Greek stocks are headed for the biggest weekly retreat in four years as coalition government lawmakers squabble over austerity measures needed to guarantee the flow of bailout funds and keep the nation in the euro.
The country’s benchmark ASE Index dropped 5 percent Thursday, taking its decline so far this week to 13 percent 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 Wednesday, raising concerns on whether Samaras’s coalition will be able to muster requisite support to pass the measures.
“Almost 30 MPs from the two junior coalition parties failed to back the law,” 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.
The yield on Greece’s benchmark 10-year bond increased 40 basis points to 18.17 percent Thursday, widening the spread on similar-maturity German bunds to 16.7 percentage points. On the stock exchange, National Bank of Greece SA, the Mediterranean nation’s largest lender, plummeted 12 percent. Public Power Corp. tumbled 11 percent and Opap SA fell 6.9 percent.
Greek lawmaker Michalis Kassis, a member of the socialist Pasok party that supports the government, said Thursday 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.
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.
While German Chancellor Angela Merkel has signaled her willingness to keep Greece in the euro, 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.
The government cut its economic outlook for 2013 as it unveiled a budget Wednesday that deepens cuts to pensions, wages and social benefits to meet the terms of its bailout. Raising the retirement age to 67 from 65 and cuts to wages, pensions and benefits may be unconstitutional, state-run Athens News Agency reported Thursday, citing a ruling from the Supreme Court of Audit.
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.
“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 amid heightened uncertainty. The FTSE/Athex Banks Index fell 12 percent Thursday 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 slid 11 percent to 1.60 euros and 16 percent to 34.9 cents, respectively.
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