Greece pledged on Thursday to sell off state assets and make deeper deficit cuts, as bonds and bank stocks took another hammering and communist strikers marched on parliament in protest at austerity plans.
The risk premium on 10-year government bonds over benchmark German Bunds hit its highest level since April after a second credit rating downgrade in a week highlighted a lack of trust in a country set to become the euro zone's most indebted next year.
Standard & Poor's cut Greece's credit rating by one notch to BBB+ from A- late on Wednesday, saying deficit-cutting measures announced by Prime Minister George Papandreou on Monday were unlikely to achieve a sustainable reduction in the debt burden.
S&P followed up the downgrade by lowering the counterparty credit ratings of several Greek banks on Thursday.
"The challenges Greece faces in terms of fiscal adjustment and structural competitiveness issues increase the likelihood of a protracted hard landing for the national economy," an S&P statement said.
Fitch Ratings downgraded Greece last week and Moody's, the other major arbiter of creditworthiness, is expected to make its own move in the coming weeks.
The cost to insure Greek sovereign debt with credit default swaps for five years jumped on Thursday to 271 basis points per year, from 236 basis points on Wednesday, according to Markit.
Bank shares which have shed 17.8 percent in the last 30 days closed 1.42 percent down, trimming earlier losses, while the wider Athens stock index was off 1.2 percent.
Unemployment rose to 9.3 percent in the third quarter from 8.9 in the previous quarter, the country's statistics service (NSS) said, with big job losses in construction and retailing as recession bites.
Thousands of members of the communist workers group PAME walked off their jobs and marched in central Athens in protest at the socialist government's austerity measures to overcome the country's fiscal woes.
Journalists joined the strike, leaving the country without television and radio news for 24 hours, but the stoppage otherwise appeared to cause little disruption.
About 2,500 protesters, including students and public sector doctors, marched to parliament, beating drums and chanting slogans such as "George, remember who your allies are!"
Some were dressed in their working uniforms and others held banners reading: "The debts and deficits are yours, the rich should pay for the crisis."
Ratings agencies cite expected political resistance to the Socialist government's plans to slash the state deficit from an expected 12.7 percent of gross domestic product this year to the EU limit of 3 percent by 2013 as one reason for the downgrades.
"We believe that the government's efforts to reform the public finances face domestic obstacles that would likely require sustained efforts over a number of years to overcome," S&P said in a statement explaining its downgrade.
Greek Finance Minister George Papaconstantinou said after talks with his British counterpart Alistair Darling in London he was disappointed by the latest downgrade.
"We will continue to work to gain the trust of Greek citizens, our European partners and markets, doing what's needed to reduce the deficit and the public debt," he said.
Papaconstantinou stressed later in Frankfurt that Greece would seek no bailout from the International Monetary Fund.
However, an IMF mission would visit Athens in January to help drafting a new tax reform, he said. "We'll be asking for their help in some structural issues such as the overhaul of the tax system and the new budget," he told Reuters.
Greece's debt mountain is set to hit 135 percent of GDP in 2011 unless policies change, giving the nation of 10 million far bigger problems than fellow euro zone laggards Ireland, Spain, Portugal and Italy.
Economists say the government needs to cut public sector pay to achieve deep deficit cuts but Papandreou, elected in October on pledges to aid the poor and tax the rich, has maintained real pay rises for lower-paid public servants next year.
Instead, it aims to narrow the gap by raising taxes and fighting corruption and tax evasion, reducing bureaucracy and cutting social security spending, but details remain sketchy.
In an effort to lend credibility to the deficit and debt reduction plan, Papaconstantinou said Athens expected to cut deficit to 8.7 percent of GDP next year, more than the 9.1 percent originally planned.
Privatization revenues would reach about 2.5 billion euros ($3.6 billion) next year. "It is a realistic figure if we move fast in 2010," he told Reuters, saying he considered selling banks and utilities, without naming specific companies.
The state has stakes in about 20 listed companies including lenders ATEbank, Post Savings Bank, gaming firm OPAP and telecoms group OTE.
Greece's main public and private sector unions GSEE and ADEDY, which represent about half the 5 million workforce, did not take part in Thursday's protest, saying they were giving the government time to spell out its measures.
They have said they will move to labor action after the Christmas holidays, if the measures are to hurt the poor.
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