Greece has become the first eurozone economy to ask for an emergency financing package from the European Union and International Monetary Fund. The Greek government today officially asked European partners to activate a 30 billion euro mechanism set up for the country a month ago.
Prime Minister Yiorgos Papandreou described the financial aid as “a national and urgent necessity”, a safe harbour in which Greece could rebuild its ship with sound and lasting materials. The government’s real goal, he said, was long-term reform of a flagging economy. But the country’s lack of credibility in money markets was sapping the time in which to carry this out.
Imminent reforms in social security and the labour market are already raising hackles. Greece suffered a triple whammy yesterday, resulting in the highest borrowing rates for the most beleaguered European economy in twelve years.
Eurostat, the European Union’s statistical agency, upwardly revised Greece’s 2009 deficit to 13.6 percent of GDP, almost a point above the previous estimate of 12.7 percent. That suggests that Greek efforts to reduce the deficit by four points this year will not set as promising a course as previously thought towards eliminating the deficit by 2013 as promised in the Stability and Growth Plan.
The second blow was a downward revision of Greek bonds from A2 to A3 by Moody’s Investment Service. Moody’s took Greek bonds down from A1 status only last November – a precipitous rate of decline.
The third blow to the economy was a one-day strike by an estimated half million public sector workers, that brought ministries to a standstill. Public universities and polytechnics barely opened, public hospitals operated on a skeleton staff, and passenger shipping workers walked off the job, bringing the main Athenian port of Piraieus to a complete standstill. Shipping workers are planning more one-day strikes next week. Civil aviation workers decided to stay on the job to help clear a backlog of travellers stranded on account of Icelandic volcanic smog-related travel restrictions.
Greek spreads on the ten-year bond rose to a high of 622 basis points, a rate not seen since 1998, four years before Greece adopted the euro, and were hovering at roughly 537 basis points as this post went online. That effectively put the rate at which Greece would have borrowed yesterday above 8 percent.
Greek policymakers believe that cost to be prohibitively high. Last week Prime Minister Yiorgos Papandreou asked the European Commission to explain the terms on which Greece might borrow some of the 30 billion euros its eurozone partners have earmarked as a financial safety net. The EU has promised a rate of 5 percent.
Yesterday’s strike was organised jointly by the civil servants’ union and the communist party to protest against an austerity plan announced in March. They want the government to restore bonuses axed from a million public sector workers, and to shore up social security rather than slashing it. The Government has recently said it will introduce legislation to lower its share of the cost of pensions, estimated to rise to a quarter of GDP by the middle of the century. The unions are also unhappy about legislation to telescope local governments from just over 1,000 to 366, resulting in about 15,000 layoffs of contract workers at the end of the year.
The General Confederation of Greek Workers, the country’s biggest umbrella grouping of private sector unions, is also unhappy with the path of austerity and reform. It says the official unemployment rate of 11.3 translates into a real unemployment rate of 17.5 percent once undeclared unemployment and underemployment are factored in.
See also: http://www.ft.com/cms/s/0/35fe6cfe-4ec7-11df-abb5-00144feab49a.html