Cuts take Greece to the edge of anarchy as people cry for change

Anti-austerity protests that began a year ago still rage in the Greek capital, amid pleas to modernise the economy and tackle tax evasion. Roxane McMeeken reports from Athens

Christos Anastasiou describes his café on Athens's Syntagma Square as "the heart of the war zone". On a quiet day like this, as his customers nurse cold coffees in long glasses in the sunshine, it sounds absurd.

But the previous day this pleasant café, directly opposite parliament, was boarded up while masked protesters against the government's austerity measures clashed with riot police in a black fog of tear gas and smoke. The incident on 23 February, accompanied by a 24-hour general strike, was the 10th since the measures began a year ago and was made gruesomely memorable by a policeman being set alight.

Anastasiou, 42, says the financial crisis and fear of disturbances in Syntagma have cut customer numbers by 50 per cent. His café can take only six more months of these trading conditions before it will have to close, he says. "I am worried for my business but, worse than that, I feel this country is in a hospital and ready to die."

A year after Greece began its tough austerity drive on 3 March 2010, which was swiftly followed by a ¤110bn (£94bn) bailout from the EU, the European Central Bank and the International Monetary Fund, how is Greece coping? As Athens appears to be only the first of a string of European governments needing bailouts, with Portugal the latest on the brink, the mood in Greece now is a test of rescue mechanisms and severe austerity policies.

The austerity programme of Greece's ruling Pasok socialist party under Prime Minister George Papandreou, much of which has been stipulated as loan conditions by Europe and the IMF, is hitting everyday life hard. Civil servants have had pay freezes or cuts – mainly through losing bonuses – of up to 30 per cent; VAT has risen to 21 per cent and state-funded pensions are being reduced to reflect average lifetime earnings rather than final salaries.

The low spending power has put the Greek economy in a severe recession: it contracted 4.5 per cent in 2010 and the government is forecasting it will shrink a further 3 per cent this year. Inflation is hurting at 5.2 per cent, while unemployment has hit 13.9 per cent. A generation faces a bleak future, with youth unemployment at 35 per cent.

At first glance, it might seem the cuts are destroying the country. Anastasiou certainly thinks so. He says: "We are close to the limit of what people can bear, and if the government tries to take more from us I believe there will be a revolution." Even a policeman guarding Syntagma Square has sympathy for the protesters. "I understand why they are angry. Our salaries have been cut too. The violence is too much but everybody has the right to protest."

Beneath Syntagma Square, the metro station was recently hit by anti-austerity activists behind the so-called "I Won't Pay" campaign. They covered ticket machines to prevent payment after fares increased from ¤1 to ¤1.40. The action was part of a civil disobedience campaign launched in response to road toll increases, which began with blockades of motorway toll booths at Christmas. One of the movement's leaders, Giorgos Karatsioubanis, 27, says: "We are angry that transport prices have gone up at a time when people's income is going down and prices are rising. We won't stop until the government lowers fares and tolls."

Other Greeks openly admit to taking part in the violence. Aphrodite, 22, a law student, is one of them. She says her mother has lost her job; her father's salary has been cut 20 per cent, and she will soon have to pay for her studies. "This is violence from the state against me, so if I throw something at a policeman I am defending myself," she says.

One of the unions behind the strikes, the civil servants' ADEDU, is planning the next walkout, likely to be on 25 March. Its general secretary, Ilias Iliopoulos, says: "We want to show that the government is wrong about everything it is doing. Poor people are paying the debts of rich tax evaders and corrupt politicians and thousands will become homeless or turn to crime."

But Kostas Panagopoulos, the co-head of Greek polling agency Alco, says the demonstrations must be seen in the context of a well-established tradition of protesting and entrenched mistrust of the state ever since the popular uprising that overthrew the military dictatorship of 1967-74. "There have been big strikes and rallies in Greece every year for the past 10 years, so what we see now is not unusual."

The current protests, the most recent of which had between 30,000 and 100,000 participants, are dwarfed by the great demonstrations of 1990-93, he says. Interestingly, these were also against financial belt-tightening measures and right-wing prime minister Constantine Mitsotakis's plans to privatise state entities.

Tellingly, in local elections in November, the government won the most seats, albeit narrowly, and two surveys in February showed it remains the most popular party. One poll for the Ethnos newspaper showed Pasok was ahead with 26.1 per cent against 21.5 for the main conservative opposition, the New Democracy party. The European Commission's Eurobarometer poll in February found that 93 per cent of Greeks felt reforms were needed in their country. Indeed, the mood among many in Athens is one of acceptance. Eva Papadionysiou, 34, works for a quango and has had more than 20 per cent cut from her salary, while her husband has not had a pay rise since 2008. "We had to forget our plan to buy an apartment and I'm really worried about whether we can have children," she says. However, Papadionysiou believes "the government has no other option than to make these cuts".

For people outside the public sector, the austerity drive is hitting their tax payments, both through higher rates and state efforts to clamp down on evasion, which is widely thought to be one the main causes of the gigantic hole in the government's finances. At least a third of tax revenues due are not collected.

Shop manager Mina Christopolou, 57, says: "The government is doing what is necessary. You can't take money from trees. Everyone should pay more tax to help. We are used to not paying taxes and not getting receipts but now people understand it can't be this way."

What could shatter the fragile pro-government consensus, though, is how it addresses tax evasion. Papandreou is making moves in this direction. Last month a draft bill proposing to jail anyone failing to pay a tax bill over €75,000 was introduced to parliament. And when people eat out in Athens, it is not uncommon to see police conducting surprise receipt inspections. But there is a strong sense more must be done. Official figures show that revenues rose by a mere 5.5 per cent last year against the target of 13.8 per cent.

Papadionysiou says: "I am willing to make my sacrifice but I expect to see people who have been stealing from the state put behind bars." She tells a depressingly familiar story about visiting a dermatologist. "He charged me €100 without giving me a receipt and he had nine people in his waiting room, so he probably made €1,000 in two hours, tax free."

Student John Arvanitis, 21, is among those arguing that the government must do more to stimulate the economy. "We also need to exploit our resources more. We could develop a solar-power energy industry. We could export more of our agricultural products and tourism could be expanded."

Undoubtedly, the Greek government's best hope is to counterbalance the cuts with modernising the economy, including making a serious effort to tackle tax evasion. But no one knows whether this will be enough to prevent Greece from defaulting on its debt, with all the consequences for the eurozone that go with it.

The lenders' view

Economists applaud austerity measures

The Greek economy is responding reasonably well to the austerity measures, with the headline success being a reduction of the budget deficit from 15.4 per cent in 2009 to 9.4 per cent last year, but more action is likely to be needed.

In mid February, Greece's three lenders, the International Monetary Fund, European Central Bank and European Union, which send regular delegations to examine the economy, said in a joint statement that the deficit reduction was "an impressive achievement". The delegation, known in Greece as the "troika", said more progress was required, however, in the areas of revenue collection and spending controls.

It applauded new Greek legislation covering aspects of the labour market, the liberalisation of closed professions, healthcare reform, licensing and the competition authority, which has been passed or is pending, but stressed that "focus must now be on implementing these laws". Unions and others protesting against austerity measures have already voiced opposition to this legislation.

Economist Jan-Egbert Sturm, the director of the KOF Swiss Economic Institute and European Economic Advisory Group, recommends increasing value-added tax. "Greece is going in the right direction but it must do more, particularly to encourage growth."