WRAPUP 3-Markets hammer euro states as fiscal fears mount

* Stocks tank in Greece, Portugal, Spain, euro falls

* Portugal under pressure over spending vote

* Spain criticised for backtracking on pensions reform

* Labour protests set in Greece, Spain

* IMF’s Strauss-Kahn says all EU countries must take pain

(Adds stocks slide, Greece on IMF, Spanish protest call)

By Axel Bugge

LISBON, Feb 4 (BestGrowthStock) – Investors sold off stocks in
Portugal, Spain and Greece and the euro plunged on Thursday as
market fears over the fiscal problems of debt-laden southern
members of the euro zone widened.

The head of the International Monetary Fund called for
painful steps to cut huge fiscal deficits across Europe, saying
no country should be under the illusion that it was possible to
escape the financial crisis without paying the cost.

The Portuguese government’s defeat over a regional finance
bill, a climbdown by the Spanish government over pension reform,
and protests by tax officials in Greece added to the woes of
states struggling to cut budget shortfalls bloated by recession.

IMF Managing Director Dominique Strauss-Kahn said his
organisation was ready to help Greece, which is under more
pressure over its finances than any other bloc member, but
expressed confidence the government would take the “very
difficult measures” needed to deal with its fiscal crisis.

Greece’s deputy finance minister said Athens had no plan to
seek assistance from the global lender.

The euro plunged to a seven-month low against the dollar as
traders took the view that dismal public finances in the single
currency area may hamper the region’s economic growth prospects.

Spain’s Ibex 35 (.IBEX: ) stock market index fell 5.9 percent,
while Portuguese shares fell 5 percent, led by a 7.5 percent
slump in Millennium bcp (BCP.LS: ), its biggest bank. The Athens
stock market shed 3.3 percent, with the Greek banks index down
5.4 percent.

European Central Bank President Jean-Claude Trichet said
deficit-cutting measures announced by the Greek government were
“steps in the right direction” and the ECB approved of the goals
which Greece now has to meet.

He stressed that all states must meet the terms of Europe’s
pact on budgets and debt, and underlined that help Greece
receives as a euro zone member is subject to that condition.


Portugal’s minority Socialist government lost a key
parliamentary committee vote on a bill allowing regional
financial transfers which it said would add 100 million euros in
debt and make it harder to cut the budget deficit. [nLSB002246]

“Approval brings problems for governability and will have
serious political consequences,” Portugal’s Parliamentary
Affairs Minister Jorge Lacao said before the centre-right
opposition and the communists combined to defeat the government.

A spokesman for Prime Minister Jose Socrates denied a report
in the leading daily Publico that the premier had threatened to
quit over the issue. The full parliament vote is due on Friday.

Amid an outcry from labour unions and media, Spain withdrew
a line on pension reform plans from an official document sent to
the European Commission that suggested an increase in the number
of years Spaniards would have to pay contributions.

The largest Spanish union confederation, Comisiones Obreras
(CCOO), said it would organise protest marches during the last
week of February against the government’s proposal to raise the
retirement age to 67 from 65.

Spain admitted on Wednedsay that its budget deficits for the
next three years would be higher than previously forecast. Debt
markets worry that the government will struggle to cut spending
at a time when unemployment is nearing 20 percent.

Strauss-Kahn said he understood Spanish Prime Minister Jose
Luis Rodriguez Zapatero’s dilemma over pension reform, but
cautioned that the Spanish “really need to make a considerable
effort”. [ID:nLDE6122Q0]

The premiums that investors demand to hold Portuguese bonds
rather than benchmark German Bunds widened on worries that
Greece’s fiscal problems could be mirrored by other highly
indebted euro zone countries. [nLDE6130AX]

However Spain did manage to sell 2.5 billion euros ($3.47
billion) in 3-year bonds in a move that Calyon strategist Peter
Chatwell said should quell some jitters in the Spanish market,
while leaving Greece and Portugal under pressure. [nLDE6130XS]

“Small irregularities in fiscal or funding spheres are being
picked up by the market and magnified in spread moves,” analysts
from Nomura investment bank said in a note. “A case in point was
yesterday’s T-bill auction by Portugal.”

The Portuguese debt management agency cut a planned treasury
bill issue on Wednesday due to high borrowing costs, spooking
the bond market.

Greece has the highest debt ratio of any euro zone country,
expected to reach 120 percent of gross domestic product this
year. Portugal’s debt is expected to reach 84.5 percent of GDP
and Spain’s just 66.3 percent, below the euro zone average.
However both countries’ debt stock is rising fast.

Greece won heavily conditioned EU approval on Wednesday for
a three-year plan to cut its budget shortfall from 12.7 percent
of GDP in 2009 to below the EU ceiling of 3 percent by the end
of 2012. Brussels placed Athens under unprecedented close
surveillance out of mistrust of its economic statistics.

Highlighting the risk of social unrest, Greek tax officials
staged the first of a series of public and private sector
workers’ strikes that will affect Greece this month.

A Portuguese public sector union plans a demonstration on
Friday in central Lisbon.

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WRAPUP 3-Markets hammer euro states as fiscal fears mount