Greece leads Europe's winter of discontent

Strikes threaten to cause paralysis as workers reject government attempts to cut spending and wages

A wave of industrial and social unrest is building across Europe as workers resist attempts by governments and private companies to impose austerity policies, drive down wages and rescue some nations from near-bankruptcy.

Huge protest rallies took place in cities across Spain last night; today a general strike could paralyse Greece while industrial action at French airports and oil plants as well as the narrowly averted stoppage at Germany's Lufthansa promise to be just the start of the greatest demonstration of public unrest seen on the continent since the revolutionary fervour of 1968. Europe's industrial economy is not clear of recession yet either and with unemployment rising and demands for austerity growing, Europe's workers are becoming increasingly restive.

Italy's beleaguered car giant Fiat abruptly suspended production across all its Italian plants this week, laying off a workforce of 30,000 people for two weeks and further closures are forecast for next month.

There are signs meanwhile that confidence is sagging under the weight of unrelenting media gloom about the Greek crisis. The Governor of the Bank of England, Mervyn King, voiced his concern that Europe's recovery has now "stalled", a development with grim repercussions for the British economy. The much-feared "double dip" recession seems to be becoming inevitable.

By far the most extensive disruption today will be in Greece, a eurozone member state, where there have already been wildcat strikes and loud protests against the Prime Minister George Papandreou's efforts to rein in Greece's yawning budget deficit, the worst in the eurozone. Communist party-backed protesters tried to blockade the Athens stock market yesterday and strikers will today close down air, rail and maritime transport networks, their anger stirred by draconian cuts to welfare benefits.

The action will also shut schools, government offices and courtrooms, with disruption to banks, hospitals and state-owned companies. A strike by journalists is also planned, which promises to add to the mounting sense of chaos. In a tragic-comic touch, Greece's tax inspectors also took industrial action against their governments attempts to fix its finances.

John Monks, secretary general of the European Trades Union Confederation, warned yesterday that unions across the EU were pushing back against austerity plans that were "socially unacceptable" and which would only exacerbate the recession by fuelling unemployment.

Analysts say that Greece ought to be able to raise about €3bn (£2.6bn) in the markets this week, albeit at high interest rates of more than 5 per cent. A much bigger challenge will be to find the €25bn in April and May that Athens is due to repay on maturing bonds, short-term bills and interest payments. The next crunch for Greece will be when Mr Papandreou has to meet fellow EU leaders on 16 March to convince them he is making progress towards slashing the deficit.

But now Spain – another of the so-called "PIIGS" group of heavily indebted nations comprising Portugal, Italy, Ireland, Greece and Spain – is also facing determined resistance to the Zapatero government's attempts to get Spanish public finances on track. Many observers fear a Spanish budget crisis much more than a Greek one, simply because the Spanish economy is about five times larger than Greece's, and even the resources of the richer eurozone members, principally Germany, may be insufficient to save her.

In any case, constitutional and political obstacles to bailouts in Germany show no sign of being removed, adding to the underlying strains that are destabilising the single currency area.

Across Spain's major cities last night, trade unionists led protest rallies against plans to raise the retirement age to 67. Evening rallies were taking place in Madrid, Barcelona and Valencia, with organisers hoping up to 50,000 would turn out in the capital alone. Protests will spread to the rest of the country later this week.

If anything, Spain's economic troubles may be even more intractable than those in Greece. Like Britain, Spain's economy was driven by a property bubble during t he boom years, and the ensuing slump ha s been more severe than in most of the rest of the eurozone, including Greece. Figures last week showed that Spain is yet to emerge from recession, and faces the social and economic cost of 20 per cent unemployment and a jobless rate among the young of 35 per cent, the highest in the eurozone.

The democratic strains in nations that had been ruled, well within living memory, by fascist leaders or the military are growing.

During the relatively benign economic conditions that marked the first decade of the euro, fast growing economies such as Spain were able to enjoy the advantages of currency union, such as low interest rates, but allowed their prices and costs to gradually rise, leaving their economies uncompetitive by comparison with nations such as Germany. Traditionally, that cumulative build-up of cost and price differences would be dealt with by devaluation of the currency, but membership of the euro removes that flexibility. Thus Ireland, Greece , Spain and others are undergoing what economists euphemistically call "internal devaluation", slashing wages and costs and, if necessary, allowing unemployment to climb to record highs. The problem raised by the Nobel prize-winning economist Joseph Stiglitz among others, is that those deflationary polices threaten to shrink their economies even more, triggering an even more urgent budget crisis as tax revenues collapse and unemployment payments rise.

