. The result is already evident in the losses suffered by businesses. In Athens, which accounts for 60% to 70% of the country’s annual revenues, 565 shops were hit in the epicenter of the riots. Consumer confidence has now hit rock bottom, with business plummeting by as much as 80%. The sector, which accounts for 5% of Greece’s GDP, had already begun to slip as consumers tightened purse strings following the global credit crunch. The dire conditions have prompted Prime Minister Costas Karamanlis to promise handouts of $12,800 to riot-stricken shopkeepers to cover their short term requirements.
Greece’s nastiest civil unrest since 1974 could not have come at a worse time as the economy tries to balance itself to avoid fiscal derailment. The incident is also expected to exacerbate the Greek public debt, which is one of the highest in Europe. The country’s public debt this year stands at 93.9% of the GDP and Greece plans to pay $16 billion in 2009 to service its debts. There is an increasing cloud of doubt in the investment community regarding these fiscal defects, which is reflected in the yield spreads. Greek ten-year debt yields touched 202 basis points in 2008, which is a tremendous leap from the 22 basis points seen in 2007.
The riots have also cast a shadow over tourism, which is the second biggest industry in Greece, representing 20% of the GDP. A trade industry group lists 15 tourist establishments in Athens which were damaged, with more than 2000 bookings cancelled. There has been a nationwide drop in hotel bookings, although this has been blamed on the economic downturn.
Today, a tense calm pervades the country, which has begun to pick up the pieces of not just a deep-set social and political problem, but an economic one as well. Encouragingly, Greece is aiming to reduce its budget gap to 2% of the GDP next year and projects that the economy will expand by 7%. Yet, the government’s billion dollar bank support package and its helpful contributions to affected shopkeepers will put additional strain on the already stretched budget. But Greece is hopeful. If the country can improve its economic woes, will the hearts and minds of its citizens follow?.
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