Lots of morning after stuff to report, ranging from the latest pronouncements on Greece to the intensifying Spanish crisis and a potential Cyprus bailout from an unexpected quarter.
But first, the Greek elections. . .
Now that the dust has settled, New Democracy holds 129 seats [the 79 they won plus that 50-seat first place bonus] and Pasok has 33, which gives the old pals enough votes to control the 300-seat parliament.
But there’s that one hitch. Pasok says they won’t form a coalition without Syriza, which holds 71 seats.
Syriza leader Alexis Tsipras says he’s already talked to New Democracy’s Antonis Samaras and told him Syriza would play the role of “strong and responsibile” opposition. . .
Meanwhile,m the country will run out of cash by the middle of next month.
A headline at Bloomberg Businessweek sums it up: “For Greek Politicians, Election Doesn’t Make Governing Any Easier.”
From Deutsche Welle:
On Monday, just hours after their victory, the party set to work on forming a new government.
“There is a categorical imperative to form the government” today, President Karolos Papoulias said before giving a formal mandate to conservative leader Antonis Samaras to get started on negotiations.
“The country cannot remain ungoverned for even an hour,” Papoulias said.
[New Democracy leader Antonis] Samaras agreed and discussed the importance of quick action. “A national agreement is an imperative called for by everyone. We need to resolve the question immediately,” he said.
He added, however, that amendments should be made to the conditions of the EU-IMF bailout deal so “the Greek people can escape from today’s torturous reality.”
Samaras has three days to form a government, and if he fails, the baton gets passed to Syriza leader Alexis Tsipras, with a final pass to Pasok’s Evangelos Venizelos — and Venizelos says New Democracy’s got until tomorrow.
If all fail to cobble together a coalition, a third election awaits.
Before we get to the bigger picture stuff, here’s a reminder of what could become more frequent as things get worse.
Golden Dawn thugs celebrate the usual way
By beating up hapless immigrants and opponents, conducting their campaign of ethnic cleansing where the feet meet the street.
From the Greek Streets reports:
On the night of an election that handed them 7% of the vote, the Nazis of Golden Dawn attacked in a number of places in Athens, as well as in other cities across Greece:
- At the port city of Piraeus, around 80-100 members of the Nazi gang attacked a gathering of SYRIZA, beating up one of its members.
- At the Attica metro station in Athens, a migrant was attacked by members of the same Nazi gang – see video shot by a passenger pretending to be on the phone.
- In Chania, Crete, four nazis attacked two Algerian migrants in the early hours of Sunday. The two Algerians were sleeping at the beach of Nea Chora. The nazis attacked them with crowbars and knives, robbing their possessions (mobile phones, money and blankets). The two Algerians are currently hospitalised.
And now on with the politics, posturing, and markets
The Iron Chancellor makes a call
No sooner had the results finalized than German Chancellor Angela Merkel was on phone, whispering sweet somethings to Samaras before delivering the inevitable ultimatum.
German Chancellor Angela Merkel on Sunday congratulated the head of Greece’s conservative New Democracy party after it emerged as the strongest party in the Greek elections, the German government said, according to Nasdaq.com
Ms. Merkel spoke with Antonis Samaras in a telephone call shortly before she was set to depart for Los Cabos, Mexico to attend a summit of leaders of the Group of 20 largest advanced and developing countries.
“She congratulated him for the good election result,” the German government press office said in a statement. “At the same time, she said that she expected Greece to stick to its European commitments.”
Merkel’s money minister hammers the stake home
Pinned to the mat, Greeks must pay and the memorandum must stay.
And, while they’re at it, they’ve got to make up for all that time they lost, what with elections and all.
Germany says the terms of Greece’s 130 billion euro bailout should remain non-negotiable.
The comments come after the anti-bailout Syriza party as well as election winners New Democracy pledged to re-arrange aspects of the EU-IMF rescue fund.
While Syriza claimed it would reject the bailout, New Democracy said Spain’s recent cash-call had offered an opportunity to renegotiate parts of the original deal.
German Foreign Minister Guido Westerwelle says Greece now has to make up for election delays.
“It is obvious that we lost time during the electoral campaign. Because of that, it is even more urgent now to build a government quickly,” said Westerwelle.
Gee, says Seven, let’s get busy, Greeks
It’s all in your best interest, you know.
Of course that’s presuming a new government is formed [which we think is likely but not certain].
