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Greek PM on collision course with labor unions

ATHENS - Bloomberg | 2/8/2010 12:00:00 AM | MARIA PETRAKIS

Greek Prime Minister George Papandreou is bracing for a fight with his socialist party’s traditional ally: organized labor.

Greek Prime Minister George Papandreou, armed with European Union backing for a wage freeze and spending cuts, is bracing for a fight with his socialist party’s traditional ally: organized labor.

In unions’ first major challenge since Papandreou’s Oct. 4 election, teachers, hospital workers and tax collectors will strike for 24 hours on Feb. 10 as 600,000 public workers oppose his plan to freeze wages and reduce benefits. Private-sector workers will follow on Feb. 24.

Opponents of government austerity measures for more than three decades, the unions are contesting remedies that the EU and investors are demanding to curb the 27-nation bloc’s biggest budget deficit. Greece’s fiscal woes have stoked concerns it will need a bailout and helped spark a rout in global stocks last week.

“Clearly, one strike won’t derail the fiscal cuts,” said Martin Blum, co-head of asset management at Ithuba Capital in Vienna. “But the extent of public protests will give the market a good idea about the durability of the government’s plans and the extent to which any semblance of social consensus will hold together in the undoubtedly tough two to three years ahead.”

The yield premium investors demand to buy Greek debt over comparable German bonds boomed to almost 4 percentage points on Jan. 28, the highest since 1998, amid market worries that Papandreou’s three-year plan to reduce the deficit relied too much on one-off measures to raise revenue and not enough on spending cuts. Moody’s Investors Service, Standard & Poor’s and Fitch Ratings cut the country’s credit grade in December.

On the eve of the EU’s Feb. 3 approval of the plan, Papandreou announced a wage freeze in the public sector and plans to raise the retirement age.

[HH] Labor opposition:

Greece’s plan to cut the deficit from 12.7 percent of GDP last year to less than 3 percent in 2012 rests on selling the wage freeze to Greeks who voted just four months ago for a party that promised pay increases above inflation. Papandreou also wooed unions with promises to reconsider sales of assets, such as Hellenic Telecommunications Organization and Piraeus Port Authority.

Now, unions say, he’s selling them out to market demands.

“Wouldn’t it be a better message to markets to show that you had gathered so many billions from tax evasion?” Yiannis Panagopoulos, the president of the private-sector union federation known as GSEE and a member of the ruling Pasok party, told NET TV on Feb. 5. “What do we have to do - kill off the old and the poor to get back to acceptable spreads?”

Government officials are confident they can persuade the unions to back down.

Finance Minister George Papaconstantinou told international investors on a conference call on Dec. 16 that Pasok’s traditional alliance with unions will make it easier to gain their consent. Deputy Prime Minister Theodoros Pangalos told Ethnos newspaper on Jan. 24 that the party controls a majority of GSEE, ADEDY and the farmers union Paseges and said that farmer protests were organized by a minority.

Still, Greek governments back to 1974 and the return of democracy, including the previous socialist government of Costas Simitis, have struggled to force through reforms the EU has long called for: changes to a state-run pension system that pays more to some when retired than when they worked or freeing up product and labor markets to make the country more competitive.

“Center-left governments tend to have an easier time in implementing painful reforms,” said Stathis Kalyvas, a professor of political science at Yale University. “That doesn’t mean that they are always successful. The point is comparative: they are more likely to be successful.”

Papandreou’s plan to raise the retirement age came as a surprise not only to unions, who have walked out of talks on the reforms. The Hellenic Confederation of Professionals, Craftsmen and Merchants and the National Confederation of Hellenic Commerce, which represent small businesses, have also threatened a boycott over pension changes made without consultations.

Some investors fear a repeat of the December 2008 riots that lasted for weeks and hobbled the government of Kostas Karamanlis. In the aftermath of the riots, Adedy held three 24-hour walkouts in five months to oppose the then-government’s move to scrap pay increases. “Intense or protracted protests would be a market negative,” said Ithuba’s Blum.

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