Economy: Greece approves key austerity measures amid riots; Japan economy shrinks; new US budget

Updated On: Feb 13, 2012

Greece's parliament has approved harsh austerity measures demanded by the eurozone and IMF, amid violent protests in Athens. Meanwhile, Japan's economy contracted more than expected in the last three months of 2011, due to the rising yen and floods in Thailand. Finally, US President Barack Obama has unveiled his new budget for US government spending.

Greece Passes Crucial Austerity Bill

Greece's parliament passed controversial austerity measures demanded by its bailout creditors early on Monday. Lawmakers also approved a related deal to write off Greek debt held by private banks.

The critical austerity package was passed with 199 votes in favour and 74 voting against. Coalition parties expelled over 40 deputies for failing to back the bill.

The historic vote paves the way for Greece's European partners and the International Monetary Fund to release €130 billion (US$171 billion) in new rescue loans.

Since May 2010, Greece has survived on a €110 billion (US$145 billion) bailout from its European partners and the IMF. When that proved insufficient, the new rescue package was agreed, together with a bond swap deal to write off half the country's privately held debt.

But last week, eurozone officials reiterated that the money would not be released until Greece accepted the austerity measures.

Without the latest bailout, Greece would default on its debt next month - meaning it would likely have to leave the eurozone.

Riots in Greece

But the new austerity measures are deeply unpopular in Greece, and the parliament vote came amid the worst violence seen in the country for years. Rioters in Athens torched buildings, looted shops and clashed with riot police.

According to reports, as many as 100,000 protesters marched to parliament to rally against the drastic cuts, which will axe one in five civil service jobs and slash the minimum wage by more than a fifth. Many people in Greece feel the impact on ordinary people is beyond the value of the bailout.

Prime Minister Lucas Papademos urged calm, pointing to the country's dire financial straits. "Vandalism and destruction have no place in a democracy and will not be tolerated," he told parliament. "I call on the public to show calm. At these crucial times, we do not have the luxury of this type of protest. I think everyone is aware of how serious the situation is."

Report: Greek MPs pass austerity plan amid violent protests [BBC, 13 Feb 2012]

Report: Greek Parliament Approves Austerity Bill [TIME (AP), 12 Feb 2012]

Japanese Economy Contracts More Than Expected

In other economic news, Japan's economy shrunk by 2.3 percent during the last three months of 2011, compared to the same period a year earlier. The figure is much worse than 1.4 percent contraction that analysts had forecast.

Compared with the previous three months, the economy shrank by 0.6 percent. The numbers are a blow to Japan's efforts to recover from the earthquake and tsunami last year.

"Exports have fallen a lot because of a triple shock from Europe, the strong yen and floods in Thailand,” explained Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management.

Report: Japan economy contracts amid strong yen and Thai floods [BBC, 13 Feb 2012]

New US Budget

US President Barack Obama has unveiled his new blueprint for government spending. He has proposed to raise taxes on the wealthy in his new budget, prompting an election year spending showdown with Republicans.

At the core of Mr Obama's budget is the idea that the wealthiest Americans should pay more in tax and that, in the short-term, a chunk of that extra revenue should be spent on job creation, manufacturing and upgrading the nation's schools.

Mr Obama plans to allow George W Bush-era tax cuts to expire would affect families making $250,000 or more per year. He is also adding a "Buffett Rule", named after billionaire Warren Buffett, to tax households making more than US$1m annually at a rate of at least 30 percent.

"In the United States of America, a teacher, a nurse, or a construction worker who earns $50,000 a year should not pay taxes at a higher rate than somebody making $50 million. That is wrong," Mr Obama said in his budget address.

But Republicans are unhappy that the budget would entail a fourth year in a row of trillion-dollar-plus deficits. Republicans warned the budget, which must be agreed between the White House and Congress, would not solve America's deficit problems.

Report: Obama budget plan to tax the rich [BBC, 13 Feb 2012]

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