GREECE:GREEK PRIME minister George Papandreou said activating a €45 billion EU-International Monetary Fund aid package was "an urgent national necessity", hours after instructing his finance minister to request the money from Brussels yesterday.
Greece’s lending rate for 10-year bonds had climbed to almost 9 per cent on Thursday – a rate not seen since the country entered the euro zone almost a decade ago.
The deterioration in the cost of financing its debt came on the heels of a report from Eurostat, the EU’s statistical agency, which revised upwards Greece’s 2009 deficit to 13.6 per cent of gross domestic product (GDP), compared to the previous estimate of 12.7 per cent.
This undermines Greece’s efforts to reduce its deficit by four percentage points this year as part of a plan to get its debt back into line by 2013.
A second blow on Thursday was a downward revision of Greek bonds from A2 to A3 by Moody’s Investors Service. Moody’s took Greek bonds down from A1 status only last November.
The third blow to the economy was a one-day strike by an estimated 500,000 public-sector workers that brought ministries to a standstill. The strike demonstrated that, even in the jaws of bankruptcy, Greece will not accept reform easily.
Public universities and polytechnics barely opened, public hospitals operated on a skeleton staff, and shipping workers walked off the job, bringing the main Athenian port of Piraeus to a standstill.
The civil servants’ union and shipping workers are planning more strikes as early as next week.
Mr Papandreou said yesterday he had hoped the mere existence of the EU safety net would have been enough to calm market jitters about Greece’s ability to meet its obligations and continue to roll over existing debt of about €300 billion.
“The markets did not respond,” he said in a brief statement from the island of Kastelorizo, “either because they did not believe in the will of the EU or because some people decided to keep speculating.”
Reform will not come easily. The civil servants’ union wants the government to restore bonuses axed from one million public-sector workers and to shore up social security rather than slashing it.
The government said recently it would introduce legislation to lower its share of the cost of pensions, estimated to rise to one-quarter of GDP by 2050.
The union is also unhappy about legislation to reduce the number of local governments from just over 1,000 authorities to 366, resulting in about 10,000 layoffs of contract workers.
The General Confederation of Greek Workers, the country’s biggest umbrella grouping of private-sector unions, is unhappy with the path of austerity and reform. It says the official unemployment rate of 11.3 per cent translates into a real unemployment rate of 17.5 per cent once undeclared unemployment and underemployment are factored in.
Yet Greece seems to have little choice but to cut the cost of governance and give the private sector incentives to increase its share of the economy, which is currently roughly 50 per cent.
The government recently announced that it would bring forward social-security reform, privatisations, the opening up of closed professions, the simplification of the procedure to start a business, and a reduction of bureaucracy.
