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Greeks Strike Before Austerity Budget Is Approved; Fitch Proposes Downgrade

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A general strike hit Greece as unions fought the additional austerity measures called for in the budget that was approved by the parliament Wednesday night. Reuters reported that the budget contains additional tax hikes over those already enacted, as well as wage cuts in state enterprises such as public transport.

In protest, all public transport was stopped for 24 hours, bringing Athens to a standstill. Public and private sector labor unions also called a 3-hour strike in Athens, and thousands were expected to demonstrate outside parliament. Intermittent strikes by bus and subway operators have kept Christmas shoppers away from Athens’ recession-stressed retailers.

Already-stringent measures to combat the nation’s debt crisis have resulted in harsh cutbacks for Greek citizens, including cuts in public spending and a 15% cut in public sector wages; pension freezes; and an increase in the retirement age. The measures have helped to bring about a shrinking of the economy by 4.2% in 2010, and a further shrinkage of 3% is expected in 2011, making the prospects of recovery dim. Currently the unemployment rate hovers at 12.1%; in 2011 it is expected to hit 14.6%.

Fitch Ratings, heaping on the bad news, said Tuesday that it expected to cut Greece’s credit rating to junk status. It will thus join Moody’s and Standard & Poor’s, which have already applied the junk label to Greece’s rating—the only country in the euro zone thus graded. Fitch, which had placed the country under review, originally expected its evaluation to be completed by the end of 2010; in a short statement, it said instead that results of the review would now be completed in January of 2011.

The review will “focus on an assessment of Greece's fiscal sustainability in the wake of the measures that the authorities have taken this year under the International Monetary Fund-European Union program,” according to the company.

News of the expected rating tanked the euro, which managed to recover some of its lost ground after an announcement that China was expected to take on some of Portugal’s debt. A report in the Jornal de Negocios daily said in an unsourced article that China intended to buy between 4 billion euros ($5.26 billion) and 5 billion euros of that nation’s debt during the first quarter of 2011. China’s central bank did not comment on the report.

The euro had hit an all-time low against the Swiss franc before the news and also did poorly against the Australian dollar.


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