Greece faces a critical week in its debt crisis

Greek protesters, enraged over the prospect of additional austerity measures, have thrown Athens into chaos.

NEW YORK (CNNMoney) — The next week could decide the outcome of the debt crisis in Greece — and the financial future of Europe along with it.

On Wednesday, the Greek Parliament is scheduled to vote on a new raft of painful austerity provisions, on top of the belt-tightening measures implemented last year.

The stakes are high, because Greece must approve the additional belt-tightening in order to win the last $17 billion of a $156 billion debt crisis relief package that was granted last year by its European neighbors.

The European Commission is hoping that the Parliament will approve the plan. “These measures, once fully implemented, will enable Greece to meet the agreed targets and remain on track,” said the Commission on Friday.

Greek Prime Minister George Papandreou survived a vote of confidence last week, but his hold on power is tenuous as he tries to convince Parliament to pass the measures.

For Greece, the real challenge lies ahead

The new austerity measures include reductions in the pay of public workers and an increase in the attrition of public jobs, according to Marko Mrsnik, the lead analyst in the Standard Poor’s downgrade of Greek debt on June 13. The new austerity measures are worth an estimated $112 billion to the Greek economy, according to Deutsche Bank analyst Jim Reid.

On July 3, finance ministers of the European Union will vote on whether to approve the fifth and final tranche of funding from the bailout.

These hurdles must be cleared if Greece is to be eligible for yet another bailout from its European neighbors, which is a strong possibility, given the country’s debt crisis.

Greece desperately needs the financial support, or it could run the risk of defaulting on its debts. Mrsnik, as part of his downgrade, said Greece was “increasingly likely” to default on some of its debt.

If this happens, it would disrupt the European banking system, which could, in turn, disrupt banks and markets in the United States.

Greece has been spending beyond its means, which has also been a problem in the United States. But in Greece, the problem is more pronounced, partly because the country and its economy are smaller and less diverse.

The Greek economy has been decidedly weak — weaker than the United States — with unemployment soaring up to 16.2%, compared to 11.6% in March 2010, according to Mrsnik.

European Central Bank gets a new president

But over the last year, the economic malaise and high unemployment has been exasperated by the austerity measures implemented in 2010, said Mrsnik. Those measures include pension cuts; a sales tax boost; excise taxes on fuel, cigarettes, alcohol and luxury goods; tougher eligibility for disability benefits; and a hike in the retirement age to 65 from as low as 61.

The specter of additional austerity measures has fanned the flames of recent violent protests in Athens. Many of the protesters are young Greeks who face dim prospects in finding jobs.

These protesters tend to blame the rich for the country’s woes, since rampant tax evasion has been a major contributor to the Greek tragedy. Tax dodgers have undermined public financing in a country that is dependent upon socialist supports such as the publicly funded pension system.

Reining in tax dodgers is at the top of the list of the new reforms. To top of page

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