Protests in Greece over new austerity measures

Reporting from Athens — 

Tax and customs inspectors took to the streets of Greece on Thursday at the head of an expected wave of new labor unrest as the country tries to claw its way out of a debt crisis that threatens to engulf much of Europe.

The walkout was the first of several planned protests over the government’s new austerity plan intended to restore confidence in its finances, which are awash in red ink. The crisis has raised the specter of a potential default by Athens on billions of dollars in public debt, which could spark emergencies in other countries that also use the euro.

The government for weeks has been under heavy pressure to rein in a runaway budget deficit of $420 billion, or more than 12% of gross domestic product -- quadruple the rate allowed under rules set by the 16-country Eurozone.

This week, Prime Minister George Papandreou unveiled belt-tightening measures, including a salary freeze across Greece’s massive public sector, and higher levies on fuel.

On Wednesday, the European Union endorsed the plan, but took the extraordinary step of demanding regular progress reports from Greece on its efforts to put its house in order.

Other EU member nations face similar problems, including Spain and Portugal, which are also struggling to reduce huge deficits. Madrid announced budget cuts last week, part of a four-year austerity program to cut the deficit from more than 11% to the prescribed rate of 3%.

Financial markets, however, have reacted with skepticism over the ability of the left-wing governments in Spain, Portugal and Greece to contain spending. Flagging investor confidence has already seen the once-surging euro drop in value against the dollar, and stocks in all three countries suffered heavy losses Thursday.

The various debt crises have presented the most serious challenge to the euro since the currency debuted eight years ago. Markets have been abuzz with talk of possible bailouts for the Eurozone’s most troubled countries by more stable ones such as Germany and France. But the governments of those two nations have publicly ruled out any rescue or bending of the rules for their ailing brethren.

For its part, Greece has had to quash speculation that it could be forced to ask for loans from world bodies such as the International Monetary Fund.

Greek Deputy Foreign Minister Dimitris Droutsas denied that the country was considering going to the IMF.

“There is no thought at all about the IMF,” Droutsas told reporters Thursday during a visit to New York. “There is also no thought and no need about any financial assistance by the European Union itself.”

Greece’s austerity plan is meant to cut its deficit to 3% by 2012, which some analysts say is overly ambitious, especially in a country continually beset by labor unrest.

Besides the tax and customs inspectors, who walked off the job in protest Thursday, doctors, university professors and other civil servants are expected to go on strike in the coming weeks.

henry.chu@latimes.com