From Agence France-Presse:
Finance chiefs from the Group of Seven industrialized economies on Sunday applauded European support for the next Greek government and said it was vital that Greece stay in the eurozone.
The G7 communique came ahead of a wider G20 summit in the Mexican resort of Los Cabos, where world leaders meet on Monday and Tuesday amid palpable relief that supporters of an IMF and EU-led bailout won a pivotal Greek poll.
“Taking note of the Greek elections, we look forward to working with the next government of Greece and believe that it is in all our interests for Greece to remain in the euro area while respecting its commitments,” the statement said.
“We welcome the commitment of the euro area to work in partnership with the next Greek government to ensure they remain on the path to reform and sustainability within the euro area.”
“Reform and sustainability”? What what about all that growth you need to sustain interest payments on all that debt? And what are the envisioned results of that “reform and sustainability”? What kind of Greece do you image?
G20 breathes collective sigh of relief
Or so imagines Deutsche Welle scribe Mirjam Gehrke as the leaders of the world’s economic powers gather in Mexico City:
The leaders of the twenty most important industrialized and emerging countries must be breathing a sigh of relief. Their annual summit this Monday and Tuesday (June 18 and 19) in the Mexican resort of Los Cabos begins on a good note: Greek voters chose the conservatives to be the strongest force in parliament in their elections on Sunday.
“If it came to a crisis in the eurozone, this would have corresponding effects on the world economy as a whole,” Jörg Hinze from the Hamburg Institute of International Economics (HWWI) warned, citing the possible consequences of the never-ending euro crisis. “It would also set back emerging markets and especially the developing countries.” Since the former are heavily dependent on exports, they have a heightened interest that “there will not be a return to economic collapse as in 2009-2010,” he said.
The issues being discussed in Mexico are essentially the same issues that were already included in last November’s G20 Action Plan at Cannes: the stabilization of the global economy and overcoming global imbalances, strengthening the financial system and further reform of the international financial architecture.
In Mexico, German Chancellor Angela Merkel wants to push for a much stricter banking regulation. “This demand has been on the table ever since the Lehman bankruptcy. However, it was only insufficiently implemented,” Hinze said.
Another “get busy” call from Brussels
This time from the head of the single currency group money ministers.
From Agence France-Presse:
Eurozone leader Jean-Claude Juncker said he was eyeing the “swift formation” of a new government in Athens, after pro-EU bailout conservatives topped Sunday’s poll.
The Eurogroup of finance ministers that Juncker chairs “looks forward to the swift formation of a new Greek government that will take ownership of the adjustment programme to which Greece and the Eurogroup earlier this year committed themselves,” he said in a statement.
The Luxembourg prime minister issued his reaction to New Democracy leader Antonis Samaras’ narrow victory over the anti-austerity Syriza party led by Alexis Tsipras.
“The Eurogroup expects the Troika institutions to return to Athens as soon as a new government is in place,” Juncker added, in reference to the European Union, International Monetary Fund and European Central Bank inspectors managing the terms of rescue.
The purpose of this visit would be “to exchange views with the new government on the way forward and prepare the first review under the second adjustment programme.”
A new regime that “will take ownership” of the memorandum?
None of the parties campaigned on taking ownership to that memorandum. All wanted at least some changes.
We find it heard to believe that the euroministers are so stupid as to carry through the threat. After all, there’d been all those pre-election hints at modification.
We suspect the harsh words are opening statements, part of as carefully staged spectacle that will featuring a lot of posturing, followed by minimal concessions to bolster the presumptive New Democracy-dominated government with the tarnished luster of having “stood up” to their masters.
More urging from Old Blighty
To borrow a phrase I once heard from an old cowboy friend, “Sam shit, different asshole.”
From The Independent’s Andrew Woodcock:
Prime Minister David Cameron today urged successful parties in yesterday’s Greek elections to move swiftly to form a government, warning that delay could be “very dangerous”.
Mr Cameron said: “The outcome of the Greek election looks clear in terms of a commitment to stay in the eurozone and to accept the terms of the memorandum.
“But I think those parties that want that to happen can’t afford to delay and position themselves.
“If you are a Greek political party and want to stay in the eurozone and accept the consequences that follow you have got to get on with it and help form a government. A delay could be very dangerous.”
And the Bundesbank is heard from
A classic of the “guarded optimism” genre.
