Unions strike over Greece’s austerity plan as EU leaders consider help for debt-wracked nation

Greek unions strike over deficit-slashing measures

ATHENS, Greece — Greek workers shut down schools, grounded flights and walked out of hospitals Wednesday to protest austerity measures brought on by the nation’s staggering debt, as European leaders wrangled over whether and how to come to the country’s financial rescue.

Greece’s prime minister headed to a European Union summit where leaders will take up the debt crisis Thursday. Greece’s fiscal problems have shaken the euro and underscored the interconnectedness of the global economy.

European stocks rose on hopes for a rescue plan that might take pressure off other struggling eurozone countries such as Portugal and Spain, but it is unclear what wealthier EU nations will do to help Greece.

The EU’s largest economies, Germany and France, are ready to offer their support to Greece at the summit but will wait to see if other countries join the effort, a French diplomatic official said in a briefing ahead of the summit. The official, who spoke on condition of anonymity because of the sensitivity of the issue, did not provide specifics.

“Here’s the message: we are behind Greece,” the official said. “I don’t think (financial) aid needs to be extended to Greece tomorrow; I think a message needs to be given to markets that we will know how to resolve the Greek question.”

Officials in Germany said there is no urgent need for a bailout at the moment and that “no decision on such help” is imminent. They also said EU rules prohibited them from guaranteeing another country’s debts.

“Of course, we are running through worst-case scenarios,” a German government official said on condition of anonymity. “Greece has to present a credible volume of cuts. Agreement on that would be an important signal from tomorrow’s summit.”

The head of France’s national assembly, Bernard Accoyer, said that European countries must show solidarity with Greece.

“The reality is obvious to everyone. The issue is not to let Greece go bankrupt,” he said.

Greece came under intense EU pressure to slash spending after it revealed a massive and previously undeclared budget shortfall last year that continues to rattle financial markets and the euro, the currency shared by 16 EU members. Its deficit spiraled to more than 12 percent of economic output — more than four times the eurozone limit — in 2009.

Prime Minister George Papandreou’s new government has announced sweeping spending cuts that will freeze salaries and new hiring, cut bonuses and stipends and increase the average retirement age by two years to 63. The government also announced new taxes, which it insists will increase the burden on the rich but safeguard the poor.

European governments, initially reluctant to help Greece out of a crisis it created itself, now appear ready to help after market concerns intensified in recent days, dragging the euro down to an eight-month low against the U.S. dollar and hitting stocks worldwide.

European stocks closed up Wednesday, and the spread, or interest rate difference, between Greek and benchmark German bonds narrowed, indicating that fears of Greek default in the bond market are waning.

Stephen Lewis, an analyst at Monument Securities, said financial markets “are taking it for granted that support will be forthcoming and would probably react negatively if the summit’s outcome fell short of expectations.”

If Greece were near default, it would hurt the euro, harm Europe’s already battered banking system and raise borrowing costs for governments across the continent, and the aftershocks would be felt on Wall Street and in markets around the world.

Papandreou, who was in Paris on Wednesday to meet French President Nicolas Sarkozy, insisted that Athens is not asking for a bailout.

“We have not asked for help,” he told Greek reporters in a briefing after his meeting with Sarkozy. “We have said that we just want you to support our will, the credibility of our country in the implementation of this program.”

Speaking earlier, Papandreou insisted that his proposed austerity measures will be fully implemented. “We are ready to take any necessary measures to make sure the deficit goal is met,” he said.

Papandreou’s Socialists came to power last October and enjoy a strong legislative majority. He has faced pressure from unions, with civil servants walking off the job Wednesday in the first tangible widespread backlash against the new austerity measures.

“It’s a war against workers and we will answer with war, with constant struggles until this policy is overturned,” said Christos Katsiotis, a representative of a communist-party affiliated labor union.

Yet despite the harsh rhetoric, turnout for demonstrations was relatively low, with fewer than 10,000 strikers and retirees braving windy, drizzly weather in Athens. Another 3,000 people showed up for two rallies in Thessaloniki, Greece’s second-largest city. Greece has seen tens of thousands of people take to the streets in the past.

The subdued response suggests that many Greeks believe urgent action is needed to save the economy.

“It’s clear that the country is on the verge of bankruptcy, and if this negative dynamic isn’t controlled, we’re going to pay a huge social and financial price,” said political analyst and publisher Giorgos Kyrtsos.

One weekend newspaper survey showed 70 percent of Greeks backed Papandreou’s call to cut the pay and perks of the country’s roughly 27,000 civil servants, although they opposed measures that would affect them individually such as new taxes or a higher retirement age.

“Everyone accepts the measures that don’t affect them,” Kyrtsos said. “When they see that their family budget or their personal budget is affected, then they react.”

So a broader backlash could be yet to come. A strike much broader than Wednesday’s is planned for Feb. 24.

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Associated Press Writer Aoife White reported from Brussels. Associated Press writers Robert Wielaard and Gretchen Mahan in Brussels, Jamey Keaten and Angela Charlton in Paris, Toby Sterling in Amsterdam, Daniel Woolls in Madrid, Matt Moore and Geir Moulson in Berlin, Demetris Nellas and Derek Gatopoulos in Athens contributed to this report.