Saturday, 26 June 2010

Troubling signals from Greece

Promising tough and painful economic action is the easy bit. Actually doing it is a good deal harder. The European Community and the International Monetary Fund might have demanded Greece act to reduce the budget deficit but there are clearly problems for Prime Minister George Papandreou in actually doing so.
The Greek daily Kathimerini reporting on Saturday on reluctance of some in the governing coalition to change pension arrangements to lower payments and increase the retiring age
No doubt the bomb explosion in the office of the Citizens' Protection Minister Michalis Chrysochoidis which killed one of his aides this week is making some politicians wary of upsetting too many of the people. A decision by the opposition New Democracy Party to promise to end the agreement with the EU and the IMF and for Greece to again become "master of its own economic destiny" just adds another complication as Parliament approaches a vote on the pensions issue.
Those lending Greece the money to pay its bills clearly are getting worried again as this chart from the US Atlanta Fed's weekly Financial Highlights makes clear:


Click to enlarge graph
Greek bond spreads (over German bonds) have risen recently, near the highs seen before the European policy package was announced in early May and they went higher still the day after the US Fed produced its report.
These are clearly still troubled times.
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