Economists! Comments and Opinion on Greek Debt Article

[Broomstick]

Americans currently earn 5 times more than Brazilians,

Our cost of living is also significantly higher than the average Brazilian as well.

they are unemployed because they don't want to work for the minimum wage

Complete and utter horseshit. I know it's reassuring to some people to think the fat, lazy Americans won't work for minimum but that just isn't so - offer a job with minimum wage up in my area and you'll be swamped with applicants. Why? Because people are out of work. They'll take minimum wage over no wage.

assuming that there are unemployed people that want to work for wages even lower than the minimum wage, well in that case unemployment is generated by labor laws.

No, in that case employers paying less than the minimum hire illegal aliens, because they can treat them as disposable and if they guys make a peep of protest the employer calls INS and has them deported. I mean, why the fuck should such employers care about labor laws when they don't give a flying fuck about any other laws?

And even assuming that they cannot find jobs for wages above zero (with means that they are so incompetent that their work is not valued by the market),

Or else there are no jobs available! Or the few jobs available are vastly outnumbered by those looking for work.

Right now in the US there are six people seeking employment for every job opening. So what you're saying is that somehow the one guy who gets the job has value and the other 5 are worthless and incompetent? You seriously believe 5/6 of the labor force in the US falls under worthless and incompetent?

they will be more useful unemployed than they are right now, where they are a net cost to society.

I don't understand what you're saying here - how is someone who is unemployed "useful" to society?

[Admiral Valdemar]

In other news, Iosef doesn't know what he's talking about.

Clearly these people need to look harder. Or work for free. Like in Brazil, which we must all aspire to.

[Crown]

Be quiet Don Quixote, the conversation has well and truly moved beyond you. Try and not assign pathetic motives for what I am doing but instead read exactly what I type.

I did - and drew my conclusion that you want Greece to be a special case of some sort when in reality plenty of other countries have faced similar problems without whining or rioting. Just because you don't like my conclusion doesn't make it wrong. In fact, I seem to have touched a raw nerve there.

Fact is, the fiscal meltdown in Greece is causing the rest of us problems. And Greece still wants the EU to bail them out. Sorry, Greece, you'll have to retire later than 48 - just like the rest of us - and stop scamming your own society.

I though corruption in places like Chicago was bad... but this seems to be a whole other level of rotten.

All of this would have had *some* validity in page 5, but this is now page 8. I have posted two articles from the BBC which state views and quotes from a range of different Greeks, all of which have one thing in common; it's not the austerity measures in and of themselves that has people on the street. It's the fact that those responsible are hiding behind Parliamentary immunity from prosecution and given the demonstrable level of corruption in Greece no one believes that these austerity measures are going to affect those most capable of shouldering the burden.

Add to that that even *if* the austerity measures pay off, it still won't really change the corruption. This has been shown, repeatedly, and now I'm repeating myself, again.

[ArmorPierce]

So any chance that the Greeks will get a boot from the EU?

[Broomstick]

All of this would have had *some* validity in page 5, but this is now page 8. I have posted two articles from the BBC which state views and quotes from a range of different Greeks, all of which have one thing in common; it's not the austerity measures in and of themselves that has people on the street. It's the fact that those responsible are hiding behind Parliamentary immunity from prosecution and given the demonstrable level of corruption in Greece no one believes that these austerity measures are going to affect those most capable of shouldering the burden.

As I am currently working two jobs (as I am existing under somewhat austere conditions myself lately) I have to admit I have had trouble keeping up with this thread. I will go back and read your articles when I have a little more time to pay attention to them.

Add to that that even *if* the austerity measures pay off, it still won't really change the corruption. This has been shown, repeatedly, and now I'm repeating myself, again.

Well, the Chicago area, which is where I live, is notorious for corrupt politics so I understand that it's not easy to root out entrenched corruption.

So any chance that the Greeks will get a boot from the EU?

And how, exactly, would that benefit anyone?

If the Greeks remain EU members then pressure from other members will make it more likely some headway can be made against the corruption that really is at the bottom of the worst of this mess. Booting out Greece just makes it almost certain the government there will collapse and you'll have a period of anarchy. I don't see that as helping anyone.

A united Europe - even if barely united and mostly squabbling over things - is better than what proceeded it, a Europe torn by war for centuries. This is an EU crisis, but not a reason to dismantle the union. If the EU can find a way out of this mess then it will be all the stronger for it. And hopefully Greece will, in the long run, be better off.