And they admit they’re whistling in the dark.
From the London Telegraph’s Louise Armitstead:
Germany’s central bank said “recent indicators” pointed to improvement but admitted everything could change given the uncertainty across the eurozone.
“It remains to be seen to what extent the recent intensification of the sovereign debt crisis in the euro area and signs of a global slowdown further damp prospects for the German economy,” the banks said in its monthly report yesterday. “Overall, recent indicators suggest that economic momentum could pick up gradually in the second half of the year after a weaker spring quarter.”
Germany posted growth of 0.5pc in the first quarter and has continued to show resilience in key areas, including exports. However factory orders showed their biggest drop for five months in April and industrial production and business confidence has also fallen. The Bundesbank has still forecast a growth of 1pc this year and 1.6pc next year.
Yesterday the bank refused to back plans for a European “redemption fund” says it could “only be justified with a broad reform of the monetary union’s regulation framework towards a fiscal union, which needed to precede the communalisation.”
More strain ahead for Greece, says bankster
Call it another case of stating the obvious.
From Matthew Boesler of Business Insider:
Morgan Stanley senior European economist Daniele Antonucci writes in a note today that while the results of Sunday’s Greek election may provide temporary relief, internal politics will weigh on external politics in Greece over the medium term.
The close race between the “pro-EU” and the “anti-bailout” parties showed that Greek voters are both afraid of the economic consequences of a Greek exit from the euro, and opposed to the crushing austerity measures that comprise the terms of the current Greek rescue plan.
Antonucci thinks the anger in Greece could trump the fear eventually, and this may constitute some permanent damage to the euro:
The cost of austerity is a deep recession. This affects the domestic population, which has a say in the political process. The cost of pursuing other policies, from attempting to renegotiate the terms of the adjustment programme to defaulting or even asking the question of eurozone membership, has an impact on the creditors (and the future borrowing costs), which are mainly outside of Greece. They don’t vote.
Hopes expressed, then quickly dashed
For a few fleeting minutes, a eurocrat had dreams. . .dreams that the Greek election may have contained the contagion.
European Commission spokesman Amadeu Altafaj said he expected a positive reaction on Spanish and Italian equity and bond markets after the victory of the pro-bailout party New Democray in Greece on Sunday, Reuters reported.
“We hope that will be the case”, said Altaf on Monday in an interview on Spanish radio RNE when asked about the possible market reactions Greece’s neighbours Spain and Italy after the election outcome.
Ah, but the wicked old world wide web of money soon dashed what we suspect was simply a not-so-subtle attempt to spur a sagging market,
From the BBC:
European banking stocks have fallen sharply despite the victory of the pro-bailout New Democracy party in Greece’s elections on Sunday.
While the result raised hopes that Greece would stick to austerity measures and stay in the euro, analysts said that much uncertainty remained.
The fall in bank shares was seen across Europe, with Germany’s Commerzbank down 3.6% and France’s BNP losing 3.3%.
Spanish bond yields remained volatile, rising through the 7% danger level.
More from Stephen Castle of the New York Times:
Reaction to the Greek elections in financial markets followed a familiar, disconcerting, pattern on Monday as early relief gave way to anxiety about the future of the euro zone, pushing Spain’s borrowing costs above the 7 percent barrier, seen by many as unsustainably high.
European and Asian markets opened higher Monday after the Greek legislative election Sunday handed victory to a center-right party, New Democracy, that supports Greece staying in the currency union. That had eased fears that the country will leave the euro and unleash further turmoil on the beleaguered single currency.
But by midmorning, Europe had given up those gains, with major indexes down from Friday’s close, and the focus shifting back to the problems of Spain, whose banks are heavily exposed to loans which have lost much of their value because of the country’s real estate crash.
Analysts said that the rise in Spanish borrowing costs reflected investor skepticism about the euro zone’s willingness to address its fundamental problems, even [though?] a dramatic new crisis had been averted in Greece.
Indeed, the euro and the British pound both fell, and the dollar rose against both the yen and the Swiss franc.
Bundesbank says a firm no to Hollande
French President François Hollande may have captured the National Assembly for his Socialist [wink, wink] party, but that didn’t give him any more clout with Angela Merkele and his financial string-puller.
From Agence France-Presse:
The German central bank rejected on Monday proposals for a bond redemption fund allowing eurozone states to share liability for debts over and beyond defined EU ceilings.
