Greek Stocks Tumble Amid Concerns on Government Stability

Greek stocks are headed for the biggest weekly retreat in 2 1/2 years as coalition government lawmakers squabble over austerity that a Bundesbank official warned must be enforced to keep bailout funds flowing.

The country’s benchmark ASE Index (ASE) has declined 12 percent this week, the most since May 2010, after the government unveiled debt forecasts falling further behind its targets. Shares extended declines after a Greek court ruled that planned pension cuts may be unconstitutional.

Prime Minister Antonis Samaras’s bid to please lenders from the European Union and International Monetary Fund with a 13.5 billion-euro ($17.5 billion) austerity package and unlock vital funds ran into renewed obstacles this week from coalition partners. A law on state asset sales that is key to reducing debt scraped through Parliament this week, raising concerns on whether Samaras’s coalition will be able to muster requisite support to pass the measures.

“Politicians and the EU are willing to assist Greece, but Greece must, first and foremost, help itself,” Andreas Dombret, a board member at the German central bank, said in New York late yesterday. Greece is “way behind the program goals due to the standstill in consolidation and basic structural reforms.”

Bond Yield

The yield on Greece’s benchmark 10-year bond increased 40 basis points to 18.17 percent yesterday, widening the spread on similar-maturity German bunds to 16.7 percentage points. On the stock exchange, National Bank of Greece SA (ETE), the Mediterranean nation’s largest lender, plummeted 12 percent. Public Power Corp. tumbled 11 percent and Opap SA (OPAP) fell 6.9 percent.

The ASE climbed 1.1 percent to 769.92 at 10:54 a.m. in Athens today, snapping six days of losses.

Greek lawmaker Michalis Kassis, a member of the socialist Pasok party that supports the government, said yesterday on MEGA TV that he will sit as an independent and vote against the austerity measures that Greece must implement to receive further funding from the EU-led bailout. There has been no official confirmation from Kassis or Pasok of his decision.

Pasok’s 33 lawmakers are key to keeping Samaras in power and providing him with the majority to pass the laws that lenders need to approve international aid payments. Samaras formed a government with Pasok, which came in third in a general election on June 17, and with sixth-placed Democratic Left. All three say the coalition government must keep Greece in the euro.

Labor Reforms

Democratic Left, which has said it would support the budget, is adamant it will oppose labor reforms demanded by creditors. In addition to Kassis, the coalition government has lost another three lawmakers opposed to the austerity measures and can now say it has 175 seats in the 300-seat chamber.

“Almost 30 MPs from the two junior coalition parties failed to back the law” yesterday, Manos Giakoumis, research director at Euroxx Securities SA in Athens, wrote in an e-mailed note. That sparked increasing speculation “on the cohesion of the coalition government ahead of the critical vote on budget and structural reforms next week,” he wrote.

German Chancellor Angela Merkel has signalled her willingness to keep Greece in the euro, though the country’s new debt forecasts show it may struggle to hit the targets necessary to ensure the IMF keeps paying its share of the rescue money.

“Announcing and passing laws is not enough if the administration and the general public undermine them,” Dombret said. “It is now the task of the troika to decide impartially whether Greece meets the conditions for further assistance.”

Economic Outlook

The Greek government cut its economic outlook for 2013 as it unveiled a budget this week that deepens cuts to pensions, wages and social benefits to meet the terms of its bailout. Those measures and raising the retirement age to 67 from 65 may be unconstitutional, state-run Athens News Agency reported yesterday, citing a ruling from the Supreme Court of Audit.

That opinion isn’t binding on the government, a finance ministry official said yesterday.

Debt is now forecast to peak at 192 percent of gross domestic product in 2014, jeopardizing the country’s efforts to meet a debt target of 120 percent of GDP by 2020. Germany has said it is open to discussing a proposal for a buyback of Greece’s debt that is supported by the European Central Bank, which holds about 45 billion euros of Greek government bonds.

Measures being considered to make Greece’s debt sustainable need to cut that burden significantly, IMF spokesman Gerry Rice told reporters in Washington.

‘Many Options’

“Our view is that there are many options to help reduce Greece’s debt burden and they should be considered,” he said. Debt buybacks “could be useful if they were implemented in such a way as to deliver a meaningful reduction.”

Greece needs its creditors to unfreeze a 31.5 billion-euro tranche from its March bailout agreement, the country’s second since May 2010, which it needs to recapitalize its banks and provide liquidity for an economy in a fifth year of recession.

The nation’s banks slumped yesterday amid heightened uncertainty. The FTSE/Athex Banks Index fell 12 percent to the lowest level in seven weeks. Aside from the drop in National Bank of Greece shares to 1.58 euros, Eurobank Ergasias SA fell 10 percent to 80.9 euro cents. Alpha Bank SA and Piraeus Bank SA (TPEIR) slid 11 percent to 1.60 euros and 16 percent to 34.9 cents, respectively.

To contact the reporters on this story: Tom Stoukas in Athens at astoukas@bloomberg.net; Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net

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