(Short run, of course, it will be unpleasant for Greece. Their choice is pain now or pain later, but either way they will have some pain.)

[ArmorPierce]

Just wondering, I know that the Greeks have been one of the major issues blocking Turkey's entrance into the EU.

[Admiral Valdemar]

Kicking Greece out isn't a good idea, not only because it will hurt the EU, but it will spread from there. The EU will just feel the wrath earlier, but as with Lehman and Bear Stearns, it won't remain in the country of origin or region, for very long.

[Illuminatus Primus]

Admiral Valdemar should change his name to Captain Bullshit. My god, he produced enough bullshit in this topic to fertilize hundreds of hectares of land.

Who wants to take bets on this Hayek-cocksucker's longevity without a title? AV make grate on my nerves but he contributes sources, links, and analysis for circumstances of a thread or current event, and does not saddle us endless with generic lolbertarian boilerplate and shit-talk in lieu of sincere discussion.

[Akhlut]

Kicking Greece out isn't a good idea, not only because it will hurt the EU, but it will spread from there. The EU will just feel the wrath earlier, but as with Lehman and Bear Stearns, it won't remain in the country of origin or region, for very long.

Wouldn't booting a nation out of the EU also lead to other repercussions just due to a sudden lack of confidence in the EU to deal with internal problems and leaving nations in the EU on their own should their own problems come up? If the EU is this quick to abandon a member state (especially a relatively recent one), then what effect would that have on other nations that aren't part of the core of powerful nations (France, Germany, UK) in the EU?

[Thanas]

Just wondering, I know that the Greeks have been one of the major issues blocking Turkey's entrance into the EU.

Which is a good thing.

[Admiral Valdemar]

It basically means the markets will see the EU has forsaken one of its own, which weakens the union. On top of that, it means Greece basically descends into chaos while the ratings agencies cast their eyes over to the likes of Portugal, Spain, Ireland, Italy and the UK.

On a related note, the SEC in the US is telling Moodys to cease and desist. It's almost like the US wants to shut down the ratings agencies that are bringing about this crisis in sovereign debt. The recent musings over the German and British input on this issue don't help the market jitters.

[J]

€500 billion stabilization fund package thingy in the works for Europe. Reminds me of the "bazooka" that Helicopter Ben threatened to fire off during the summer of 2008. That didn't work too well, and if the market decides to go "all in" and take the other side of this bet it's not going to end up any better for Europe. That'll be half a trillion Euros down the drain if the market gets upset.

Bloomberg via Businessweek linky

Euro Climbs Second Day as Europe May Set Up $645 Billion Fund
May 09, 2010, 7:09 PM EDT
By Yoshiaki Nohara and Candice Zachariahs

May 10 (Bloomberg) -- The euro rose as European leaders moved toward agreement on a loan package worth at least $645 billion to prevent Greece’s fiscal woes from triggering a broader sovereign-debt crisis.

Europe’s common currency gained against 14 of its 16 major counterparts as European Union government officials said the International Monetary Fund may add money to the emergency facility agreed to by European finance ministers. The yen slid against all 16 major counterparts as prospects the Greek crisis won’t spread damped demand for Japan’s currency as a refuge.

“The fact they’ve been trying to put together something over the weekend is very positive,” said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase in Sydney. “Risk has been put back on. The market seems to be happy to take back some of the short positions on the euro.”

The euro climbed to $1.2878 as of 8:02 a.m. in Tokyo from $1.2755 on May 10, after falling 4.1 percent last week, the most since the five days ended Oct. 24, 2008. The 16-nation currency rose to 118.69 yen from 116.81 yen. The dollar gained to 92.15 yen from 91.59 yen.

European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the EU’s central authorities. The mechanism may be worth 500 billion euros ($645 billion), said a government official familiar with the talks in Brussels.

‘Fortunes of Euro’

“Markets’ assessment of the effectiveness of the package will be critical to the fortunes of the euro, equity markets and risk appetite early in the week,” Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a note to clients.

Futures traders increased bets to a record that the euro will fall against the dollar in the days after the May 2 announcement of a 110 billion-euro bailout package for Greece on speculation the aid wouldn’t be enough to halt the spread of the region’s fiscal woes.

