By DARCY CROWE and ART PATNAUDE in Madrid and ALKMAN GRANITSAS in Athens
Demonstrators turned out in large numbers for May Day rallies in hard-hit European countries on Tuesday, protesting their governments’ push for austerity and flexing populist muscle ahead of key Greek and French elections.
Protesters used this year’s labor-day celebration, which came amid new signs of economic contraction across much of Europe, as a platform against a German-led view that spending cuts and tax increases are the best medicine for the region’s sovereign-debt woes.
The rallies come on the eve of national elections scheduled for Sunday in France and Greece, both of which are expected to pose stiff challenges to leaders who have carried out Europe’s austerity prescription.
Marchers in Paris held up signs reading “Down With Merkozy,” referring to French President Nicolas Sarkozy and German Chancellor Angela Merkel, who steered the currency area through the sovereign-debt crisis. Mr. Sarkozy’s Socialist rival, François Hollande, has the lead heading into the runoff election.
Much more at the link. France and Greece are both democratic countries: in the end, the voters control the government. If the voters decide to oust the responsible leaders who have steered their countries down the very uncomfortable austerity path, that is their right.
Which is to say: the voters have a perfect right to be stupid, and a perfect right to be irresponsible. If, for instance, Greek voters decide to throw out the current government for one which promises to end the austerity program, the people may be very happy . . . for a short time. The problem for Greece has been building for decades, in that they have lived far beyond the means justified by their production, and if they end the austerity program, then they end the euro-zone bailout, and they will have to live within their means, period, because no one with any money and any sense is going to lend them a single euro. And without other people and other countries lending them more money, the government will simply not have the money, from its own internal resources — primarily taxation — to pay for all of the things the Greek people want and expect.
Spain has re-entered a recession, and has an official unemployment rate of 24.4%. The Spanish government has raised taxes, cut spending and reformed labor laws to make it less risky for companies to hire people. But, like Greece, if Spain leaves the austerity path, she will have to live within the means supported by her production.
France, which seems about to elect the Socialist candidate François Hollande to replace Nicolas Sarkozy as President isn’t quire in the bad shape of some of the other European democracies, but Standard & Poors downgraded France’s sovereign credit rating from AAA to AA+ 3½ months ago. Eventually the French will have to live within the means supported by their production, too.
The public don’t like it, but what can they do? If they aren’t going to be able to repay their loans, people are going to stop lending them money. They can topple governments and go on the craziest socialist or Marxist binges, but that doesn’t change reality: they will not be able to live better than their productivity supports.
Perhaps it will be a good thing if Greece tosses out the current government and dumps the austerity program, and just flat goes bankrupt. If that happens, then maybe, just maybe, other countries and other people will see just how bad things can get. Because if austerity is bad, if austerity is tough, being broke is worse, a lot worse.
By SERENA RUFFONI
LONDON—Standard & Poor’s Corp. said Wednesday it raised Greece’s credit rating to CCC from SD (selective default) after the country completed its distressed debt exchange.
The outlook on the country’s long-term rating is stable, the rating firm said.
However, while Greece’s sovereign debt exchange has alleviated near-term funding pressures, S&P said Greece’s debt burden remains high.
The Greek government is committed to implementing a tough deficit-reduction program, largely based on tax increases, improved tax collection, state asset privatizations and cuts in government spending.
S&P said this program has implementation risks in light of the country’s deep recession, which will result in persistent social pressures. Parliamentary elections May 6 are likely to render Greece’s path to fiscal adjustment more uncertain, the rating firm also warned.
S&P said its assigned CCC rating reflects the reduction and the improved maturity of Greece’s sovereign debt, brought about by the distressed debt exchange, while taking into account the significant stress Greece’s economy faces.
More at the link. Standard & Poors defines a CCC rating as “Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.” But the agency raised Greece’s credit rating because, at least thus far, Greece has followed the path set out for it by the eurozone nations; whether that will remain true following Sunday’s elections is unknown.