Wednesday, 9 April 2014

Unions strike as Greece prepares to re-enter markets

Greece has announced that it will put a five-year bond on sale on Thursday, marking its return to markets after a four-year absence. 

At the same time, labour federations mounted a protest of about 25,000 people in the centre of Athens today, to press for an end to austerity taxes, wage and pension cuts and reforms taken in the last two years. 

But the government may soon be able to declare that adjustment programme a success. Greece is hoping to sell about 2.5bn euros' worth of debt at 5.25-5.5 percent interest, as the start of an exercise in rebuilding its credit history. 

"After the announcement, borrowing rates on 10-year bonds fell from 6.06 percent to 5.85 percent and a little later to 5.75 percent," said a senior finance ministry official on condition of anonymity. 

Left wing opposition MPs have questioned the wisdom of borrowing at over five percent, when Greece has already secured liquidity from its Eurozone partners and the International Monetary Fund at about two percent. 

"We're not trying to build a purse, but to build a yield curve," the official said. "When you reach out to markets you affect all of your debt." According to ministry calculations, Greece will save 200 million euros a year through this effect, the official said. 

After balancing last year's budget, Greece's borrowing rate has improved on financial markets. On Tuesday it sold six-month paper at 3.01 percent, its lowest rate during the crisis. Long-term debt is a harder sell, with higher risks and higher yields. 

The sale has political and financial significance. It would mark the beginning of a new political era, because Greece would declare its adjustment programme a success, and hail the dawn of an era of growth rather than austerity. It would also appear to claw back some lost sovereignty and autonomy in designing economic policy. 

The real economy

These macroeconomic developments, however auspicious, will leave many struggling Greeks wondering what's in it for them. 

Labour has been one of the areas most affected by austerity cuts and reforms. Unions want the government to give them back their powers to negotiate minimum wage with employers. Those were taken away two years ago, when the government forced minimum wage down from 731 euros a month before tax to 586 euros, and 20 percent less than that for the under-25s. Many employers have hired staff for a mere 400 euros, because unemployment is so high. 

But unions are losing the battle to influence politics 
and have failed to play a mitigating role on the social pressures of austerity. This is because in the past they were pressing politicians who had money to hand out. Since Greece lost its ability to borrow from markets in 2010, Greece has been forced to cut spending. Today there is no extra money to hand out, so unions have lost their clout. 

Even today's strike was largely symbolic. Shops, banks and offices remained open, because the private sector is under so much pressure to be productive.

Key union demands include: 
  • for the state to stop determining minimum wage and to go back to the previous arrangement in which employers and unions arrived at sectoral wage agreements. In February 2012, the government passed a law lowering monthly minimum wage from 731 euros before tax to 586 euros. At the same time it gave employers full power to set and change wage rates, depriving unions of their right to wage talks. 
  • for the state to clamp down on industry cartels that keep consumer prices high
  • for the state to guarantee pensions at previous levels rather than the present reduced ones. Greece has cut pensions across the board at least twice since 2011. The state is guarantor of the country's 13 pension funds, which are insolvent, giving it power to determine benefits. 
  • fairer taxes. Greeks have faced a slew of austerity-related taxes including higher consumer tax (VAT) of 23 percent, higher fuel tax, an income surtax of 1-4 percent called a solidarity tax, and a new property tax of 0.6 percent. 
  • support for poor families. Greece had notoriously poor social security services even before the crisis. 
  • continuation of protection for primary residences where mortgages cannot be paid. There was talk late last year of abolishing this.  
  • The civil servants' federation, ADEDY, additionally wants the government to repeal a law passed last month that introduces tough new evaluation criteria for civil servants and foresees further dismissals for some. Until now they tended to be given top marks routinely. The law now places a 25 percent limit on top marks earners, a 65 percent limit on average marks earners and a 15 percent quota for poor marks earners. 
  • ADEDY also wants the Greek debt to be forgiven. It stands at an unsustainably high 320 billion euros, almost twice GDP. 

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