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Q&A: What's behind the rioting in Greece?

By Barry Neild for CNN
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Greek austerity vote passes: What now?
STORY HIGHLIGHTS
  • Greek parliament votes on harsh austerity package
  • Measures have provoked widespread public anger
  • Greek financial crisis has wider implication for eurozone and world economies

(CNN) -- Greek politicians have voted to bring in an unpopular package of austerity measures designed to rein in debt levels that threaten to destabilize the country's economy.

What are they voting for?

A harsh program of cuts proposed by Socialist Prime Minister George Papandreou's government to meet requirements demanded in exchange for international rescue loans.

The aim is to cut $20 billion in public spending while raising a further $20 billion through taxes and privatization. This means increased VAT, higher levies on householders and companies and sharp hikes in fuel, alcohol and tobacco prices.

Spending cuts will see heavy public sector job losses, school closures and restrictions on welfare benefits. There will also be sell offs of state assets and ventures including the postal service and key ports.

Why is it needed?

Without the measures Greece's debt would continue to climb and there is a strong chance it will default on repayments. This would have severe ramifications on the country's economy and threaten its participation in the 17-nation eurozone.

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International investors would desert, leaving the country in economic freefall. Greece is already receiving international money to help stave off a financial meltdown, but unless it agrees to impose the austerity package, it may be denied the next scheduled payment of a $156 billion bailout agreed last year.

Further bailouts could also be unforthcoming.

Why are people rioting?

Times are tough for the Greek people and anger and frustration at their predicament continues to boil over into civil unrest.

The country's parlous financial state has been widely blamed on years of mismanagement by politicians and businessmen and ordinary members are upset and being made to foot the bill through job cuts and tax hikes.

Greeks have already agreed to earlier austerity measures in 2010 which prompted street violence.

Greece's leading unions have been organizing strikes and the latest protests, which degenerated into rioting in central Athens on Tuesday. Further demonstrations on Wednesday quickly turned to sporadic violence.

Is there an alternative to the austerity package?

Other than face certain default and the financial chaos that would entail, Greece has little alternative if it wants to continue receiving international financial assistance.

Olli Rehn, a European Union commission leading the bloc's bailout discussions has warned that Greece has "no Plan B." If parliament fails to approve the austerity measures, it is possible they will be redrafted and put to a new vote, but this will further dent economic confidence in Greece.

The big question also facing Greece and its international backers is how to prevent further default down the line.

There are proposals to push back some debt payments to ease pressure -- but these will again be dependent on Greece's willingness to get its own finances in order.

What happens next?

Wednesday's vote covers the initial part of the austerity package to raise taxes and cut public spending. Now the measures have passed, parliament will vote on Thursday to change the law to allow them to be implemented.

Once the law is in place, Greece will receive its next bailout payment and European officials will begin discussing details of a second rescue deal.

With Greece facing many more tough decisions on the long road to recovery, there is a strong possibility of more protests and potentially more rioting.

Why does Greece matter?

The International Monetary Fund is pouring cash into Greece just so it can pay its debts. So are eurozone partners, much to the fury of people in countries such as Germany and France who question why their taxes should be used to pay for the profligacy of others.

However, there's good reason why the international financial community is rallying to Greece's aid. If Greece defaults, this could undermine confidence in other weak eurozone countries like Ireland and Portugal, pushing them into the same predicament.

The burden of similar bailouts could undermine the euro and threaten its future. A Greek default would also hurt major global financial institutions exposed to the country's debt, setting in motion a new worldwide banking crisis.

What if you're planning a trip to Greece?

One of Greece's economic saving graces is its tourism industry, which has continued to bring in billions of dollars annually even as the economy falters. But given the unrest and industrial action, there are concerns that the country is no longer a safe destination.

The U.S. State Department and British Foreign Office advise that most Greek vacations are trouble free, but warn citizens to avoid demonstrations in major urban centers and to be aware of strikes affecting flights, ferries and fuel availability.

The austerity measures are actually having some benefits for travellers, as the government strives to protect its tourism industry. Airport and ferry duties have been reduced, as has VAT on tourist accommodation.

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