The number of wagers by hedge funds and other large speculators for a decline in the currency rose on May 4 to 103,402 contracts more than those anticipating a gain, up from 89,013 a week earlier, according to Commodity Futures Trading Commission data. It was the second consecutive week that the amount climbed to a record. As recently as December, traders were anticipating gains in the euro.

‘Blood on the Street’

“There was blood on the street,” Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $20 trillion in assets under administration, said May 7. “The focus has been on the inability of European policy makers to come up with something coherent to try to calm investor nerves.”

The extra yield that investors demand to hold Greek, Portuguese and Spanish 10-year debt instead of benchmark German bonds rose to the highest last week since before the euro’s 1999 debut as European leaders’ efforts failed to assuage concern that the region’s most-indebted nations will struggle to reduce their budget deficits. The yield on Germany’s 10-year bund fell to a record.

“We will defend the euro, whatever it takes,” European Commission President Jose Barroso told reporters on May 8 after the leaders met in Brussels.

Led by Italy’s $126 billion, Greece, Spain, Portugal, Ireland and Italy have a total of $215 billion of debt coming due in the next three months, according to JPMorgan Chase & Co.

‘Rates Appropriate’

Europe’s common currency posted its biggest intraday decline against the dollar in more than a year on May 6 after European Central Bank President Jean-Claude Trichet said a meeting of policy makers didn’t discuss buying government bonds, an option some economists said would help to contain the region’s debt crisis.

Trichet also said the ECB’s benchmark interest rate, a record-low 1 percent, is “appropriate,” indicating he saw no immediate need to cut borrowing costs.

The euro has lost 6.5 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar is up 5.1 percent.

--With assistance from John Fraher in Brussels. Editors: Garfield Reynolds, Rocky Swift.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

[Thanas]

The claim that there has been any continuous 'whining' about it will now be supported with some evidence. I will accept quotes from various dates for the past deacade or so from various Greeks, blaming it all on 'ze Germans' to establish a patern of 'frothing at the mouth' behaviour.

I was talking about the current allegations that are ongoing in the Greek press, which should have been clear to anyone with a brain. Nowhere did I ever claim Greece has continued whining over the past decades or blamed all their troubles on Germany, so kindly take your strawman and light it.

As for proof of the Nazi card being played:

This is immeterial to my discussion. I'm not suggesting that they didn't have unrealistic expectations. You're implying they were culpible in the fraud. You have yet to supply any evidence for this.

They took advantage of the system and from the posts of others who actually live in Greece in this thread, it is clear that the average person knew this was going on. Or do you think Greeks somehow live in a bubble and never ever thought they could be culpable as well in something? Again, see the widespread tax evasion cited in this thread. If that is not culpability, what is? Do you really think this all happened in a bubble with no connections to the outside apart from the people who profited from it?

That is kinda like saying "the average German had no idea that the German Army was killing civilians".

Again it was explained to you, and again you ignore it; Greeks always assumed that their corrupt Government was stealing from them, they just couldn't imagine it was lying and defrauding the entire of Europe too.

Ah, so the Greek public is stunningly naive and stupid. Got it.

[Admiral Valdemar]

The euro is at 1.27 on the markets now. That's less than before the trillion euro bailout made the markets rally. That was a quick and rather rubbish effect.

But the crowd goes wild in the stock market. I wonder if they realise that we've not actually solved anything. TARP didn't, and this is only that on a far larger scale.

[Narkis]

Sorry I didn't post more in this thread, the coming exams and a road trip have kept me busy.

Crown, I have to disagree with much of what you say. It's like you're describing a different Greece than what I'm seeing:

They also seem to have taken part in it and enabled this behaviour for several decades. It is not as if the government took great measures to hide the truth from the citizens, when these very same citizens were more than happy to take advantage of it. Or are you suggesting that this was all just a nefarious plot perpetrated by a few man at the top? What, nobody of the guys retiring at 48 thought that this might be a bit unsustainable when looking at other countries?

So your claim is that the Greek citizenship was fully and wholly aware in a massive defrauding scheme in which a single (even possibly successive) Greek Government used creative accounting for a period of greater than a decade fooling Brussels and all of its oversights and checks? And your evidence for this is....

Many citizens not only were aware, but assisted in the defrauding too. For instance, Cretan farmers claimed they were farming land that would have to cover a third of the Aegean if it was real in order to cash in on EU money. They weren't the only ones, by far. Creative accounting has definitely been used by successive governments. When the last ND government came into power, one of the first thing they did was to conduct an audit that showed the previous PASOK government had artificially lowered the deficit. Because of this, Greece entered EU supervision for a time.

