Greek unions to "intensify" struggle, extend strikes

ATHENS (Reuters) - Greece's main public sector union vowed on Monday to step up its fight against austerity measures by broadening strikes that will test the government and its new deal with the EU and IMF.

The ADEDY union, which represents about half a million public sector employees, condemned cuts in wages and pensions and said it would stage a 48-hour walkout starting on Tuesday, instead of the one-day strike it had planned for Wednesday.

"These measures are a disaster, they will lead to a deeper recession or even bankruptcy. The government is raiding our salaries and our pensions," Despina Spanou, a member of ADEDY's board, told Reuters. "We will escalate protests, we will fight these policies."

Prime Minister George Papandreou's government unveiled an austerity deal with the European Union and International Monetary Fund on Sunday that relies heavily on cuts in the bloated public sector to reduce a swollen budget deficit.

In exchange, Athens is to receive 110 billion euros (95 billion pounds) in financial support over three years, a package aimed at calming fears of a debt default and buying the country time to reinvent its uncompetitive and debt-ridden economy.

Greece has a history of violent protests and the government's ability to implement its draconian programme depends heavily on how the public reacts to the new steps.

"Nobody can be sure how strong the reaction will be," said Yannis Stournaras, head of the Foundation for Economic Resarch in Athens. "But the Socialists' strength is that they control the unions. No other party could pass such a tough programme."

Greek President Karolos Papoulias cautioned Papandreou on Monday that he would struggle to win over the people unless pain for average citizens was accompanied by a crackdown on corruption, which cost the economy an estimated $1 billion (656 million pounds) last year according to watchdog Transparency International.

"I am certain the Greek people will respond positively, but they need to be convinced that justice will be done, that tax evasion will be wiped out," Papoulias said.

"CRUEL AND INHUMAN"

Outside the presidential mansion where Papoulias and Papandreou met on Monday, Sampsanis Ioannis, a 49-year old doctor in a state hospital, said Greeks had had enough.

"I have 5 children, I work all day and I make 1,020 euros net a month. The measures are cruel and inhuman, people cannot stand it any more, they will revolt," he said.

Several hundred rubbish collectors marched through central Athens behind a dozen garbage trucks, holding banners reading "hands off our salaries" and chanting "parliament is where the rubbish is."

Greek newspapers displayed a mix of resignation and outrage at the new steps, which aim to slash the budget deficit to 8.1 percent of gross domestic product (GDP) this year, from 13.6 percent in 2009.

Centre-right newspaper Eleftheros Typos said the government was telling Greeks that they must die in order to live, describing the economic medicine it was dispensing as "more harmful than the disease." Ethnos, a centre-left daily, said the plans meant "asphyxiation" for the Greek people and a "violent modernisation" for the economy.

There are precedents for the massive fiscal adjustment that Greece is undertaking, but economists say the country faces a tougher challenge because of its weak economy, which is expected to contract by 4.0 percent this year and 2.6 percent in 2011.

The government's economic shock therapy could lead to deflation, aggravating Greece's ability to cut its debt mountain, and put huge pressure on the banking sector.

The European Central Bank pledged on Monday to accept even junk-rated Greek bonds as security for loans, a move Finance Minister George Papaconstantinou said ensured banks were "absolutely shielded and secure."

But Greek banking shares were trading 1.3 percent lower on Monday.

Standard & Poor's downgraded Greek bonds to junk status last Tuesday and Moody's could follow suit any day now. It said on Monday it would conclude a review of Greece's ratings shortly.

(Additional reporting by Dina Kyriakidou, George Georgiopoulos, Daphne Papadopoulou; Writing by Noah Barkin; editing by Ralph Boulton)