Greek Unions Stage Second Strike Over Budget Cuts

Feb. 24 (Bloomberg) -- Greece’s unions shut down transportation, medical and educational facilities today in a second 24-hour strike aimed at resisting Prime Minister George Papandreou’s drive to cut the European Union’s biggest budget deficit.

Air-traffic controllers, customs and tax officials, train drivers, doctors at state-run hospitals and school teachers walked off the job to protest government spending cuts that will freeze salaries and hiring and cut bonuses. Journalists also joined the strike, creating a media blackout.

“People on the street will send a strong message to the government but mainly to the European Union, the markets and our partners in Europe that people and their needs must be above the demands of markets,” Yiannis Panagopoulos, president of the private-sector union GSEE, told NET TV yesterday. “We didn’t create the crisis.”

Half a million civil servants already held a one-day strike on Feb. 10. Today they joined forces with GSEE, which represents 2 million workers, after EU warnings that Papandreou’s government needs to bring in new taxes and make more spending cuts if it fails to rein in the largest budget gap of all 27 EU member states. Unions will hold rallies later today in Athens and other cities and towns.

Greek bonds have slumped, driving up borrowing costs, as investors fear that government plans outlined so far will fail to reduce the gap this year to 8.7 percent of GDP from 12.7 percent. Papandreou’s government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of 20 percent of gross domestic product.

Bailout Concern

Greece’s fiscal woes have stoked concerns that it may need a bailout and helped spark a rout in global stocks. The premium that investors demand to buy Greek debt over comparable German bonds ballooned on Jan. 28 to the highest since 1998 amid worries that Papandreou’s deficit plan relied too much on one- off measures for revenue and not enough on expenditure cuts.

“We haven’t yet seen anything of the fiscal contraction that Greece has to go through if it wants to avoid a sovereign default,” Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy, said in a phone interview. “The main problem is that the Greek government and the prime minister himself have not yet realized the depth of the mess.”

Flights Canceled
Almost 500 international and domestic flights have been canceled today, a spokeswoman for Athens International Airport, Greece’s biggest, said by telephone. The Athens metro, which carries 650,000 commuters to work each morning, isn’t running nor are the capital’s trams. Passenger ferries and other vessels will remain docked until the end of the strike.

Groups of hotel workers picketed the five-star Grande Bretagne Hotel and others on the city’s central Syntagma Square this morning, holding up banners reading “the crisis should be paid for by the plutocracy.” The three luxury hotels on the square were open for business with closed shutters to protect against protests.

Yesterday, the PAME union group, aligned to the Communist Party of Greece, blockaded the Athens stock exchange headquarters, preventing staff from entering the building.

The Athens benchmark general index fell 1.8 percent to 1,922.69 yesterday, bringing losses so far this year to 12 percent, the second-worst performance in western Europe. Greek government bonds extended their decline after Fitch Rating downgraded the country’s four largest banks, pushing the yield on the 10-year bond up 7 basis points to 6.49 percent at 6 p.m. in London.

Budget Shortfall
Ratings companies, which cut the country’s grades in December after Papandreou revealed the country’s budget shortfall was more than four times the EU limit, have warned the government’s three-year budget plan must be implemented to the letter.

EU governments are looking for guarantees that Papandreou, elected in October, will slash spending before they spell out what help they may offer.

Under proposals adopted by finance ministers from the 16 nations that share the euro, the Greek government will have to take additional measures to cut its deficit if it fails to satisfy the European Commission next month. These may include higher value-added tax, a levy on luxury goods, higher energy taxes and spending cuts, they said.

Merkel
German Chancellor Angela Merkel, in a speech in Hamburg on Feb. 22, said a solution to the Greek crisis is the “core element” in re-establishing confidence in the single currency.

“The mistakes have to be dealt with at their roots,” Merkel said. “In the case of Greece, we need to do everything to support the Greek government, which of course has taken this path, in formulating a true consolidation program.”

Greek Finance Minister George Papaconstantinou has resisted calls for deeper spending cuts and said Feb. 16 the government was “ahead of the target” set out in its deficit-reduction plan. He said yesterday the government will do “everything it needs” to meet the budget targets.

Ta Nea newspaper reported today that the European Commission is pushing Greece to remove restrictions on firing workers, abolish collective labor agreements and other measures to make the labor market more flexible.

Most Greeks support the measures outlined so far, which include an increase in the retirement age and a freeze on increases for public-sector workers, according to opinion polls.

“New measures may be needed,” said George Mikonyiatis, 42, who has watched civil servants protesting cuts in their income rally outside the Finance Ministry for weeks from his camera shop in central Athens. “They need to be just. If you can prove the measures are just then the strikes won’t have mass support. They need to be targeted at those who aren’t paying their way.”