Greek bailout angers unionists, leaves markets unconvinced

Published 5:34 pm Tuesday, May 4, 2010

ATHENS, Greece — Angry Greek unionists took to the streets Tuesday to protest harsh austerity measures imposed under an international bailout to save Greece from looming bankruptcy, while financial markets were far from assured that the euro 110 billion ($144 billion) in promised loans could douse Europe’s smoldering sovereign debt crisis.

About 4,000 striking teachers and students marched in Athens to protest the cuts, carrying black flags, while some scuffled with police. Earlier, about 100 Communist Party supporters broke through the gates of the Acropolis, the city’s chief ancient monument, and hung banners in Greek and English reading “Peoples of Europe Rise Up,” to the bemusement of tourists allowed in despite the disruption.

The cutbacks were announced on Sunday, as a precondition for the loans from the International Monetary Fund and the other 15 EU countries using the euro. The aid, spread over three years, is Greece’s only hope of paying off euro 8.5 billion ($11 billion) in debt that matures May 19 — or defaulting.

Yet market reaction to the bailout deal was “lukewarm at best,” as although Greek and peripheral bond yield spreads narrowed the euro slipped against the dollar, said analyst Mitul Kotecha at Credit Agricole CIB Research.

A Greek default would be a serious blow to the shared euro currency and inflict losses on banks holding Greek bonds in France and Germany. The bailout is intended to reassure markets Greece will not default and thus prevent the debt crisis from spreading to other financially shaky countries such as Spain and Portugal.

Euro zone governments loaded up on debt and ran large deficits during the recession and financial crisis of the past two years. Fears that their economies will not grow fast enough to enable them to pay those debts have led markets to fear they will default.

As a result, bond investors are demanding higher and higher rates of interest to lend to what are increasingly viewed as risky borrowers.