ATHENS - Greek civil servants threatened on Monday to stage more strikes in protest at government austerity measures, heightening fears debt-laden members of the euro zone may struggle to deliver on promises to tackle stretched budgets.
The euro was mired near 8-month lows against the dollar and the bonds of economically weak members of the 16-nation currency bloc remained under pressure as investors continued to fret about their ability to service their debt.
In Spain, the government of Prime Minister Jose Luis Rodriguez Zapatero said it was sticking with a plan to raise the retirement age despite the threat of union protests there which would mark the end of a period of relative social harmony.
Markets are worried that unrest in Greece, Spain and its western neighbour Portugal could hamper the ability of governments there to rein in soaring deficits, swollen by a deep economic downturn and billions of euros in stimulus spending.
If they fail to do so, pressure on their stock and bond markets is likely to rise in a vicious circle which could force the bloc to bail out one of its members or even push a country out of the 11-year old currency union.
Markets are unwilling to give the benefit of the doubt at this stage and seem set to continue the pressure, said Charles Diebel, head of European rates strategy at Nomura.
The euro was stuck below $1.37 against the dollar and the British pound hit an 8-1/2 month low against the greenback as jitters about the health of euro zone members highlighted Britain's own grim fiscal position, analysts said.
The yields on Greek government bonds compared to benchmark German issues widened after the warning from Greek unions that more strikes were forthcoming, while Spanish and Portuguese bonds were also under pressure.
Prime Minister George Papandreou is putting the finishing touches on a deficit-cutting plan, endorsed by the European Commission, to pull Greek finances back from the brink.
His socialist government has promised to tighten one of Europe's leakiest tax systems and freeze public sector wages in a bid to slash Greece's deficit from 12.7 percent last year to below the EU's 3 percent ceiling by 2012.
The government's emergency tax reform and wages bills are expected to be unveiled this week and become law by the end of the month, but details have angered Greece's powerful unions.
We will strike on Wednesday to defend our dignity, to put an end to our sacrifices on the altar of financial markets. These are pointless sacrifices, Spyros Papaspyros, president of the ADEDY public sector union, told a news conference.
ADEDY said it would decide on Thursday after the government presents the bills whether to call another strike in early March or join one on February 24 by the GSEE private sector union.
In a positive sign for the government, opinion polls at the weekend suggested most Greeks back its economic policy and consider the fiscal measures necessary and fair.
In Spain, however, where unemployment is nearing 20 percent, public opposition to Zapatero's fiscal plans is growing.
A poll in left-leaning newspaper Publico showed 49 percent of Spaniards would support a general strike against the government's plan to raise the legal retirement age to 67 from 65 and consider cutting pension payments as the population ages.
Spanish unions are due to hold protest marches at the end of the month, but Zapatero's labour minister vowed on Monday to press ahead with the austerity plans.
The government has sent a proposal on pensions to parliament and we're not going to withdraw it, with demonstrations or without them, Celestino Corbacho told El Mundo newspaper.
(Writing by Noah Barkin; editing by Ralph Boulton)