Protests, Riots and Rage in Europe

After a quiet few weeks, political pressures are rising again in Europe. Pictures of petrol bombs exploding among riot police officers in Athens have returned to global television and Bloomberg screens, and news reports suggest mounting support for the rightist Golden Dawn party, bringing back questions about the durability of the summer stabilization in the euro area. Yet there is little to indicate that these developments change anything of significance in the euro area crisis response. Greek protesters invariably fight with police, but so what? The Greek government is likely to agree on a further austerity package, despite the violence and the first strike by (mostly) public sector workers since the new coalition government took office. As for Spain, the government in Madrid presented its fifth fiscal austerity and consolidation package last week, despite a few thousand protesters in Madrid. In fact the only example of public outrage having an impact in the euro area recently has come in Portugal, where protests have spread spontaneously against the government’s new proposal to shift social security contributions from firms to workers. The furor forced the government to withdraw this step, which had been aimed at increasing competitiveness by an “internal devaluation.” Thus concerns about the political stability of the euro area periphery are overblown. Indeed the main risk is that the protests merely make governments less bold on needed reforms.