2005-2006 Piraean crisis

2005-2006 Piraean crisis
Part of 2005 global financial crisis
Date	December 2005-2006
Location	Piraea
Caused by	Economic crisis Imposition of Corralito Political instability
Resulted in	Dissolution of the Piraean Senate Resignation of Evangelos Polakis Technocratic government assumed until general elections

The 2005-2006 Piraean crisis was a period of financial crisis in Piraea, which was followed by civil unrest, rioting and numerous protests and occupations against the Polakis government and its austerity measures.

During most of 2005, the Piraean government tried to contain the effects of the global crisis, which was severely harming the rest of Euclea, by imposing austerity measures. However, most measures proved ineffective, as the Piraean lira, highly dependant on the Euclo, rapidly depreciated, leading to a lack of confidence among investors and savers. Hoping to preventing a bank run, the Minister of Economy and Finance, Lazaros Barou-Karahaliadis, imposed restrictions on cash withdrawals (which were later extended), leading to protests at bank branches.

Political scandals predating the crisis, fears of banking insolvency, and the inability of the government to contain the crisis soon led to demonstrations against the establishment, which coalesced around the slogan "All of them must go!" (Piraean: Όλοι φεύγουν!), an expression of distrust and contempt for the political class as a whole. The protests led to the formation of new political groups, like Democrats and Change, in opposition to the PSEE-LK binary. Violent clashes between police and protestors occurred between 17 and 21 August after two credit associations were declared insolvent and the state refused to recapitalize them; shortly after the two institutions closed down, the government extended the corralito to all currencies and reduced state pensions. Protests, which prior to that point were peacefil cacerolazos in the offices of banks in Alikianos Kentro, soon turned violent, leading to the destruction of TrapeLien ATMs and other private property. Over the five-day period, three deaths occurred in Alikianos as a result of police brutality.

Evangelos Polakis resigned on 21 August and was forced to leave the Piraean Senate in a helicopter. Hoping to prevent further political instability and restore the credibility of Piraean institutions, the Senate formed a technocratic government.

Background

Property bubble

The coast of the Souda Riviera suffered an extreme urbanisation during the 1980s and 1990s, fueled mostly by real estate speculation.

Between 1990 and 2005, Piraea suffered a massive phenomenon of urbanisation, fueled by laws that granted construction companies with the legal framework to ignite the start of a property bubble. However, evidence has shown in the past years, that even during the years prior to the decade of the 1990s, property prices and construction numbers were starting to prove toxic for the Piraean economy.

Property prices would finally triple during the first years of the 1990s, period in which the construction of apartment buildings and suburban estates popularised across Piraea; the idea of a bubble soon acquired notoriety, although both the government and construction chambers labeled it as a "construction boom", fearing further stagnation of the Piraean economy. Economic reforms made during the governments of Konstantinos Kondoulis were crucial in providing benefits to the construction sector, which was later accused of providing legal escapes to real estate companies to fuel the business through tax evasion and corruption, leading to a lack of transparency affecting the housing market's credibility. During the entire decade, the central bank of Piraea, as well as the government and its institution, would systematically deny the existence of the property bubble, although critics have pointed to statistics proving the existence of an alarm about the possible effects of a bubble bursting.

The Kondoulis governments sought to attack a double digit inflation, by drastically inducing a reduction of consumption. VAT and other taxes were increased, and towards the years 2000-2003, the demand on new construction saw the first signs of decrease; this trend was exacerbated in between 2004 and 2005, when the real estate market dropped with house prices decreasing nearly 10% in those years.

Polakis government

Evangelos Polakis during a summit with GIFA directives in Morwall.

In 2001, Evangelos Polakis became Premier of Piraea with a populist and conservative liberal platform. Most of the political campaigns had been rooted in ending corruption and the high levels of inflation that were affecting Piraeans' purchasing power. During its first years, Polakis and Lazaros Barou-Karahaliadis as Minister of Economy and Finance, engaged in a deep reform of the fiscal state and the Piraean Central Bank, with advise from the Global Institute for Fiscal Affairs.

Polakis and Barou-Karahaliadis pursued a drastic reduction of the deficit, which affected social spending and meant the reduction of salaries and pensions. With signs of deceleration of the economy, highly affected by te drop of the real estate market and general consumption, the government proposed the privatisation of the state's participation in several companies, as well as a policy of not investing in institutions and enterprises that could collapse. The "zero deficit" policy, as Polakis proposed it, restricted the action of the Central Bank, which could not longer use money emission to cover deficit. To face the reforms, the GIFA proposed and approved a loan, which was going to be given to Piraea in gradual and successive outlays, and was going to "armour the economy in a moment of global turbulence" (Barou-Karahaliadis).

Development

17-21 August

Evangelos Polakis leaving the building of the Piraean Senate after his renounce.