I think it is a given that Greece will have to default, everyone knows this, but they are just playing cat and mouse for now. Most Greeks are dead set
against the new Austerity measures and they will likely throw this government out of power for the new changes they have instilled. The next
government will cater to the people’s needs for fear of receiving the same treatment. Change is not wanted in Greece. The only way to fix this
problem is if the nation as a whole understands that they have to go through a painful period of cuts, but as evidenced from the past riots this is
not the case. The story below further substantiates our claims.
Greek unions announced on Wednesday that they would stage a 24-hour nationwide strike on May 20, the second major protest against tough austerity
measures pledged in exchange for billions of euros in aid. The main public and private sector led a 50,000-strong march a week ago in which hundreds
of angry Greeks fought pitched battles with police in the streets of central Athens and three people were killed in a petrol bomb attack on a local
They are due to march in the capital on Wednesday from 6 p.m. (1500 GMT), in a rally which will give indications about the public mood before the big
walkout next week. Investors are closely watching public reaction to government wage and pension cuts amid concerns broader unrest could hit Prime
Minister George Papandreou’s resolve in pushing them through. New figures published on Wednesday showed Greece’s economy contracted 0.8 percent in
the first quarter compared to the last three months of 2009.
The austerity measures, pledged in return for 110 billion euros ($139.7 billion) in emergency aid from the European Union and International Monetary
Fund, are expected to keep the economy in recession through 2011."The IMF will not stop thirsting for workers’ blood," said Yannis Panagopoulos,
chairman of Greece’s main private sector labor union GSEE. "Its recipes are a disaster and the government must turn them down."
The country’s socialist government on Monday unveiled a draft law to raise the average retirement age and cuts benefits, which further angered
unions already opposed to previous steps including public wage cuts and tax hikes.
Spain’s new austerity measures, too little too late
Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5 percent this year, freeze it in 2011, cut investment
spending and pensions and axe 13,000 public sector jobs in a drive to meet EU deficit targets. "We have to make a singular, exceptional and
extraordinary effort to reduce our public deficit and we have to do it when the economy is starting to recover," he told parliament. The announcement
came two days after euro zone governments, the European Central Bank and the IMF agreed on a $1 trillion (674 billion pound) rescue package to
stabilise the euro in exchange for pledges by highly indebted countries to pare down their deficits. Full story
We think this is action is a little late as Spain had ample time to address these difficult changes, but instead decided to sit on its fat rear and do
nothing. The current recommendations are just too little to produce any meaningful change. Unofficially the employment rate is well past 20%, the
housing sector has crashed, fiscal debt is roughly 112% of GDP and Rising and estimates put private debt between 160-180% of GDP. Thus unless they put
forth some bone crushing changes, the odds are that Spain will be joining the Greeks sooner than later. Furthermore, this 1 trillion euro aid package
is more of a band aid than a fix because the nations that are spending beyond their means are still doing so. Nothing has changed other than the day
Financial markets are showing they have their doubts, with markets in Europe and Asian drifting lower Wednesday after Monday's initial euphoria over
the initial 750 billion euro package announced by European Union officials over the weekend."Is the package big enough?" asked Paul Lambert, the
current director of currency and macro strategies at Polar Capital who's also held roles at Deutsche Asset Management, UBS, Citibank and the Bank of
England. "That depends on the success of the debt consolidation in the periphery [and] whether they're ultimately able to have falling real wages so
that they can come back in line with the core."
Much criticism has been lobbed at places such as Greece for high public sector wages, which will now be brought down sharply by the government as part
of the agreement for its bailout package. That's also been one of the key reasons Greeks have taken to the streets over weeks that have turned
violent at times. On Wednesday, Spain announced a plan to reduce public wages 5% this year and freeze them in 2011 while suspending a pension hike.
The moves come as the government there fears being dragged into a situation similar to Greece's.
"I've observed that if any country in the emerging markets had been offered a loan package like the Greeks were offered before they got the eventual
loan package they got, people wouldn't have been rioting on the streets, they would have been saying thank you," said Lambert at a Morningstar
Investment Conference in London.