Bloomberg | April 30, 2010 | 07:27 EDT
Greek Prime Minister George Papandreou said the nation’s survival was at stake in talks to win a potential $159 billion European Union-led bailout that included budget cuts denounced by unions as “savage.” “Now, today, immediately, what is at stake is the survival of the nation,” Papandreou said in parliament in Athens today. “This is the ‘red line.’” He said talks with the EU and International Monetary Fund were “tough,” with his government resisting “not in the street with rocks, but in negotiations.” Greek stocks rose and the euro strengthened as an EU spokesman said an agreement on a three-year package may come as soon as tomorrow. Signs of the accord that may require 24 billion euros ($32 billion) in austerity measures ended a bond market selloff across Europe this week. Moody’s Investors Service said yesterday Greece was vulnerable to a “multi- notch” downgrade if measures don’t go far enough.
Greece’s fiscal crisis rippled through Europe this week, sending the euro to its lowest in a year after Germany’s reluctance to approve emergency funds sparked a drop in Greek bonds and Standard & Poor’s cut the country’s credit rating to below investment grade. S&P followed its Greek downgrade with cuts for Portugal and Spain. Papandreou’s budget cuts may include a three-year wage freeze for public workers and eliminating two of their 14 annual salary payments, the ADEDY union said. Greece’s NET Radio reported that cuts could amount to 10 percentage points of gross domestic product. The deficit was 13.6 percent of GDP in 2009.
“We find ourselves before the most savage, unprovoked and unjust attack,” Spyros Papaspyros, head of the ADEDY civil servants union, said in Athens late yesterday after meeting Papandreou. “The answer will be given in the street.” The pending wage cuts will overshadow tomorrow’s annual Labor Day celebrations, usually marked by rallies and picnics, which unions called on Greeks to join before the “coming storm.” The slogan is:
“The Croesus-es should pay for the crisis,” a reference to the ancient king renowned for his wealth. Public transport will be halted between 5 a.m. and 7 a.m. “It’s a tall order to assume that Greeks will be convinced because for years they have been used to getting a different type of treatment from their governments,” said Michael Massourakis, chief economist at Alpha Bank, the country’s third largest, in a telephone interview. “Papandreou doesn’t have the luxury of choosing the context or pace of the adjustment.”
Shopkeepers plan to shut their stores on May 5, joining a strike organized by the GSEE union, the nation’s biggest. European governments are speeding up efforts to finalize a rescue package after the Greek crisis threatened to spread through the rest of Europe this week. French Finance Minister Christine Lagarde said euro-region officials will probably hold talks this weekend after European Central Bank President Jean- Claude Trichet yesterday said policy makers must create a “sense of direction” to help overcome the fiscal crisis. Signs of a renewed drive to tackle the crisis sparked a 7 percent rally in Greece’s ASE benchmark general index yesterday, with National Bank of Greece jumping 30 percent in the past three days. It was up 0.7 percent at 2 p.m. in Athens. The yield on Greek 10-year government bonds, which surged to 11.406 percent on April 28, was at 9.07 percent. The euro gained 0.6 percent against the dollar to $1.3315.
Papandreou is stuck between investors, who want faster deficit cuts, and voters and unions, who are already chafing from existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and raise taxes to reduce a deficit that was more than four times the EU’s limit last year. Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper said, without saying where it got the information. Greeks may also be shifting money out of the country in the face of higher taxes and more austerity measures. Deposits in Greek banks fell for a third month in March, leading to a 4.5 percent drop in the first quarter. That coincided with a fourth monthly increase in deposits held in Cyprus by local branches of Greek banks on the island.
Voters’ anger about further cuts has been partly focused on the IMF and the political risks facing Papandreou are highlighted by the lender’s most recent involvement in Europe. In Hungary, the first EU member to turn to the Washington- based lender, voters this month ousted the ruling Socialist party two years after it accepted a bailout. Fiscal conditions attached to the $27 billion loan exacerbated the country’s recession as unemployment soared to a record, souring support for the government. Sixty-five percent of Greek voters polled by researcher Alco for the Proto Thema newspaper last week said Papandreou must reject any measures that lead to more wage and pension cuts. Papandreou, who said last week that his country faces a “new Odyssey,” will now have to convince voters that they don’t have a choice, said Alpha Bank’s Massourakis. Even after a bond-market rally, Greece must pay 11.741 percent to borrow for two years. Germany pays 0.79 percent. “It’ll be difficult, but at end of the day people will realize that these are necessary because the country doesn’t have access to borrowing anymore,” he said.