In other words, they liked the system just fine and took advantage of it and now they blame those guys who got more out of it than they did.

Given the long record of civil disobedience and protest at perceived government corruption one would have to brain dead to assume that the Greek citizens 'liked the system just fine'.

Really? I don't remember many protests at perceived government corruption. Granted, corruption was a stated reason for most, if not all, protests. But there were almost always other reasons too. And the most common one I remember was "We want more money because of X"

It's a case of sensationalist reporting and the grand tradition of the anarchist left wing in Greece using any excuse to try and cause disruption for the government.

Sure there are people that are that self absorbed at those protests, but there are others who are protesting the fact that even if the austerity measures are observed the same corrupt bastards that got them in this mess will still be there.

Posted from the other thread, have a read;

http://news.bbc.co.uk/2/hi/business/8657989.stm

I see four opinions, which in no way necessarily represent a majority. Here's a former Olympic Airways worker, two bank workers and a man retired on private pension. All of them are over 40 years old, one of them significantly. Before this article, I hadn't ever heard of someone retired on private pension. Where is the opinion of the twenty-year old student? Of the unemployed who didn't have such a luxurious job before? Of the pensioners who used to live on 500 euros a month? Of the private employees who used to live on the minimum wage of 700E, now reduced to 560? Without these, the article is severely skewed.

There have been polls that paint a different picture. Here is the most recent one I could find online. Sadly it's in Greek, but you can find a machine translation here if you want. The results:
55.2% of citizens accept the measures - 44.6% reject them. 56.3% prefer cutting salaries to the country's bankruptcy, while 35.6% refuse the measures even if the country bankrupts. 53.2% support the protests, while 45.3% wants them to stop. 63.5% think the protests won't alter the deal, while 31.8% think they can be overturned. And yet 74.8% think Greece should remain in the Eurozone and 71.3% think the parliament parties should cooperate with the government.

So it's far more people than the anarchist left wing who want to cause disruption to the government.

Crown, is there potentially any political fallout for the clowns in charge that got them here or is it one of those European parliamentary things like in Italy where there is one dominant party that has even run donkeys in elections and won so there's very little chance for change?

The sad part of this affair is the PASOK Government are the ones who actually didn't defraud the EU, but came clean about the previous Governments shinanigans (whether because they're more honest, or they got cold feet in continuing the farse, I'll let you all decide for yourselves).

PASOK also defrauded the EU, in their previous government when Kostas Simitis was the Prime Minister. The ND government that succeeded him revealed that PASOK had systematically altered the data we provided to the EU, including those that led to us entering the Eurozone. Many of the current Ministers were also Ministers in that government, including the current Prime Minister, who was then the minister of Foreign Policy

As much as I think these violent protests are useless and dangeorus I really wish Americans could get this fired up about ANYTHING. We never seem to take to the streets anymore even when corporate America gets caught with its hand in the till taking $800 billion dollars while Middle class folks are being kicked out of their homes. No one seems to be moved to do a fucking thing here.

There are many facets to these protests; there are the 'oh my god, you're taking my shit away from me crowd' and then there are the Anarchists who are stiring shit up. At the end, as you saw from the link, most Greeks recognise that the austerity measures are a necessary measure, they're just dejected because they have no faith that the corruption will be dealt with at all.

And as you saw from the poll, support for the austerity measures is barely above 50%. That's most Greeks only in the strictest technicality.

Oh, and Crown: It was more than just a few people. Several parties (communists and ultra-conservatives - no idea how big they are, or how significant) in the parliament demanded in February that the government should call in reparations from Germany. In addition, at that time some other organizations called for a boycott of German goods.

I accept the clarification, but I will point out that in the English media I have heard nothing of the kind and still stand by my original point; sensational reporting is making more of this for you guys (because you do have a vested interest) than is given credence anywhere else.

For reference; the PASOK government holds 160 seats and the bill (austerity) just passed of a simple majority of 151 (actually 173 voted yea).

I remember this. For reference, the communist party holds 21 seats and the far-right party holds 15, out of 300. They can't really make more than noise on the matter, no matter how much they want to. And passing the bill was a bit more complicated than that. 3 members of PASOK abstained and where expelled from the party, one member of ND voted for the bill and was expelled from the party. The only other party to support the bill was the aforementioned far-right. PASOK currently holds 157 seats, and it's looking like it's going to decrease even further.

