"Police have fired tear gas in running battles with stone-throwing youths in Athens, where a 48-hour general strike is being held against a parliamentary vote on tough austerity measures," the BBC reports.
Meanwhile, a sense of optimism has taken hold in the financial markets, which rallied Tuesday. In recent trading, the Dow was up 0.9%, following similar overnight gains for Europe's major bourses.
The hope is Prime Minister George Papandreou can generate enough support for the Greek Parliament to pass austerity measures, which EU officials say are a prerequisite to additional bailout funds.
"The only way to avoid immediate default is for parliament to endorse the revised economic program [which] must be approved if the next tranche of financial assistance is to be released," EU economic commissioner Ollie Rehn said Tuesday morning. "To those who speculate about other options...there is no Plan B to avoid default."
Like most observers, Zanny Minton Beddoes, economics editor for The Economist, believes the Greek Parliament will pass the austerity package on Wednesday, as well as a subsequent vote on the implementation, slated for Thursday.
"In Greece, nobody really knows. We're looking at a huge amount of uncertainty [but] I suspect when push comes to shove it will squeak through," she says.
However, Minton Beddoes is "somewhat skeptical when Ollie Rehn says 'there is no plan B'. I think these people would be nuts not to have a plan B — to not at least thought about what to do in the contingency that the Greek parliament doesn't pass this."
If the Greek austerity package doesn't pass and the EU doesn't respond with aid, as Rehn suggests, "later this month the Greeks will be forced into a chaotic default," she notes. "That's something everyone is trying to avoid and the Europeans have said for months would be cataclysmic."
One plausible scenario is for a replay of the U.S. Congress vote on TARP in September 2008. After the first vote failed in the House, the Dow plummeted 777 points in a day; less than a week later, a slightly revised version of the bill passed.
"I could imagine something like that happening — the markets go haywire and there's another Greek vote before the default needs to take place," says Minton Beddoes, a former IMF economist. "There's also possibility you have some kind of fudge; the Europeans have extraordinary capacity to fudge things."
In this case, the "fudge" would come in the form of some kind of temporary liquidity facility to assuage debt-holders and promises to the Greeks to allay their concerns about the implications of austerity, she says.
But the biggest fudge of all is the idea that any short-term solution currently on the table can resolve Greece's twin problems of insolvency and the uncompetitive nature of its economy, says Minton Beddoes. "There's no magic bullet solution; there's no easy way out of this mess for Greece," much less the EU as a whole.
- Prime Minister George Papandreou