Greece: Strikes bring economy to virtual standstill in mid-December
December 20, 2010
Following the announcement by Standard & Poor's on 2 December to review Greece's credit rating, Moody's Investors Services indicated it was undertaking a revision of the country's sovereign rating for a possible downgrade from the current Ba1. The statement cited concerns about whether the country will be able to reduce its debt to sustainable levels, given a considerable shortfall in 2010 revenue. Questions are also being raised about the possibility that conditions of aid may change, after the European Union raised the country's debt forecasts in November. Against this backdrop, the country embarked on additional measures to tackle the fiscal deficit. On 14 December, parliament passed emergency legislation in a 156 to 130 vote, which dictates a fresh round of pay cuts, forced staff transfers within state companies and more flexible labour laws, in exchange for the rescue package from the European Union, the European Central Bank and the International Monetary Fund. As the government initiates cuts to pensions and salaries, while increasing taxes and raising the retirement age to slash public spending, nation-wide strikes have again brought the economy to a halt. On 15 December, violent clashes broke out in Athens, followed by a strike of transport workers a day later and rounded off with a 48-hour strike in the media sector. Market remained largely indifferent to both the government initiative and the subsequent strikes and investors' risk aversion towards Greek assets remains high. On 17 December, Greece's 10-year benchmark bond yielded 11.89%; Greek bonds yield 856 bps more than the equivalent US Treasuries and 887 bps more than those of Germany.