Greece Enter Debt Crisis Austerity - Effects High Greek Unemployment Rate - European Monetary Union in Imminent Collapse

Today it was announced that Greece unemployment hit a 10 Year High as its Austerity Plan takes affect.  Greece has been the center of the European economic contagion after it asked for emergency aid. The 110 billion euro (US$140 billion) aid was granted by the EU and IMF on the proviso that a stringent austerity plan was implemented.

Greek Unemployment for Q1 2010 hit a 10-year high of 11.70 percent jobless rate.  The rate jumped from 10.3 percent in Q4 2009. The jobless rate is expected to grow as Greece’s public finances adjust. Investors in both Greece and the other PIIGS are watching how the public and unions react to the austerity measures. Unions have been testing Greece’s Government’s resolve. Today Athens' public transport system was shut down as metro and bus workers went on strike. In a sign of confidence there were positive bond auction signs in Spain, France, Hungary and Romania. Greece officials would be keenly aware of the debt markets and this would sharpen their austerity resolve.

To underscore Greece’s fragile state Greece's unemployment rate is 1.6 percentage points higher than the Euro nations average jobless rate. What augers poorly for Greece the Euro average jobless rate in April hit near 12-year highs. This suggests Greece’s unemployment has a ways to go.

The Greece statistics data showed that were 586,767 officially unemployed people in Greece. Of concern is the 15 to 29 age group where unemployment is at 22.3 percent.

Economist Andreas Scheurle at Dekabank said 'I think the IMF's forecast for an unemployment rate of up to 15 percent in Greece this year is plausible. One only has to look at Spain to see what effect recession can have on the labor market'.

Greece Union Unrest

Greece is a heavy unionized country. The unions have been accused of corruption and of wielding excessive power. The unions have made it clear they will protest the Greek austerity plan. On Wednesday the Greek labor ministry revised Greece’s labor regulations. They new regulations cut minimum wage for new workers. It was also been made easier to shed workers. Greece is known as the least price competitive country in the EU. Structural employment changes like these are needed to bring it to a situation where employment can grow.

Greece’s largest labor union is GSEE and they have been extremely vocal in fighting the changes. GSEE spokesman Stathis Anestis told Reuters that 'we will fight this legislation with every means available. In a country with no social safety net for workers, liberalizing firings and cutting compensation by half ... make for the biggest upset in labor relations'. He also promised a strike by early July.

The key to the success of the austerity measures is reflected in debt sales. Today European bond and currency markets were buoyed by French, Spanish, Hungarian and Romanian debt auctions.

Spain had strong demand at its targeted 3.5 billion euros 10-year and 30-year bond auctions. The bonds did attract higher yields and have a lower bid-cover ratio. The spread between Spanish and German 10-year bonds narrowed to 211 basis points. It had hit a euro lifetime high of 238 bps prior to the auction. The 10-year Spanish bond yield dropped to 4.8 percent after seeing a high of 5.043 percent.

A French bond sale was also well bid around the same time. France sold almost 8 billion euros of short-dated paper. France also sold 1.8 billion euros of inflation-protected bonds. 

Hungary had its first bond auction since the panic of the Hungary Debt default crisis at the start of June. Hungary sold 50 billion forints in three-, five- and 10-year notes. The yields rose slightly across the curve. Demand was more than double the paper offered (bid to cover ratio).

In a move that will be watched keenly by Greek officials Hungary said they would institute a bank tax to help rein in it’s fiscal deficit. A government spokesman said negotiations with the IMF and EU about its credit facility will begin next month.

Romania is offering 600 million lei in five-year bonds. Two days ago the Romanian government narrowly survived a no-confidence vote. The vote was taken over objection to its austerity package. Romania is hoping to achieve lower yields since the vote having it had rejected bids at recent tenders.

Greece aims to bring its budget deficit from 13.6 percent of GDP to 8.1 percent by the end of this year. The EU limit is 3 percent which Greece plains to reach by 2014. The majority of the financial markets how ever doubts this as gauged by Greek CDS and the Greek stock market hitting 12 year lows last week.

The main components of the austerity plan are the reduction of public servant wages and pension cuts. This will coincide with tax hikes. Greece GDP contracted by 2.5 percent n in gross domestic product (GDP) in Q1, 2010 year-on-year. It is expected to contract by 4 percent by Q4, 2010.

Any sign of things getting worse could have major ramifications for Greece. Greece Unemployment is at a 10 Year High as its Austerity Plan bites.  European Bond Sales Improve in a tale of what needs to be achieved. The austerity measures need to be achieved to avoid default and severe social unrest. Structural changes need to be implemented to make this plausible.