Strikes sweep Greece, contagion threat sweeps stocks

(ATHENS) - Greece was swept by strikes on Thursday, and European stocks plunged, with the government facing a do-or-die struggle to apply new EU-IMF budget cuts to obtain funds and avert default.

Transport workers, taxi owners, civil servants, air traffic controllers and teachers walked off the job to protest planned cutbacks and deregulation demanded by the EU and the IMF after bailing out Greece with a massive loan last year.

Greece has accepted the latest measures as a condition for EU-IMF auditors to return to Athens to decide if Greece merits 8.0 billion euros ($11.0) billion, the latest slice of money from a rescue package last year.

Greek Finance Minister Evangelos Venizelos said the country was doing its utmost to avoid an Argentina-style crisis in a "dangerous" situation.

"The situation is extremely critical and I could say dangerous," Venizelos said ahead of a meeting with Greek President Carolos Papoulias.

"There is great nervousness in the eurozone, the European banking system and the world economy ... we are making a very hard effort to protect ourselves and avoid the crisis. Because a crisis is what happened in Argentina in 2000," he said.

Across Europe, stocks slumped and the euro also fell. The US Federal Reserve also disappointed investors with its stimulus plans while warning of serious downside risks amid the eurozone debt crisis.

Sentiment was further damaged by escalating concern over the banking sector in Europe and the United States, and the re-emergence of a bitter political row to raise Washington's debt ceiling.

Greece's embattled socialist government announced pension and tax break cuts and put 30,000 state employees on temporary layoffs after pledging to do "anything" to stay in the eurozone and unlock EU-IMF rescue funds.

Greece has been struggling to convince the European Union and International Monetary Fund that it can bring its tough economic overhaul programme back on track despite delays and targets slipping due to a deeper-than-expected recession.

On Wednesday, the government announced cuts to pensions above 1,200 euros ($1,650) per month, a temporary layoff for 30,000 state employees and a drastic reduction of revenue exemption on annual taxes to 5,000 euros, from 12,000 euros currently.

The additional cuts, on top of a controversial property tax which could be extended to 2014, have raised dissent in the governing party with backbenchers and former ministers doubting their effectiveness after two years of recession.

The divisions in the Greek ruling party were apparent on Thursday when government spokesman Elias Mossialos, a former LSE professor recently brought into the cabinet, was heckled by fellow socialist lawmakers in parliament.

As teachers and students prepared to demonstrate in Athens against a controversial education reform, about 150 students protested near Prime Minister George Papandreou's home north of the capital, police said.

"We are obliged to resist," the head of Athens' subway employees Antonis Stamatopoulos told state television NET.

"Not even Greece's German and Turkish conquerors imposed such taxes," he said.

"Greece is being turned into a poverty house, new measures are being announced by the day and by the week," Constantinos Michalos, head of the Athens chamber of commerce and industry, told the station.

"There is no compass, this government doesn't know where it's going," he said.

The government said late on Wednesday that the measures "send the message to our peers and to markets that Greece both wants and is able to fulfil its obligations, staying within the core of the euro and the EU."

EU and IMF auditors have agreed to resume a review of Greek finances needed to unlock the 8.0 billion euros under the first rescue last year. A second rescue announced on July 21 depends also on Greece meeting commitments but is held up by internal EU arguments.

The audit had been suspended in early September, with sources citing lack of progress with reforms, placing in jeopardy the release of funds needed to prevent Athens running out of cash and into default next month. It is widely forecast that a default would send chaotic shock waves through the eurozone.

The main private sector union GSEE and the Adedy syndicate representing civil servants have called for strikes next month against the austerity measures.

The public sector will shut down on October 5 and a general strike will be held on October 19.