The idea was first floated by Germany’s council of economic advisors, an independent panel of experts which advises the government on economic matters.
They suggested that a special redemption or stabilisation fund be set up to prevent the eurozone’s sovereign crisis from escalating out of control.
The fund would cover all public debts of member states above the ceiling of 60 percent laid down in the EU’s Maastricht Treaty and would pay down the debt over 20-25 years.
But in its June monthly bulletin, the ultra-conservative Bundesbank said it was “very questionable whether (such a mechanism) could be implemented under existing European treaties and be compatible with German constitutional law.”
But Hollande took it in stride, and was soon off and running.
French President François Hollande wants the European Union to agree before the end of 2012 on growth-boosting measures worth €120 billion, putting him on a collision course with German Chancellor Angela Merkel who has ruled out further spending to restart Europe’s ailing economy.
The money is to come from a combination of short-term growth instruments such as project bonds, reallocated EU structural funds and fresh investment capital from the European Investment Bank (EIB), according to the weekly Journal du Dimanche on Sunday (17 June).
The paper cited a proposal circulated by France ahead of an EU summit on 28-29 June, which is expected to agree a growth agenda as well as a longer-term roadmap for greater fiscal and economic integration in the eurozone.
The newspaper also reported that France has accepted Germany’s rejection of its call to issue mutualised debt in the euro bloc and now agreed that so-called euro bonds were a project to be looked at over a 10-year time frame.
Face it. €120 billion is chump change these days.
And the cold, sober reality always remains that the earth simply can’t produce enough goods and services to cover the ever-increasing mountain of debt that lies at the root of the whole damn mess.
Merkelmania doused with German cold water
The chancellor’s relentless call for taking financial power out of the hands of European Union member states and placing it the bureaucratic grip of Brussels has hit an unexpected speed bump in her own backyard.
A front consisting of the governments of Germany’s 16 states has formed against the federal government over the ratification of the fiscal pact — including states governed by Merkel’s conservative Christian Democratic Union and their Bavarian sister party, the Christian Social Union. During negotiations last Thursday between the federal government and the states, the conservative-run states signed up to the demands of the opposition center-left Social Democratic Party and Greens. Now, the states are demanding more financial assistance from the federal government in return for supporting the fiscal pact in an upcoming vote in the Bundesrat, Germany’s second legislative chamber which represents the interests of the states.
The states are also strongly resisting pressure to swiftly consolidate their finances. According to their calculations, many of the state-level finance ministries will not be able to fulfill the provisions of the fiscal pact, which is expected to come into force in January 2013. The treaty requires that Germany limits its structural deficit to 0.5 percent of gross domestic product from 2014 onwards. The German government has already committed itself to reducing its budget deficit to 0.35 percent of GDP as early as 2014 to comply with the provisions of the German “debt brake,” a 2009 constitutional amendment that was a model for the European fiscal pact. Under the debt brake rules, German states — which are responsible for their own finances — have to completely balance their budgets by 2020.
German parliament, the Bundestag, will vote on the fiscal pact on June 29. Because the fiscal pact involves transferring power to the European Union, the government needs a two-thirds majority in both the Bundestag and the Bundesrat to get it approved. That requirement gives the opposition parties in the Bundestag and the state governments considerable leverage over the government. The government is currently negotiating with the opposition parties and the states over the conditions for their support.
Twenty-five out of the EU’s 27 member states signed up to the fiscal pact, a pet project of Chancellor Merkel, at an EU summit in January, with only Britain and the Czech Republic refusing to join. The pact aims to impose stricter fiscal discipline on member states through binding limits on budget deficits and quasi-automatic sanctions on countries that breach deficit and debt limits.
If Merkel can’t even sell her own country on the proposals, the game starts to get interesting.
When is a bailout not a bailout?
First, consider this from Agence France-Presse:
Spain has no need for a full-blown state bailout in addition to a rescue loan for its distressed banks, European Union competition chief Joaquin Almunia said Monday.
“I sincerely do not expect it nor do I believe it,” the European Commission vice president said when asked about the risk in an inverview with Catalan television TV3.
Spain was paying a high price to borrow on the bond markets, the official said. “But the doors to the markets are open to it and I am sure will carry on being so,” he said.
After Almunia spoke, the yield on 10-year Spanish bonds leapt to 7.061 percent — the highest level since the birth of the euro in 1999 — from 6.838 percent late on Friday.
