The 300-member Greek parliament approved an austerity package early Monday that will allow it to avoid default on its debt by March 20, when the government must redeem a €14.5-billion ($19-billion Canadian) sovereign bond.
The austerity package demanded by Greece's would-be rescuers – the European Union and the International Monetary Fund – was necessary for Athens to receive a fresh bailout, worth €130-billion.
If the parliament had voted No, Greece would have gone the road to bankruptcy, and almost certainly would have had to leave the 17-country euro zone and put the old drachma back into circulation.
As MPs began debating the austerity package, more than 100,000 protesters demonstrated in Athens. Tear gas and stun grenades were fired, and some protesters threw bottles at police on the parliament building's stairs.
As night fell, some streets in central Athens were dotted with fire. At least 10 buildings were set ablaze, according to The Associated Press.
Prime Minister Lucas Papademos appealed for calm, and said vandalism and destruction "have no place in a democracy and will not be tolerated."
The vote was being billed as nothing short as a referendum on euro zone membership. Mr. Papademos's interim government has spent the weekend predicting economic and social chaos if the vote is lost. His message is that the austerity measures, however painful, would be less damaging than a default and exodus from the euro zone. "The social cost that comes with these measures are contained in comparison to the economic and social catastrophe which will follow if we don't adopt them," he said on national TV Saturday night.
Mr. Papademos is expected to win the vote – he needs 151 MPs to approve the austerity-for-bailout package. But the number of MPs who have vowed to vote against the package is rising by the hour, exposing deep divisions among the politicians. The naysayers fear that piling austerity on austerity when the economy is in free-fall is tantamount to slow-motion economic suicide.
As of Saturday night, no fewer than 10 MPs from the New Democracy Party – one of the three parties in the ruling coalition – and eight from Pasok, led by former prime minister George Papandreou, had stated they would vote against the package. Several others were wavering. Most of the 16 members of the LAOS party have stated they will vote 'No'. The numbers could easily rise.
In a phone interview Sunday afternoon, before the parliamentary vote, Andonis Spyridon Griorgiadis of the LAOS party said that "Greece faces a very critical moment today."
He would not say which way he intended to vote but, but said that, win or lose, the political landscape will change in the coming months. A spring election is expected. "We will have a new political system," he said. "The left will become more popular but the centre right parties will hold power."
Greeks themselves are divided about the vote. While it appears that most would rather Greece stay in the euro zone, many are fearful that the austerity measures will keep unemployment rates high for many years. The last official national jobless rate was 20.9 per cent, though one-in-three young people (under age 25) is unemployed.
Anger at the government is endemic. "I think we should stay in Europe but all the politicians who destroyed this country should leave," said Katerine Apostolaki, 20, a computer sciences student who was in Syntagma Square, the gathering point for the mass anti-government and anti-austerity protests that are to start later today.
The austerity measures demanded by the EC, the IMF and the European Central Bank (the so-called troika) equal about 7 per cent of gross domestic product over three years. The cutbacks would see 15,000 government jobs disappear this year and tens times that many by 2015. The minimum wage would fall by 22 per cent, though first-time workers would see the wage fall by 32 per cent. Pensions, pharmaceuticals and the military would all be cut back.
If the Greek government approves the austerity package, private holders of Greek bonds – mostly the banks – would agree to a "haircut" that would reduce the value of their investment by about 70 per cent. The deal, if approved, would cut Greece's debt by about €100-billion, though few economists think the amount is enough to put Greek on sustainable economic footing, given its ever-deepening recession. Last year, GDP fell 6 per cent and many forecasts put the expected contraction this year at 3 per cent to 6 per cent.
In an interview Sunday, Konstantinos Katsigiannis, the Athens lawyer who is president of the Hellenic-Canadian Chamber of Commerce, said he supports the austerity programs even though they are severely damaging the economy. "The back of the entitlement mentality has to be broken," he said.
He said that overhauling the bloated and inefficient civil service, which makes it very difficult and expensive for entrepreneurs to open and operate businesses, should become a priority. "The cause of our misery is not yet being corrected," he said. "The bureaucracies are being left as they are."
With reports from Associated Press
Mobile users: Click here to go to Eric's live blog.