Markets Falter in Europe Amid Protests on Austerity

ATHENS — After a period of relative calm, European markets shuddered once again on Wednesday as protests erupted across Greece and demonstrators surrounded the Spanish Parliament for a second day to protest the austerity program of Prime Minister Mariano Rajoy. 

Earlier this month, the European Central Bank announced its intention to buy unlimited quantities of debt from European nations, including the troubled economies of southern Europe. That kept the peace in the financial markets until Wednesday, when political instability startled investors, with the Spanish stock market dropping 3.9 percent and even the German DAX falling by 2 percent. The interest rate on the 10-year Spanish bond, which had been declining, inched closer to the ominous 6 percent level.

On Tuesday in Spain, tens of thousands of demonstrators besieged Parliament to protest austerity measures planned by Mr. Rajoy. Last week, more than half a million people marched in cities across Portugal to protest an increase in social security contributions, and a million marched in Barcelona calling for Catalan independence.

In Athens, trade unions called a nationwide strike Wednesday to contest billions of dollars in new salary and pension cuts being discussed by the government and its international creditors. It was the first such walkout since a conservative coalition led by Prime Minister Antonis Samaras came to power in June.

Mr. Samaras is negotiating a $15 billion austerity package that is needed to persuade Greece’s so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — to release nearly $40.7 billion in financial aid that the country needs to stay solvent.

Mr. Rajoy has been trying for months to convince investors that Spain can handle its own problems and that it will not need a bailout that would force Madrid to cede some authority over its fiscal affairs to its lenders, and is set to introduce new cutbacks to meet budgetary goals. Those will include restrictions on early retirement and various measures to streamline regulations and fight unemployment, he said in an interview with The Wall Street Journal.

The proposed cuts in Greece have ignited new anger, with many talking openly of increased impoverishment as the nation grapples with a third round of austerity measures in three years. The protests in Athens were peaceful in the morning, as civil servants, teachers, medical personnel, bank employees and lawyers made their way to the city center. A police spokeswoman put the turnout at 35,000 to 40,000 people — modest by Greek standards.

But violence broke out shortly after 1 p.m., as a group of protesters wearing black masks hurled gasoline bombs at police officers on Vasilissis Sofias, a wide avenue abutting Parliament, sending bursts of flame and black smoke into the air. Firebombs were also thrown at the Finance Ministry and into the lush National Gardens next to Parliament.

Officers wielding batons responded with bursts of tear gas, scattering demonstrators and tourists as police helicopters circled overhead and flares exploded. Many cursed the police with cries of “traitors” and “Merkel’s pigs” — a reference to Chancellor Angela Merkel of Germany, the country widely blamed for insisting on strong austerity measures in exchange for aid.

Mr. Samaras is scheduled to meet on Thursday with his coalition partners — Evangelos Venizelos, the Socialist leader, and Fotis Kouvelis of the Democratic Left — to seek a common line regarding the $15 billion austerity plan.

Representatives of the troika left Athens last week after tussling with the government over the depth of cuts planned for salaries and pensions. The two sides need to reach an agreement before the lenders can issue a report in October grading Greece’s ability to mend its tattered finances. Additional aid depends on a positive assessment, and is critical to lifting confidence that Greece will remain in the euro zone.

But for many Greeks who took to the streets, that pact amounts to a bargain with the devil.

Anna Afanti, 50, a secondary school teacher, removed a surgical mask she had been wearing to ward off the tear gas to denounce Greece’s foreign creditors. “They just want to impoverish us, to bring our salaries down to the level in India and swoop in and buy everything on the cheap,” she said, referring to planned privatizations of state assets.

Ms. Afanti, who traveled about 40 miles to Athens from the town of Halkida with several colleagues to attend Wednesday’s protest, said her salary had been cut by a third since the crisis hit. “I should have left this country a long time ago,” Ms. Afanti said. “Now I’m stuck here.”

Smaragda Aivalioti, 21, an economics student at Athens University, had planned to stay in Greece despite the crisis. “But now I just don’t see any hope,” she said. “All the odds are stacked against Greece. Even if we stay in the euro, life will be wretched. What’s the point?”

Speaking to state television, Alexis Tsipras, the head of the leftist opposition party Syriza, which opposed Greece’s bailout terms, said the country’s only hope was in Greeks’ rejecting austerity.

Numerous government services across the country were shuttered for the day, and main transportation arteries in central Athens were disrupted. Flights to and from the main Athens airport were delayed as air traffic controllers briefly took part in the strike.

This article has been revised to reflect the following correction:

Correction: September 26, 2012

An earlier version of this article misstated the day that demonstrators marched on Parliament in Spain. It was Tuesday, not Monday.