As Greece’s Parliament passed austerity measures to secure an EU and IMF bailout, hundreds of Greek protesters raged on the streets of Athens, some setting ablaze to buildings and fire bombing riot police.In a vote of 199 to 74, Greek politicians accepted the new austerity plan which amounts to 3.3 billion euros in budget cuts, including a 22% cut in minimum wage salaries along with wage and pension cuts. By 2015 there will be 15, 000 public workers laid off.The approval of the austerity plan sets the wheels in motion for Greece’s second bailout, a 130 billion euro ($171.2) package from the EU and IMF which stands a good chance of approval on Wednesday in Brussels. The package was held up last week after EU Finance Ministers made increasing austerity demands on Greece.EU Finance Ministers will meet with private creditors on Wednesday and decide the funding terms for Greece to repay 14.5 billion euros in bond repayments which is due by March 20th to avoid a default and a likely exit of Greece from the euro zone. Under the terms of an approved second bailout package, Greece will be paying a reduced amount to private bond holders.Amid a tense political backdrop that has seen 20% defections by both parties, the austerity approval in Greece’s Parliament was a win for Greek PM Lucas Papademos and other Greek politicians committed to having Greece remain in the Euro zone. But the road ahead to implementation of the approved austerity measures won’t be easy to manage in a debt ridden country that is facing a 21% unemployment level, rising taxes, falling standards of living, and a deep recession.
“The full, timely and effective implementation of the program won’t be easy. We are fully aware that the economic program means short-term sacrifices for the Greek people,” Papademos announced on Sunday.In 2010 Greece received their first bailout package of 110 billion euros but the country was slow to implement austerity measures tied to the package.Tax ReformGreeks have a poor record of tax evasion. The Greek government did little in the past to curb the tax dodging practice by Greek citizens. Paying in cash was the norm for years throughout Greece, making it difficult for the government to collect taxes. According to a 2011 report by Friedrich Schneider, a professor of economics at the University of Linz in Austria, cash transactions in Greece accounted for 25% of GDP. In September 2011 Greek lawmakers approved a controversial new property tax that aimed to boost revenue.Generating GrowthGreece’s third quarter 2011 GDP decreased by 5.0% in comparison with third quarter 2010, according to figures from the Greek statistics service (ELSTAT) reported by ANA news agency. Greece’s fourth quarter 2011 GDP is not yet available. The service sector in Greece contributes 78.3% of GDP, industry 18%, and agriculture 3.6%.Greece’s second bailout package is aimed at reducing Greece’s debts to 120% of GDP by 2020, down from 160% currently.The EU and IMF expects Greece to make its economy more competitive by lowering the cost of doing business. Greece was told by EU officials to agree to further cuts in government spending equal to 1.5% of GDP, cuts in pensions and thousands more civil service job cuts.