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Clashes in Athens As Europe Fears Looming Bank Crisis

Protesters shout slogans during demonstration in Athens, Oct. 5, 2011.
Protesters shout slogans during demonstration in Athens, Oct. 5, 2011.
Henry Ridgwell

Protesters and police have clashed in the Greek capital Athens following a protest march against the government’s latest round of austerity measures. European governments fear the Greek debt could create huge losses for banks across the continent - raising fears of another credit freeze and banking crisis.

A demonstration against the Greek government’s latest toughening of austerity measures turned violent as masked youths hurled rocks and Molotov cocktails at security forces; they responded with tear gas and baton charges.

At one point protesters ran into the subway but were forced out as police fired tear gas into the station.

Earlier thousands of demonstrators marched peacefully against the government cuts, bearing placards saying "Erase the Debt" and "The rich must pay."

Stavroula Brisini who works at the National Statistics Service was among them.

He says, "Wage earners and pensioners cannot pay for the crisis in such a barbaric way, consistently, while others engage in tax evasion. They should be collecting funds from others. Instead,” he says, “wage earners, pensioners and civil servants always carry the burden."

Public workers staged a 24-hour strike against plans to raise income taxes, prolong a property tax and force more redundancies to shrink the public sector.

But inspectors from the so-called troika of the IMF, the EU and the European Central Bank say such measures are vital if Greece is to receive further installments of the 109 billion euro bailout agreed in July.

"It will certainly be increasingly difficult for the Greek government to sustain all of the pressure," says Tobias Blattner, a European economist with Daiwa Capital Markets in London. "But so far I think the Greek Prime Minister Papandreo has managed to push all the reforms through parliament so I think he will stay in power unless there is something major happening, which for example could be that the next tranche will not be paid out for Greece, but I think this is really unlikely.”

In recent days leaders across Europe have warned the continuing debt crisis in Greece threatens to bring down the euro itself.

Belgium and France were forced to come to the rescue of Belgian bank Dexia Tuesday, after its share price plunged 38 percent over worries that its exposure to Greek debt would leave it unable to borrow money.

It is the first state rescue for a European bank in the eurozone debt crisis.

Greece’s announcement this week that it would miss its 2011 deficit target has raised the prospect that the terms of the huge bailout - the second in two years - will have to be renegotiated, with an effective default on some of the debt.

That could mean bigger losses for European banks.

"The only solution would be that private bond holders will have to take a bigger hit on the debts that they own in Greece," says European economist Tobias Blattner. "Economists would always argue that you need at least something like 50 percent. More probably you would need even 60 percent so that Greece could return in the medium term to a sustainable fiscal position. But politicians are unlikely to agree on such a big haircut simply because it would cause another big financial turmoil."

Economists say the biggest fear then would be a return to the credit crunch conditions that preceded the global crash just three years ago.

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