Greece in turmoil over austerity
By Dimitris Kontogiannis in Athens and David Oakley in London
Published: February 24 2010 10:18 | Last updated: February 24 2010 22:55
Greece suffered renewed turmoil on Wednesday as protesters took to the streets to demonstrate against severe budget cuts, while a leading credit rating agency threatened to downgrade the country’s long-term rating to near-junk status.
Tens of thousands of protesters from both public and private sector unions brought much of the country to a standstill as they voiced their opposition to the government’s austerity programme.
The Greek government, which retains broad support among the electorate according to the opinion polls, was negotiating even tougher budgetary measures on Wednesday with a visiting international financial delegation.
Angela Merkel, Germany’s chancellor, expressed her confidence that the eurozone would weather the current storm caused by the Greek debt crisis. “For the first time since it was introduced, the euro is now in a difficult situation but it will stand its ground,” Mrs Merkel said in an interview with a German newspaper.
The international delegation, representing the European Commission, the European Central Bank and the International Monetary Fund, had expressed concerns that the Greeks’ plans to cut the budget deficit by four percentage points to 8.7 per cent this year were based on optimistic targets that the economy would shrink by only 0.3 per cent, according to a government official close to the talks.
Analysts forecast the economy will contract between 1 per cent and 2 per cent this year with the risks skewed on the downside as taxes go up and budget spending is cut to reduce the deficit.
The government has refused to comment, although George Papaconstantinou, finance minister, hinted that new measures could be announced soon after the delegation had left on Thursday.
According to government officials and bankers, the government has been considering a rise in value added tax, fuel tax and duties on luxury goods in addition to more cuts in civil servants’ salary allowances.
George Papandreou, prime minister, this month announced a freeze in civil servants’ wages and a 10 per cent cut in salary allowances. However, the prime minister remains popular, as many blame the previous conservative government for the mess. The government’s room for manoeuvre may be further restricted by a threatened downgrade to the country’s credit rating.
Standard & Poor’s said Greece faced a downgrade to triple B minus on its long-term credit ratings – just one notch above junk grade and the same as Hungary. This could make it increasingly difficult for Greece to tap capital markets for loans, with the clock running out before they have to refinance more than €25bn of debt in April and May.
On Wednesday, investors sold off two-year Greek government debt, which has been the most volatile in recent weeks, seeing one of its biggest one-day falls this year.
The high emotions aroused in Athens were reflected in outspoken comments by the Greek deputy prime minister.
Theodoros Pangalos said Athens had never received adequate compensation for Nazi Germany’s invasion of the country in 1941. “They took away the Greek gold that was at the Bank of Greece, they took away the Greek money and they never gave it back,” he told the BBC World Service radio.
The German foreign ministry dismissed the comments as unfounded.
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http://www.ft.com/cms/s/0/5eef731c-212a ... ab49a.htmlPledge on probe
Concern intensified in Brussels on Wednesday over the role of investment banks in helping Athens manage its debt a decade ago, despite efforts by Goldman Sachs to explain its conduct publicly, writes Joshua Chaffin in Brussels.
Arlene McCarthy, vice-president of the EU parliament’s economic and monetary affairs committee, pledged to seek a full investigation. “Goldman Sachs have tried to justify their involvement in hiding Greek debt, saying in effect that others were doing it too; that even if wrong it wasn’t technically illegal,” she said.
Ms McCarthy’s comments came after Gerald Corrigan, a senior Goldman banker, acknowledged on Monday that currency swaps the bank arranged for Greece should have been more transparent. At the same time, Goldman said the swaps complied with EU accounting principles then in effect, and cut Athens’ debt by only €2.4bn.