From the Beeb

The BBC has (not surprisingly) a whole serious on the issue, you can click through the whole lot if you like, no point posting it all here, but hopefully this will put paid to the over simplistic 'they're crying because they're being asked to give up their toys' argument.

From the article: "At street level, however, the anger stems from a sense of injustice. Many feel that the average citizen is now paying the price for corruption and government spending that they did not benefit from."
That's the problem, I believe. There are many who benefited from the corruption. Many keep benefiting. Politicians are but a tiny minority of them. I won't argue that proportionally they gained the most. But there are few innocents in Greece. And many protestors are not among them.

And last, a very simple question for you: If people hate corruption so much, why do they keep asking, and getting, favours from their elected representatives? And why, oh why, do they keep voting for the same people?

[Admiral Valdemar]

Moody's have just said the Euro bailout "marginally increases risk" among governments. I wonder if these guys are going out of their way to tank the system.

[aerius]

I think Moody's is just pissed because they're getting investigated by the SEC. Not that the investigation will go anywhere, slip'em a few mil out of court and it's all settled and done.

[D.Turtle]

Frankly, I am simply amazed at the power these private rating agencies have acquired.

They can almost destroy a country/region if they want to.

[Broomstick]

Frankly, I am simply amazed at the power these private rating agencies have acquired.

They can almost destroy a country/region if they want to.

There is no almost - they CAN destroy a country or region.

[D.Turtle]

Actually, I first had it without the "almost", and then added it after a little thinking.

[J]

Moody's have just said the Euro bailout "marginally increases risk" among governments. I wonder if these guys are going out of their way to tank the system.

They're just telling the truth for once, those one trillion euros have to come from somewhere. I suppose they can pull it out of a printing press but that has its own problems. They've reactivated their currency swap lines with the US Fed and I believe the individual EU countries will have to sell bonds if the full amount of the bailout guarantees are to be exercised. Gee, you think that'll up the risk a bit? Oh, and what happens when currency swaps go the wrong way? That also leaves a nice hole in the account which needs to be made up.

[Murazor]

Somewhat relevant to this thread.

Horrible Google Translation version of Spanish source, since I didn't find this in the English media.

The Spanish government finally presented this morning an 'austerity plan' that contemplates, among other actions, salary cuts of 5% for public sector workers. At first glance, this will be enough to piss off everybody without actually accomplishing much. Analysts might want to keep an eye in the parties who are likely to react to these measures and the hijinks that are likely to ensue.

[cosmicalstorm]

I saw one Greek politician on the TV this morning promising that the two extra monthly salaries that had been cut would be reinstated. I guess they can breath a sigh of relief knowing that they can cheat and scam and then get everything paid for by other countries. I'm sure that will keep them from repeating this in the future.

[J]

Greek securities downgraded

Businessweek link

Moody’s Downgrades $28 Billion of Greek Securities (Update2)
May 12, 2010, 12:16 PM EDT

By Jody Shenn

May 12 (Bloomberg) -- Moody’s Investors Service lowered 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies as the country adopts austerity measures to qualify for European aid, leaving the notes under review for further downgrades.

The cuts “were prompted by Moody’s expectations of significant pool performance deterioration due to the stressed economic environment in Greece as well as increased operational risk due to the weakened financial strength of Greek banks,” the New York-based ratings company said today in a statement.

The securities, which are part of 23 transactions, included 10.7 billion euro of notes backed by residential mortgages, 3.9 billion euro of collateralized loan obligations, and an additional 7.2 billion euro of other asset-backed debt, according to the statement. The bonds appear less creditworthy considering “Greece’s austerity package and the resulting impact on the Greek economy and collateral performance,” Moody’s said.

Ratings reductions typically boost the capital needs of bondholders such as banks and insurers and force some investors to sell the debt.

Greece’s economy contracted in the first quarter as the government cut spending and raised taxes in a bid to trim the European Union’s second-biggest budget gap, the Athens-based Hellenic Statistical Authority said today. Moody’s said May 10 it may cut the nation’s A3 grade to junk, citing the country’s “dismal” economic prospects.

Prime Minister George Papandreou, amid soaring borrowing costs, this month promised further wage cuts and tax increases on alcohol, fuel and tobacco in return for emergency loans from the International Monetary Fund and the European Union to stave off default.

