A protester throws a stone towards police forces during rioting in central Athens, Thursday, Oct. 20, 2011. Greek anger over new austerity measures and layoffs erupted into violence Wednesday, as demonstrators hurled chunks of marble and gasoline bombs and riot police responded with tear gas and stun grenades that echoed across Athens' main square. (AP Photo/Petros Giannakouris)Petros Giannakouris/The Associated Press
Neither the violent, Molotov-cocktail-throwing few nor the more than 100,000 non-violent employees who held a general strike this week will save the Greek economy or stop the country's GDP from getting smaller.
George Papandreou, the Prime Minister, is to be congratulated on the passage in the Greek parliament of his latest austerity measures, which will lead to the payment to the Greek government of €8-billion, more or less on schedule, from the triad of the European Commission, the European Central Bank and the International Monetary Fund. But a continuing series of loans and ever-sterner austerity packages will not solve Greece's troubles.
What matters much more are the negotiations between the triad and the bondholders about how much – and how – to write down some of Greece's debt to a point at which the Greek government could plausibly repay, over the years. Euphemisms for partial default pervade these discussions: "voluntary" taking of losses and "haircuts" – more than a trim, but not a head shave.
In a way, it is Greece's good fortune that it is looked upon as a straw that could break a camel's back – the camel being not so much the euro, or the euro zone, as the banks of the euro zone as a group. If there is an outright Greek default, the credit of other Mediterranean members of the euro zone (and maybe traditionally stolid Belgium) will suffer and the value of the assets of major European banks will fall dangerously, making it harder for them to lend – in short, there could be a credit crunch on a scale much larger than that of the Greek economy. The Western world, if not the whole world, has a practical interest in not setting Greece adrift.
Nonetheless, it is an opportunity – a kairos, to use a word of which the ancient Greeks were remarkably fond – for a thorough remaking of Greek governance and citizenship. The civil service, which party-political motives have made far too large, should be greatly reduced. Likewise, privatization of most state-owned companies should proceed apace. Above all, the Greek government must be dogged in making sure that all Greeks file truthful income-tax returns. That will take time, but it will be well worth it, on moral and economic grounds alike.