Analysis: Greek riots to weaken resolve for measures

ATHENS Thu May 6, 2010 7:28pm EDT

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ATHENS (Reuters) - Greek protesters set fire to a bank, killing three people, on Wednesday in the most violent reaction to date to the government's austerity plan.

Groups of masked youths hurled petrol bombs, stones and sticks at riot police as nearly 50,000 striking workers and public servants marched to parliament, where a bill dictating pay cuts and tax hikes was due for debate.

Eyewitnesses said marchers chanted "Thieves!" and hurled water bottles at riot police, who had formed a cordon around the parliament building in central Athens, reflecting increasing anger among ordinary people at politicians.

Here are some of the implications for Greece:

PROTEST SET TO WEAKEN GOVERNMENT RESOLVE

The ruling socialists, who came to power in October pledging to tax the rich and help the poor, are keenly aware of the need to sustain public support in imposing harsh austerity measures.

Opinion polls, which showed solid support for the government through the early months of the crisis, are registering increasing public discontent.

The socialists are bound to tread more lightly in imposing some of the reforms for fear more violent protests may completely derail their plans to cut the deficit by 30 billion euros.

This may complicate some fiscal efforts, targets may be missed and Greece may eventually be forced to restructure its 300 billion euro debt despite a 110 billion euro international aid injection under a eurozone/IMF deal.

FORCING SOCIAL JUSTICE

The biggest protest since the December 2008 riots that helped bring down the outgoing conservatives, are bound to prod the government to satisfy public demands for social justice. Most of the slogans chanted by tens of thousands condemned corruption and demanded those responsible for the crisis are punished.

Prime Minister George Papandreou has promised to revive the state through meritocracy and transparency but no politician has been brought to justice during his seven months in office over the economic crisis or years of scandals.

After Wednesday's protests, the government can no longer brush aside calls for justice if it wants to pursue tough belt-tightening measures. Any further delay in bringing top financial criminals and corrupt politicians to justice will fuel further protests in the months to come.

MARKET REACTION

News of the deaths rattled investors, with Greek stocks falling by almost 4 percent and the euro losing ground to the U.S. dollar.

Markets have been skeptical about whether the plan to bail out Greece can prevent a default, in a crisis shaking weak economies on the eurozone's periphery. They are closely watching Papandreou's struggle with angry unions and leftists to sustain the painful austerity steps.

This comes on top of concerns about whether the Greek economy, mired in a deep recession and characterized by a lack of competitiveness, can survive the austerity measures and remain in the euro zone, where it cannot devalue its currency or control its own interest rates.

Such violent protests not only cast doubt on the austerity plan but slow down an economy in dire need of a boost.

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