A further issue undermining the markets' confidence in the ability of these governments to deliver is the absence of any kind of Treasury-style function in the eurozone, to complement the European Central Bank: Cross-border bailouts were made illegal by the Maastricht Treaty and that rule has been carried over to the current Lisbon Treaty.

At the last summit of European leaders in Brussels, President Nicolas Sarkozy revived French demands for "European economic governance" to deal permanently with budget crises, in effect a eurozone Treasury department, but Chancellor Angela Merkel of Germany only agreed to such a development provided it involved all 27 EU states, effectively neutralising the French proposal and insulating the German public finances from possible contamination. Distressed nations such as Greece will probably be left with little choice but to approach the IMF for assistance – a humiliating defeat for those ambitious for European political and economic integration.

The mood around Europe

France

Strikes called by French oil refinery workers and air-traffic controllers are threatening to bring nationwide travel chaos. Neither dispute is a direct consequence of the global economic crisis – the French economy is recovering from recession more rapidly than its neighbours – but unemployment remains high (10 per cent, with 450,000 jobs lost in 2009) and the government fears the spread of labour militancy. As a result, the President Nicolas Sarkozy – elected two years ago with a mandate to be tougher on unions – has all but supported the union side in the refinery strike. The French oil company Total wants to close its refinery at Dunkirk. A strike among Total unions spread this week to other refinery workers. To prevent France from running out of petrol at the pumps by the end of next week, President Sarkozy called in the head of the Total yesterday and demanded – and received – guarantees that there would be no more refinery closures or cutbacks for five years. The strike action appeared to be breaking up last night. Meanwhile, French domestic and foreign flights were severely disrupted as air-traffic controllers walked off the job yesterday for four days. They are protesting against plans to merge the French air traffic control agency, DGAC, with those in Germany, the Benelux and Switzerland.One flight in two was cancelled at Orly and one in four at Charles de Gaulle airport, Paris. Even more cancellations are expected in the next three days, compounding the problems caused by air crew strikes in Britain and Germany.Overall, French worker reaction to the recession has been prudent and pragmatic. The government fears, however, that an uneasy truce may soon break down as job cuts in the public sector begin to bite.

John Lichfield

Germany

A potentially devastating strike by Lufthansa's 4,500 pilots was called off at the last minute after the pilots' union agreed to resume pay negotiations with the airline, but social and economic discontent continues to simmer in the EU's biggest economy.

Faced with a record €100bn (£88bn) debt, falling exports and the prospect of having to bail out bankrupt EU partners, Chancellor Angela Merkel's coalition is struggling to find remedies capable of sustaining electoral support. Leading commentators have complained that a Greek bailout would contravene the terms under which Germany agreed to ditch the mark for the euro at the beginning of the decade. "The Germans are angry," said Elmar Brok, one of Mrs Merkel's conservatives, "first we had to bail out our own banks, now we have to help Greece." Germany's record deficit and a nearly 20 per cent drop in eurozone exports have sparked protracted infighting between the ruling Conservatives and Liberals over tax cuts and social-security benefits.

Tony Paterson

Greece

Today, public – and private – sector employees are expected to walk off the job and take to the streets in protest at harsh austerity measures. The nationwide strike is expected to bring air, rail and maritime transport services to a halt. Schools, state-run offices and public courts will be shut, while banks and hospitals will be operating with skeleton staff.

"The strike should be a big success and should paralyse the entire country," said Vangelis Moutafis, the general secretary of the General Confederation of Labour union (GSEE), one of the two unions organising the protests.

Hundreds of enraged workers blocked the Athens bourse yesterday in the latest show of swelling unrest against the reforms enforced by the beleaguered government in its bid to fix a deficit crisis imperilling the financial future of much of Europe. Protesters stormed the Athens bourse ahead of trading, unfurling red-and-white banners that read "The rich must pay for the crisis", but trading was not disrupted.

The protest stunt came as delegations from the EU and the International Monetary Fund began talks with Athens on the government's plan to rein in spending. A chronic violator of EU budget rules, Greece is under intense pressure to slash a bloated budget deficit of 12.7 per cent, the worst in the eurozone.

Today's strike is the second major show of industrial action in less than a month, testing the government's strength in pushing through its belt-tightening measures in the face of stiff opposition from the unions. Last week, the EU warned Greece that it would press for more austerity measures if Athens showed no tangible signs of progress in putting its finances in order by mid-March.

Anthee Carassava