BOSTON — Things are turning ugly in Greece.
Three people were reportedly killed in Athens Wednesday, after protesters set a bank ablaze — the first fatalities of the widespread unrest now gripping the unhappy Greek capital.
Tens of thousands of Greeks are irate at their government's response to the country's growing debt crisis, particularly its plans to slash 30 billion euros ($38 billion) from its budget over the next two years and to raise taxes.
The austerity measures will hit ordinary Greeks hard, so they massed on Athens' streets as part of a general strike that targeted transportation networks, schools and hospitals. All that was missing from this latest revolt was the pitchforks and clubs.
But the unrest in Athens should come as no surprise, especially to attentive GlobalPost readers.
Greece is, simply put, on the wrong side of the Davies J-Curve.
Before you dive for your nearest economics textbook, stick with me. The J-Curve is a simple but powerful way to understand what's going on right now in Greece. It's also a useful framework for thinking about what could soon be happening around the world.
Here's the theory: Simply put, people grow happy as they grow richer. Understandably so. But things turn ugly when the rug is pulled out from under them and the gap widens between their economic expectations about the future and their reality.
This phenomenon occurs whether you're a farmer in India, a hedge fund manager in Berlin, or a citizen of Greece, Portugal, Spain, Ireland, Italy or any other debt-ridden country that could also face tremendous market pressure.
What's happening right now in Greece is the textbook definition of the Davies J-Curve. Led by annual economic growth of about 4 percent between 2003 and 2007, along with easy credit and big consumer spending, Greeks grew economically fat. Per capita GDP last year stood at $32,100 — just below Japan but above Italy, Israel, Taiwan and South Korea.
But when the global economic crisis hit — and Greece's already-high budget deficit soared — the country found itself in dire straits and the government was forced to act. An unhappy population, realizing that austerity pain would fall squarely upon it, has turned ornery, and now, violent.
In other words: the gap between their economic expectations and their suddenly-poorer reality has widened.
Here's where things get even scarier.
Echoes of the Greek story can be found in Portugal, Spain, Italy, Ireland and even the United States and Japan, the world's two largest economies.
Each of these countries has enjoyed long periods of economic expansion. Each has been hammered by the global economic crisis. Each suffers from high debt levels, which means they are — like Greece — at risk of market pressures to get their own sovereign finances in order. (Portugal and Spain have already had their debt ratings downgraded).
That means that when government spending cuts and tax hikes come calling, these populations will also feel the sting. Their expectations about the future will not meet their new realities.
As Greece is now demonstrating, that's a recipe for political unrest.
We're already seeing plenty of unease. Global stock markets have been seriously under pressure this week, as investors fret about contagion, and specifically how a rapidly spreading problem might choke off a weak global economic recovery.
As markets crumbled, GlobalPost contributor Andrew Parlin spelled out the dangers of a widening sovereign debt crisis, which would limit government economic options worldwide:
"Iceland, Dubai and Greece look increasingly like the tip of a very large iceberg. The debt of much of Europe will need to be aggressively restructured in what is apt to be tantamount to 'soft defaults,' where creditors are not completely wiped out, but neither are they made whole. Japan, with a 2 to 1 ratio of debt to GDP, is perhaps the least talked-about ticking time bomb."
Of course, every country is different, with different economic and political circumstances. Economic growth, though weak, has returned to many key countries, which helps offsets debt worries. And markets and investors are fickle. So this latest bout of debt-inspired unease may pass without too much trouble.
But as this complex crisis rolls on from Europe, to perhaps Asia, the U.S. and beyond, keep your eye on the Davies J-Curve.
It could be a roadmap to even greater unrest.