Costas Stamatiou, a Greek truck driver, is broke. And yet, since early June, the stout and greying labourer has staked out Athens' iconic parliament square, fighting for what he has left: his dignity.
"We've been duped," he said in a recent interview. "Every political party we've trusted has lied to us. We don't believe them any more. We're taking the situation into our hands."
Mr. Stamatiou, 42, is one of thousands to flood this capital in recent months, venting unprecedented and at times violent anger against the country's political elite.
The frustration isn't isolated to Greece, where an additional package of deeply unpopular austerity measures was passed by parliament in June.
Straining against enormous economic challenges, the euro zone's weakest nations are slashing spending and raising taxes to assuage nervous markets or meet the conditions of financial rescue packages. The reforms have sparked protests not just in Europe's beleaguered bailout nations but in others as well, including France, Italy and Spain.
On Tuesday, embattled Italian Prime Minister Silvio Berlusconi moved to retool the government's ever-changing €45-billion ($68-billion) austerity program as he scrambles to convince jittery investors his country's debt is under control – all while facing rising discontent at home. The announcement of the latest plan, which would make it easier to hire and fire workers, came as tens of thousands took to the streets as part of a massive strike that shut down public transportation and marked the first of what promises to be an ugly fall season of protests.
The sacrifices made today may eventually bear fruit in the form of healthier, more competitive economies -- but that could take years. In the meantime, governments face the unenviable task of carrying out harsh austerity measures while somehow maintaining public support amid declining living standards and rising unemployment.
"The risk to these countries is the pressure gets so big that you get social disruptions, society falls apart, you get political instability and then you could end up with severe, permanent damage," said Thomas Mayer, chief economist at Deutsche Bank. "So it is extremely important in these situations that you get social consensus to go through this, even if it is extremely difficult."
Ireland led Europe's major economies into the austerity arena, imposing some of the toughest belt-tightening measures on the continent. The Irish plan slashed pay for public workers by up to 30 per cent, sharply reduced the minimum wage and changed tax thresholds to include more low-income workers.
In Greece, the government's latest austerity package aims to cut 150,000 public sector jobs, reduce wages by 15 per cent and increases the value-added tax charged in restaurants and bars to 23 per cent from 13 per cent. In Spain, where the unemployment rate is the highest in the euro area at 21 per cent, the government is cutting pay for public sector workers by 5 per cent, freezing pensions and raising the retirement age to 67 from 65.
"Essentially, structural reform is being put hand in glove with austerity and it's going to be tough, no doubt about it," said Alastair Newton, senior political analyst at Nomura International.
As the crisis wears on, young people are among those paying the highest price. The youth jobless rate now sits at a staggering 45 per cent in Spain and 26.9 per cent in Ireland.
"On top of the fact that there's no jobs out there, the actual employment services themselves are under huge pressure," said James Doorley of the non-profit National Youth Council of Ireland. "So because of the austerity, the government can't actually provide extra bodies to deal with people who are seeking support, whether that's job counselling or questions about whether they qualify for welfare."
The immediate economic challenge facing Greece and others is how to rein in deficits without stifling already sluggish growth. While fiscal reforms may be necessary to correct the underlying problems that caused deficits to swell in the first place, hitting the brakes too hard could risk driving up unemployment, lowering tax receipts, depressing domestic demand and generally making an already grim economic situation worse, analysts say.
"If you have a country like Greece where debt is approaching 150 per cent of GDP, this tells you these things have to be sorted out," said Diego Iscaro, senior economist at IHS Global. "But austerity by itself is insufficient. You have to find ways to grow. This is not easy."
Efforts to cut red tape, make labour markets more flexible and encourage investment are crucial in countries where competitiveness lags, including Italy, Spain, Portugal and Greece, Mr. Iscaro added. Programs that combine these measures with spending cuts have proven successful over time in other European economies, he says.
Sweden and Finland, for instance, imposed strict austerity measures following deep economic downturns in the early 1990s that included housing bubbles and bloated public sector spending. The economic reforms imposed then – largely supported by the public despite including painful tax hikes and severe cuts to social welfare programs – have been credited for the current economic success and competitiveness of each of these countries.
Germany also embarked on a tough restructuring program of wage moderation and social program cuts following reunification in 1990. The moves lifted competitiveness and transformed the country into an economic powerhouse.
Still, each of those recoveries took years. And the vast majority of successful adjustment programs involve some form of currency devaluation, a luxury euro zone members do not have. And with growth now sputtering even in the euro area's core economies, the opportunities to fuel recovery through exports are also on the wane.
Eurostat, the EU's official statistics agency, said on Tuesday that economic expansion in the 17-member monetary union slowed to 0.2 per cent in the second quarter, down from 0.8 per cent in the first three months of the year. Germany's economy, which had been driving the recovery, grew by just 0.1 per cent while growth in France and Portugal ground to a halt. Italian and Spanish growth remained slow and Greece's economy contracted.
"Obviously, recovery is not going to be quick but I think if they want to stay in the euro zone, these countries don't have many options," Mr. Iscaro said. "To do what Germany has done over the last eight to 10 years isn't going to be easy and German society is quite different from Greek society. Are the Greeks going to accept a very long period where living standards might be falling? That's the big question and that's why this is not a pure economic problem, it's a social and political problem as well."
Indeed, even as policy makers struggle to turn around their ailing economies, they must also maintain the support of increasingly disgruntled voters who bear the brunt of the cuts. Anger has been particularly acute in Greece, where many feel the measures are worsening rather than improving the crisis.
Large-scale protests have already become a common feature in Greece, where at one point, the grassroots movement drew more than 100,000 Athenians to the front of the nation's sprawling and sand-coloured parliament. The demonstration unnerved legislators and the labour-friendly government of Prime Minister George Papandreou as it geared to vote on crucial austerity reforms.
Militant teenagers and unemployed youths went amok, bruising the capital with some of the worst shows of youth protest to hit Europe.
"Everyone in Greece was living and operating in a perverse and corrupt reality that the political system nurtured for years, but now says it has to deconstruct in order to clean up the country," Mr. Stamatiou said. "No one disagrees at heart. But why should we – the working class – get served with the worst end of that deal."
Despite the upheaval, legislators have since sanctioned a new wave of budget cuts and tax hikes as unemployment levels continue to climb over 16 per cent. Those measures will start to bite soon, raising concerns about further public unrest.
"After almost two years in office, the Greek government will face a severe political test this autumn as now austerity really starts and there is at this stage very little light at the end of the tunnel as far as economic development," Mr. Mayer said. "We shall see. It will be very, very difficult."
Under the new bailout package, Greece has promised to pursue €50-billion in privatizations, plus a rash of reforms intended to make the market more competitive.
It won't be easy. Earlier this month, for example, Athens' 14,000 taxi drivers ended a three-week-long strike against government plans to liberalize their closed-shop profession by lifting the ceiling on taxi licenses.
"We shouldn't assume that because it's relatively calm on the streets lately that it's likely to stay that way," said Mr. Newton of Nomura International. "Similarly, I would not at all be surprised to see manifestations in Portugal as the new government implements its fiscal austerity program. Italy as well."
With a file from reporter Eric Reguly in Rome.
Special to The Globe and Mail