Greek Parliament Approves Additional Austerity; Italian Yields Fall

Devan Biswas
13 Feb, 2012
New York City

European markets advanced after Greek lawmakers approved deeply unpopular economic measures as people rioted on the streets of Athens. Italy completed the short term debt sale of

[R]5:10 PM Frankfurt – European markets advanced after Greek lawmakers approved the economic measures as the support declined and people rioted on the streets of Athens. Italy completed the short term debt sale of €12 billion at a lower yield as demand falters.[/R]

European markets traded higher on the hopes that Greek austerity measures will stem the widening contagion in the euro zone.

Greek Parliament approved the labor and pension reforms demanded by international lenders after ten hours of debate on Sunday that forced lawmakers to make difficult choices.

The measures were approved with 199-to-74 vote that will assure euro zone finance ministers to release the second bailout of €130 billion. The approval was welcomed by euro zone leaders but implementation of the reforms may be another story.

Greek Parliament approved similar measures in November 2010 with 255 members voting in favour of the austerity but the support for the additional cuts after four years of economic decline is dwindling.

Greece won its first loan package from the euro zone ministers of €110 billion in May 2010.

Greece needs the Parliament approval before the meeting of the euro zone finance ministers on Wednesday for the debt repayment of €14.5 billion.

The austerity measures are largely targeted to lower government pension costs, minimum wage cut by 22% and cut additional pays for holidays. The approved measures will cut €3.3 billion in additional spending for this year alone. The bill also approves the private sector debt swap with 70% loss from the original principal.

The additional measures approved by the Parliament over the next three years amounts to 7% of gross domestic product and includes debt swap that will cut €100 billion from the €200 billion of debt held by private investors. However, Greece is still expected to labor under 145% debt to gross domestic product ratio for more than seven years.

Athens police said 150 shops were looted and at least 48 buildings were damaged and more than 100 people were injured including 68 police in riots that swept across Athens on Sunday and extended to the second largest city Thessaloniki.

European markets and the euro gained after the passage of the Greek measures. The euro added 0.4% to $1.325.

In London, FTSE 100 index traded higher 1% or 59.10 to 5,911, in Frankfurt DAX 30 index increased 0.8% or 54.1 to 6,747 and in Paris CAC 40 index added 0.5% or 16.7 to 3,390.

Germany completed the sale of €4.53 billion of six months bill that averaged at 0.0761% compared to negative yield at the previous auction on Jan 9.

The Italian Treasury completed the sale of €8.5 billion of 1-year bill that yielded 2.23% compared to 2.735% yield in the previous auction and €3.5 billion of six month bills at 1.546% from 1.644% in the previous auction. The demand at the auction declined to 1.09 from 1.47 times last month.

Stock Movers

Banks gained in Athens, Frankfurt and London after Greek Parliament approved the austerity measures.

National Bank of Greece rebounded more than 9% to €3.80, Alpha Bank SA surged 17% to €1.37 and EFG Eurobank Ergasias SA soared more than 10%.

Commerzbank AG gained 1.6% to €2.09, Deutsche Bank added 1% to 33.78 and Societe Generale SA fell 3% to €22.55.

Cable & Wireless Plc soared 45% to 28.55 pence after Vodafone confirmed that it is in preliminary evaluation bid for the company that may lead to cash offer of 700 million pounds. The news was confirmed by sources in Vodafone and Cable & Wireless in London.

Nexans SA added 0.9% to €51.48 after the cable maker said it agreed to acquire AmerCable Holdings Inc from a private group of investors for $275 million.

Areva SA soared 4% to €19.11 and Electricite de France SA added 43 cents to €18.41 after the nuclear reactors and fuel maker agreed to supply 20,000 tons of uranium between 2014 and 2030 to the electric utility operator. EDF will also participate in mining joint ventures with the company.

Mining companies traded higher after copper and precious metals advanced in London trading. Rio Tinto gained more than 2.4% and BHP Billiton Ltd added 1.8%.