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Athens deaths serve as a reminder: things can always get worse

Just when we thought the Greek crisis couldn't get any worse it does, with three people dying in Athens yesterday when protesters set fire to a bank.

The deaths, which came during a general strike called by Greek trade unions against the €110bn EU/IMF rescue package agreed last weekend, marked a further serious escalation of the crisis.

Given the vehemence of the Greek response to the proposed spending cuts needed to secure approval of the financial rescue, serious questions must be asked about the ability of that country's government to implement the tough austerity measures being demanded by the international community.


If yesterday's events are any guide it seems far more likely that the Greek government will be chased from office by its own people. It's happened before. In December 2001, after days of violent protests, the Argentine government was forced to resign. Its successor immediately scrapped Argentina's fixed-exchange rate with the US dollar and defaulted on its debts of $102bn.

At the time the consensus was that such a move would prove disastrous with all sorts of 'experts' warning of the possible consequences. Instead the reverse happened, with lower exchange rates leading to a boom in Argentinean exports and its creditors meekly accepting haircuts of up to 70pc on the money they had lent to the South American country.

Which goes to show just how much the 'experts' really know.

Might we be seeing the start of something similar in Greece? With their banners proclaiming "We are not Irish," the Greek protesters are making it very clear that they will not meekly accept the harsh fiscal medicine to which we have submitted in this country. Might the Greeks be prepared to push matters to the brink or perhaps even beyond?

If they do then the EU will only have itself to blame. Ever since the Greek crisis first erupted last December, Europe's leaders have been consistently playing catch-up.

Instead of recognising the potential severity of the crisis from the very beginning we have had a series of pathetically inadequate piecemeal measures.

It took the EU more than three months to agree a €45bn bailout for Greece.

This was rightly ridiculed by the markets as not even coming close to providing Greece with the resources it needed to avoid defaulting on its €300bn debts.

However, the seemingly endless delays in finally agreeing the €110bn bailout unveiled last weekend has allowed opposition to the spending cuts being demanded by the EU and the IMF to crystallise.

If the EU had been able to agree to last weekend's €110bn bailout last December then it is possible, just possible, that the Greek crisis could have been nipped in the bud.

We're long past that point now. With opposition to the spending cuts needed to secure EU and IMF approval for the €110bn rescue package now deeply entrenched, the chances of the Greek government surviving the imposition of such swingeing cuts must be considered remote.

Meanwhile, as the EU dithers over Greece, fears about the financial health of other peripheral eurozone countries have increased. Credit rating agency Standard & Poor's downgraded the bonds of Spain and Portugal last week.


Will Ireland, widely thought of as being the best-behaved of the so-called PIIGS, be next?

Even at this stage it is clear that the EU's constant foot-dragging on the Greek financial crisis has had catastrophic consequences.

The euro has already fallen to a 14-month low of under $1.30 on the foreign exchanges as nervous traders dump the single currency.

Whether or not the euro can survive in anything resembling its current form must now be a matter of serious doubt.