Greeks Strike Over Budget Cuts, Bonds, Stocks Decline (Update2)

March 11 (Bloomberg) -- Greek hospitals, airports and schools were shut and police scuffled with protesters as unions staged the second general strike this year against government budget cuts to curb the European Union’s biggest deficit.

Greek bonds declined and stocks fell as the strike disrupted public services and forced the cancelation of all 479 flights from Athens International Airport. Bus and subway drivers, doctors, journalists and teachers walked off the jobs to protest 4.8 billion euros ($6.5 billion) of wage cuts and tax increases announced by Prime Minister George Papandreou March 3.

“The measures taken so far are unjust, demanding sacrifices from workers that aren’t being demanded from the employers, businessmen and bankers that created this crisis,” said Stathis Anestis, spokesman for the GSEE union. The union said 90% of the unions 2 million members adhered to the strike.

The government’s latest budget cuts, the third package of measures this year, has triggered a new wave of protests in Greece, while being praised by EU officials and rewarded by investors. The risk premium investors demand to buy Greece debt over comparable German bonds has narrowed from an 11-year high on Jan. 28 and Greece was able to sell 5 billion euros of bonds to finance its debt a day after announcing the package.

Tear Gas

The main union rallies today were peaceful, though riot police in Athens fired tear gas at masked protesters with anarchist flags who damaged department stores and hotels and hurled marble slabs at police.

Bonds fell, with the yield on the two-year note rising 24 basis points to 5.06 percent. The 10-year yield gained 5 basis points to 6.29 percent. Credit-default swaps on Greek government debt rose 19 basis points to 304, the highest in a week, according to CMA DataVision prices at 3 p.m. in London. That means it costs $304,000 a year to protect against default on $10 million of bonds for five years.

The Athens benchmark general index, which had gained 6 percent since the measures were announced on March 3, declined 0.7 percent today.

“Strikes could give someone an excuse to sell Greek bonds,” said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London. “The real risk, although a mild one, is that they could generate some violence. Some people could see this as an opportunity to sell.”

Shouldering Pain

Today’s strike is the latest protest against the austerity measures. On March 5, striking workers shut down transport and tried to storm parliament as lawmakers passed the new budget cuts that Finance Minister George Papaconstantinou said will show EU allies and investors that Greece is making good on its deficit pledges.

“The main risk is not that adjustment in Greece is not feasible, but that Greek society will refuse to shoulder the inevitable near-term economic pain,” Deutsche Bank analysts including Thomas Mayer wrote in a research note.

The tax increases and wage cuts are likely to be a further drag on growth this year, complicating the government’s efforts to reduce the deficit as percent of gross domestic product. Deutsche Bank forecasts a contraction of 4 percent in 2010, twice last year’s pace. The Finance Ministry yesterday said the forecast for a 0.3 percent contraction included in the January deficit-reduction plan is too optimistic and it now sees the economy shrinking at least 0.8 percent this year.

EU Pressure

The strike forced the delay of a final report on fourth- quarter GDP data due today. The preliminary report on Feb. 12 showed the economy contracted 2.6 percent in the three months through December from a year earlier.

Investors and EU officials have ratcheted up pressure on Greece to do more to ensure it meets its deficit target of 8.7 percent of GDP this year, from 12.7 percent in 2009, as the country sinks deeper into recession.

Concerns about Greece’s ability to tame the budget gap prompted speculation that the country would need a bailout and could be forced to abandon the single currency. The euro has declined almost 5 percent this year as Greece’s financial woes raised questions about the strength of monetary union.

Eurobank and National Bank of Greece SA may report their lowest quarterly profit in at least five years as loan losses mount during the economic slump. Eurobank, the country’s second- largest lender, may say today that fourth-quarter net income fell to 3.7 million euros, according to the average of six analysts surveyed by Bloomberg.

Popularity Sliding

Papandreou’s approval rating slipped more than 10 percentage points over the last two months as he unveiled the raft of budget measures, a poll showed on March 9. He still commands the support of a majority of Greeks, with 52 percent having a positive opinion of him, according to the survey by GPO pollsters for Mega Television.

Almost 60 percent of those surveyed disapproved of the latest budget cuts and more than 65 percent said the measures were “unfair.” In a Kapa Research poll for To Vima newspaper on March 7, which also showed Papandreou with majority support, 86.9 percent said the measures would provoke social unrest.

His socialist Pasok Party enjoys a 10-seat majority in parliament and was able to pass the latest budget measures in the legislature on March 5, two days after announcing the plan.

“The protests, unrest and violence all this time are instigated by those who are attempting to preserve for their own benefit all the ills that resulted in the Greek people being beggars to international markets,” Dimitris Daskalopoulos, head of the Athens-based Federation of Greek industries, said in a speech yesterday. “Who are they calling on us to protest against and demand from? Is it maybe against ourselves?”

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net;