EU/IMF visit sparks violence in Greece
Hospitals, ports and airports disrupted over government plans to find €76bn in fresh cuts
VIOLENT protests erupted in Greece last night, shutting hospitals, grounding flights and docking ferries in a furious reaction to government plans for €76bn of fresh cuts and nationalisations.
Protests and strikes were timed to coincide with a mission by IMF and European Union officials to the country.
Marchers reportedly shouted "Take your memorandum and go". Police used tear gas to break up minor scuffles with protesters.
The country's biggest public sector and private sector unions backed yesterday's general strike, the second this year, to protest against planned sales of state assets.
The European Union and IMF officials are in Greece to review the country's finances before releasing the fifth installment of loans paid under the Greek bailout.
It was reported that the country was close to agreement for "supplemental" EU/IMF loans of €50bn to €60bn to meet its financing needs in 2012 and 2013.
The reports say the extra loans will be given in exchange for a commitment to sell off state-owned companies.
Greece is just 12 months into a €110m three-year bailout, but its own government and the European Union have admitted that the country will not be able to borrow from the market next year, a key part of the original bailout.
Support for austerity measures inside the country appears to be in trouble, after a year of cuts failed to make any impact on Greece's huge debt burden.
However, an opinion poll this month showed a majority of Greeks said asset sales were necessary to put the country's finances in order.
The latest Greek crisis comes as EU and IMF lenders are being forced to grasp what private sector lenders have long feared, that the country's debt is simply too big to repay, at least under its current schedule, according to Elizabeth Asfeth, a bond market analyst at Evolution Securities.
"Greek deficit figures and revenue collection figures do not support a return to financial health. Growth scenarios that could bring debt to a sustainable level are simply unrealistic," she told the Irish Independent.
While there is widespread consensus that Greece's debt burden is unsustainable, there is no consensus on how to tackle it.
Eurozone governments that could provide fresh loans are under political pressure not to lend to Greece without imposing punitive terms but austerity measures have so far only lead to a bigger deficit.
Greek two-year bond yields rose above 26pc for the first time. The euro dropped against most major counterparts, reaching a three-week low versus the dollar on concern the nation may have to restructure debt.
ECB Executive Board member Juergen Stark said in London yesterday that markets are focusing too closely on restructuring and that it wouldn't be a solution to the problems that Greece needs to overcome.
"Eventually there has to be additional funding from the euro area to Greece for the simple reason that Greece cannot access the markets to do a redemption next year at a reasonable price," Gabriel De Kock, head of foreign-exchange strategy in New York at Morgan Stanley.
"The markets of course are spooked by that possibility, but over time the typical European muddling-through will relieve the expectations and concerns."
European Union Monetary Affairs Commissioner Olli Rehn told the European Parliament that Greece was still "living beyond its means", but added that restructuring Greece's debt wouldn't solve the country's problems. He added that Spain was "decoupling" from Portugal, Ireland and Greece, and that the EU's sovereign debt crisis was limited to the latter three countries.
If Europe does lend fresh cash to Greece it means private lenders will be paid off, leaving taxpayers across the eurozone exposed to potential losses if Greece does ultimately default.
Balanced against that is the fear that a Greek default will hurt confidence in the euro, potentially sparking an entirely new crisis.
Evolution Securities' Elizabeth Afseth said a potential solution is to extend the terms of Greece's current government bonds for between 20 and 50 year. That would allow the country to grow into its debt burden through inflation.
Extending the term of the debt while continuing to pay interest would mean most banks would not be obliged to write down the value of their investment in Greek bonds -- a critical concern for French and German politicians.
Such a deal has undoubted attractions, but getting lenders to agree without either the stick of default or the carrot of a wider euro guarantee for the extended loans is likely to be difficult.
(Additional reporting Bloomberg and Reuters)