Southern Europe strikes as Greek GDP plummets

Ben Southwood
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THE EUROZONE was hit by a swathe of strikes yesterday, as unions protested austerity policies.

Protesters took to the streets and clashed with police, bringing education, industry and transport to a grinding halt in a wide arc across Spain, Portugal, Italy, Greece and even France and Belgium.

The strikes came as official data showed Greece heading into its sixth year of recession with a 7.2 per cent fall in GDP in the year to the third quarter – even deeper than the fall recorded in the last quarter.

And economists predicted that tough austerity policies could keep short-term growth depressed well into 2013. “The recession will continue to deepen until the first half of 2013,” predicted Xenophon Damalas at Greek bank Marfin Egnatia, “due to the implementation of all the cuts.”

And Damalas said that things would have been even worse without the boost from tourism.

Greece’s slide even further into depression spooked investors, many of whom fled to German bonds, driving two-year bonds into negative yields. Eurozone stalwart Germany shifted €4.3bn of the new two-year securities, as investors worried about the risks of other Eurozone members.

“It’s a combination of worries about the Eurozone economy plus ongoing fiscal concerns in Greece keeping the short end of the German curve underpinned,” said Nick Stamenkovic at strategist RIA Capital Markets.

Despite the strikes, Italy also had a bond field day, selling €3.5bn worth of three-year notes at the lowest rate seen in close to two years.

But data across Europe only served to highlight the deepening difficulties the currency bloc is faced with. Industrial production plunged 2.5 per cent in just a month, data from Eurostat revealed, although recent rises mean it is down by slightly less on last year’s output.

And last night European Central Bank policymaker Jörg Asmussen defended the Bank’s bond-buying scheme, which has yet to be implemented, saying the risks associated with a worsening debt crisis outweigh the dangers of stepping in.

He said high risk premia could impact monetary policy and endanger price stability even more than creating new money.