Today begins a 48-hour strike in Greece to protest against the government’s new austerity measures in exchange for a €110 Billion financial aid package. The measures include:
- Halting increases in public sector salaries and pensions for at least three years, and eliminating bonus pay
- Increasing Value Added Tax from 21% to 23%
- Raising tax on fuel, alcohol, and tobacco by 10%
- Liberalizing labor laws to make it easier for companies to fire workers
- Taxing illegal construction
- Increasing retirement age to 67 from 65 (being proposed)
Around half a million public sector workers in the union ADEDY are expected to take to the street today, with pensioners holding separate demonstrations. Tomorrow, the private sector, including teachers, is set to strike. Expectations are for the country of 11 million to nearly shut down: Government ministries and shops are expected to be closed, airports have cancelled flights and transportation should be severely delayed; hospitals may be understaffed.
Thursday is the General Election in the UK. Candidates include: Gordon Brown (Labour), David Cameron (Conservatives), and Nick Clegg (Liberal Democrats). Polls suggest a high likelihood of a hung parliament, ie a lack of a majority government, meaning the inability of a party to obtain the 326 seats needed (of the 650 seats in the House of Commons) to gain an overall majority. While there is historical precedence for a hung parliament (most recently in 1974), a lack of majority, especially before we get the exact number of seats that each party attains, could yield at least three possible outcomes:
- Gordon Brown’s government may continue to rule despite a minority in Parliament, perhaps with a hand-shake agreement with another party for support like the Liberal Democrats.
- Brown may offer his resignation to the Queen and suggest a new government, likely to David Cameron.
- The Queen could overthrow Brown’s minority government in her "Queen’s Speech” on May 25th in favor of another party
German Vote on Bailout and State Election:
Friday marks the vote in Parliament on Greece’s bailout; Germans are on hook for nearly $30 Billion and sentiment suggests an unwillingness to fund the mismanagement of the Greek economy.
On Sunday, Germany’s largest state by population and the country’s industrial heartland, North Rhine-Westphalia (NRW), holds a state election. For Merkel’s Christian Democratic Party (CDU) along with her coalition partners the Free Democrats (FDP) a win is needed to retain its majority in the Bundesrat (upper house of parliament). With government spending a hot topic in the election, Merkel must show that she’s not writing a blank check to the Greeks (even if she will) to gain the popular vote on this very unpopular bailout.
Spain’s Debt Due:
In June, Spain has roughly €16 Billion in debt redemptions due of the some €225 Billion due this year. Like Greece, we could see the government unable to meet its obligations at maturity. For more on our analysis on Spain see Daryl Jones’ note out today titled "Bearish Enough On Spain?"