Greek Prime Minister George Papandreou said his nation won't deepen austerity measures beyond their current levels. The government has already made sharp cuts to national spending, which has caused the layoffs of many public workers. Other workers will have their annual compensation reduced.
Greece's attempt to slash government spending has caused a large number of strikes that have lead to shutdowns of parts of the public and business sectors. But Papandreou's announcement didn't assuage the unions. Thousands staged protests on Sept. 11, and it appears that these protest won't end anytime soon.
Greece doesn't have much choice other than to hope austerity will work. Last year, its deficit was 13.6% of GDP. It has a plan for dropping that to 8.9% in 2011. The nation has received $140 billion from eurozone countries, and the International Monetary, which it will get over three. In exchange, it must bring its deficits down.
The theory espoused by many of the eurozone nations, the U.K. and Japan is that national budget cuts that are deep enough will bring down government deficits and eventually total national indebtedness. This, coupled with tax cuts, is a powerful elixir to draw investors in sovereign debt back into the markets. More investors should mean lower interest rates payed by national treasuries for the funds that they need today to underwrite their red ink.
Greece, however, is caught in a vice, and it appears that public workers and unions mean to tighten it.