Greek state starting to lose grip on functions of state

Athens, Greece, on the outskirts of a riot, 1500BST:

The teargas hits us without warning, though I suppose being close to a bunch of people throwing bottles at riot police was warning enough. It explodes in mid-air, a thick cloud the colour of 1970s furniture. Those nearby run, everybody clutches their T-shirt to their face.

Then, like a football crowd leaving a game in the days when there were still terraces, we crush together, shoulder to shoulder, everyone in their little bubble: nobody panicking but everybody fighting that little bit of panic that starts inside when you cannot breathe, and everybody urgently pushing forward.

At the edge of the disturbance people turn around. They throw water in their faces and a kind of milky substance they have brought with them which, as it dries, gives the whole crowd the air of a troupe of clowns that have been disrupted while putting on whiteface.

The trouble started simply because, if you put a crowd of hundreds of thousands next to a parliament that has lost its economic sovereignty, and let that crowd be fringed by anarchists in black balaclavas, it simply will.

'Eyes streaming'

After about two hours of sporadic fighting at various entrances to the parliament, the police started to go into side-streets and do flanking movements, much as the anarchists and "indignatos" (Facebook-organised youth who are not anarchists) were flanking them earlier in the day.

Fires were started - some little ones on street corners - a couple of big ones, bringing a shudder to the crowd who remember the death of three bank workers in a fire last year.

The wider crowd - of trade union members, old ladies, mothers, teachers, girls in midriff-revealing tops and blonde dread locks, old sailors with white stubble - just stands there, its eyes streaming, wiping its nose.

In the lulls there are mini confrontations between trade union groups and the black bloc. The former chant that they are provocateurs. While as a vignette this looks like merely a tense sub-plot, it should be of interest to the policymakers desperately trying to hold Greek society together as they impose the biggest austerity package a developed country has had to stomach since the war.

For in their own way the red-flag bearing, big-chested security groups of the Communist and non-Communist union groups are on the front line of holding things together. At no point did I see any union or left-wing party security group pick a fight with the police. The silent implication is, watch what happens if we ever do join in.

'Transvestite prostitutes'

What's going on here though is also startling when viewed from the fringes of the riot. You walk down Venizelos Avenue - the big business boulevard from Syntagma to Omonia Square - it is ghostly quiet. Two hooded anarchists, their shirts off, dance in front of a low burning barricade just, they hope, out of stun-grenade range of a platoon of riot cops.

On the next corner a group of chilled out youth protesters, and then the next the same. The street is under the control of the protesters - not that they are trying to exert control but nevertheless it is. Every shop is shuttered, some out of fear, others because the shopkeepers association declared a three-hour shutdown as part of today's general strike. There are no "bystanders".

A bit further on, it becomes like a Henry Miller novel. Still wiping my eyes, and looking for somewhere to write this, I have wandered into a street that is full of jerky emaciated drug-dependent people, transvestite prostitutes and migrant beggars. "I am hungry" says one cardboard sign. A woman stands on the corner hopping from one foot to the other, delirious with some substance, her hair matted. Of course you can see this in any city, but you have to look hard. Here in Athens you do not have to look hard.

There is a social crisis under way and I think it is different from the one our history books teach us to expect. It's not like the cracking of the state, or mass unrest, but simply that the Greek state - whose reach was never far into society - is beginning to lose its grip slightly on the actual functions a state should do.

It cannot decide its economic policy; it can't convince its own people of any good intent; the rule of law is imposed hard here - with the impounding of yachts bought through tax evasion - only to break down somewhere else, as people begin to pledge non-payment of bills for the privatised utilities.

It is not anarchy here, but - to use another Hellenic word - neither is there catharsis. As the conservative daily Kathimerini put it in an editorial last night: "Prime Minister George Papandreou does not seem to be on top of things anymore."

'Political paralysis'

Actually the violence - though at a level several notches up from north-European rioting - remains like nearly all riots within a set formula: the rioters attack, the police fight back with stun grenades and gas, the rioters set fire to stuff, run away, the police control the streets, it goes dark…

But the violence is a sideshow: it is the political paralysis of the Greek government that is of world importance because - while the European Union bickers about how much bankers should lose versus how much the EU should lose as Greece defaults - you are seeing the lines of defence against financial and social chaos within this part of Europe getting very frayed.

A technical default for Greece looks close now - according to S&P even if Greece does everything it is asked to, its rating can never rise above CCC (which is junk). But in the policymaking circles the real worry is whether this will trigger a new round of credit failures. The Greek banks would collapse with any serious default on the debt; but the shock would also ripple through to north-European banks. And while most of them are in a shape to take the hit, not all of them are. And not all of the ones that look exposed are in states big enough to bail them out.

So with the recovery looking shaky across Asia, a credit event here in Greece could knock back sustained recovery even further. That's what my City contacts are worrying about in e-mails today.

Mounting hostility

This is my third blog post in 24 hours from here, and at the risk of repeating myself, I think the level of mismatch between perception and reality within the Eurozone is worrying. Because last year's protests were mainly leftist; and the strikes mainly token, a pattern of thinking has emerged that dismisses all Greek protest as essentially this.

But a new situation is emerging: Greek people I have spoken to are beginning to express things in terms of nation and sovereignty - and this makes the Greek situation different, for now, to Ireland and Portugal.

While the centre right New Democracy would probably win any snap election, it is hard to find support for pro-austerity politics among ND's natural support base, the business class. Because austerity for them means getting hammered with a tax bill the like of which they have never dreamed, nor indeed paid.

And I will repeat the point about hostility to the media: it's not a problem for me and my colleagues to be hounded off demos as "representatives of big capital", "Zionists", "scum and police informers" etc. But to get this reaction from almost every demographic - from balaclava kids to pensioners - should be a warning sign to the policymaking elite. The "mainstream" - whether it's the media, politicians or business people - is beginning to seem illegitimate to large numbers of people.

As one old bloke put it to me, when I said: "Don't you want us to report what's happening to you?" - "No."

He was quite calm and rational as he waved his hand in my face: "It's too late for that."