Rescue Plan

Under a support package announced this week for troubled European countries, the region’s governments would offer guarantees of 440 billion euros to a special fund, which would then sell debt and use that cash to buy the bonds of nations in need. Another 60 billion euros will come from the EU’s budget and as much as 250 billion euros from the IMF. As part of that broader plan, Spain and Portugal also pledged deeper budget cuts to be outlined this month.

“The Eurozone support measures together with the austerity program will cause the transfer of wealth and income from the household and private sectors to the government sector via the assessment and collection of taxes and is likely to reduce the ability of the underlying borrowers to meet their debt obligations,” Moody’s said.

The package announced by European policy makers and the European Central Bank’s plan to buy sovereign debt “have removed the risk of sponsors facing an immediate liquidity crisis,” Moody’s said.

The health of banks is important to the asset-backed securities because they “act in various roles in the transactions, including servicer, cash managers and swap counterparties,” the ratings firm said. “A servicing transfer would be extremely difficult in the context of the current crisis.”

High-yield, or junk debt is rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.

The squeeze continues.

[J]

The Spanish government finally presented this morning an 'austerity plan' that contemplates, among other actions, salary cuts of 5% for public sector workers. At first glance, this will be enough to piss off everybody without actually accomplishing much. Analysts might want to keep an eye in the parties who are likely to react to these measures and the hijinks that are likely to ensue.

You mean, like this?

Reuters link

UPDATE 3-Spanish unions threaten general strike
Thu May 13, 2010 11:57am EDT
By Andres Gonzalez and Feliciano Tisera

MADRID, May 13 (Reuters) - Spain's unions threatened to call a general strike to protest austerity measures aimed at reducing the country's deficit back to EU guidelines and calming markets.

"We radically reject this austerity plan and both unions are starting protests that could lead to a general strike very soon," Ignacio Fernandez Toxo, the general secretary of Spain's biggest union Comisiones Obreras (CCOO), told reporters on Thursday.

Earlier, the unions said they proposed calling a public sector strike for June 2, after Prime Minister Jose Luis Rodriguez Zapatero said on Wednesday the government would cut civil servants salaries by an average 5 percent in 2010 and freeze them until 2011.

The strike would fall on the day before Madrid's Corpus Cristi public holiday ensuring maximum take-up by public servants in Spain's capital and leading to possible disruption in the travel plans of Spaniards over the long weekend.

The government's plans to halt pension increases in 2011 was a breach of a previously agreed pension pact, CCOO's Toxo said, while the leader of Spain's second largest union Union General de Trabajadores (UGT) said the government's austerity plan was devastating for growth and would increase unemployment.

"(The austerity measures) are a sharp blow to the chances of maintaining certain levels of consumption and will lead to delays in economic recovery," Candido Mendez said.

SUPPORT FOR GENERAL STRIKE?

Talk of a general strike has threatened Zapatero's government on several occasions, although analysts question the extent to which the public would respond to a walkout.

"First of all, I don't think the unions will go so far as to call a general strike," said Alistair Seymour, Director of Henderson Global Investments in Spain said. "The unions are cosy with the current government and I think they are just firing blanks."

In the event a general strike did take place, Seymour said there would not be wide public support.

A Spanish economist, who asked not to be named, agreed.

"At most a general strike, which I don't think is probable, would be a gesture on the part of the unions to save face. But it wouldn't have massive support from the public," the economist said. "It certainly wouldn't be anything like what we have seen in Greece."

The Madrid bourse fell 1.9 percent, bucking the broad European trend, amid market concern over possible delays by the government in applying the proposed austerity measures.

Analysts view Spain as another weak link in the euro zone and consider it at risk of succumbing to a debt crisis similar to that which has shaken Greece and the euro.

With unemployment running at close to 20 percent, the economy expected to shrink 0.3 percent this year and a deficit of 9.3 percent, Spain is struggling to gain the confidence of financial markets.

"Zapatero's unveiling of the measures was fine, but the actual situation in Spain is still difficult and foreign investors don't want to know about us, and hedge funds are very active," a trader said. "What the market demands is that these measures take effect forthwith," she added. (Additional reporting by Clara Vilar, Jesus Aguado and Elisabeth O'Leary; writing by Martin Roberts and Judy MacInnes; editing by Karen Foster)