The gap between Spanish and safe-haven German 10-year bonds — known as the risk premium — breached 5.70 percentage points, also a euro-era record.
So, no need for a bailout?
But wait! Isn’t one already going on?
The European Investment Bank (EIB) has granted a EUR 100 million loan to Banco Santander for financing the investment projects of mid-cap companies (with up to 3 000 employees) mainly in the industrial and service sectors.
This loan is being provided in the framework of the Bank’s policy of fostering the development of mid-caps and promoting long-term investment in multiple areas of the economy. At the same time, it will help to stimulate growth and job creation by mid-caps. The projects eligible for financing will be located mostly in Spain and to a lesser extent in other EU countries.
Around 40% of the loan amount will go to projects in convergence regions.
And what about this, also reported today by ANSAmed:
The European Investment Bank (EIB) has granted a 350 million euros loan to Acuamed to finance investment in water and sanitation improvements on the Mediterranean coast of Spain. This is the first instalment of a total loan of up to 500 million euros. This EIB loan will be used to finance to investment in the water supply, wastewater treatment and environmental protection in Spain’s five Mediterranean river basins (Ebro, Jucar, Segura, Andalusian Mediterranean and internal Catalonian basins).
Gee, if it walks like a stimulus program. . .
But how bad is it really in Spain?
The Spanish collapse was triggered by the bursting of a domestic housing collapse, which is still continuing.
As the London Telegraph’s Ambrose Evans-Pruitchard reported Thursday:
Spain is caught in a vicious downward spiral as the property crash accelerates, further undermining the banks and state finances. This in turn is drawing Italy into the fire and threatens to overwhelm the EU’s rescue machinery.
The property crash is accelerating. House prices fell at a 12.6pc rate in the first quarter of this year, compared to 11.2pc the quarter before, and 7.4pc in the quarter before that. Prices have fallen 26pc from their peak.
“Fundamentals point to a further 25pc decline,” said Standard & Poor’s in a report on Thursday. It may take another four years to clear a glut of one million homes left from the building boom.
And some Cypriot relief from a surprising source
We’ve been reporting the increasingly dire financial quagmire in Cyprus, which has followed the usual trajectory of “We don’t need a bailout” to “Well, maybe.”
But it’s not Brussels that’s the current object of speculation as to the source of the needed cash.
Russia is considering a loan of five billion euros to Cyprus, Cypriot media report quoting Russian daily Nezavisimaya Gazeta that is citing an advisor to the Central Bank chief Sergei Ignatiev. The Russian daily says that it’s also possible that a lower amount could be granted, quoting adviser Pavel Medvedev. Interfax has reported that the Cypriot authorities appealed for a loan of five billion amid an urgent recapitalisation drive to save Laiki Bank from failing ECB stress tests at the end of June.
Cyprus has been shut out of international borrowing markets because of high costs after a series of downgrades by international rating agencies. It has already turned to Russia for a 2.5 billion-euro loan at 4.5% interest per year. The government is also considering applying to the EU for a bailout to cover Laiki Bank’s 1.8 billion-euro recapitalisation needs.
Finally, some thoughts about Syriza
From Stathis Gourgouris, Professor of Classics and Comparative Literature and director of the Institute for Comparative Literature and Society at Columbia University, writing at Greek Left Review:
SYRIZA as the chosen party of primary opposition cannot return to its habitual mode of parliamentary opposition from the fringes of 5-6%. Parliamentary opposition is essential to democratic governance and must be conducted with impeccable responsibility. As SYRIZA is likely to be the governing power in the near future, it must honor the electoral support it received by conducting an ingenious, vigilant, yet flexible opposition. While occupying the forefront of critique, it cannot afford to recede into obstructionism. Given that the mass media, controlled as they are by major elite interests, will continue to barrage SYRIZA with all kinds of vilification, SYRIZA must become even more vigilant as to its parliamentary conduct. The goal of SYRIZA is not opposition for opposition’s sake – or for the sake of adherence to some sort of legacy of the Left. It is to come to government without compromising the core principles that brought it this trust from nearly 27% of the electorate.
I have argued that the Left must overcome its taboo on governing in a democratic society. As SYRIZA was entrusted with being the primary opposition party, the allure of this taboo looms more intensely than ever. The ND-PASOK coalition will hold on to power with difficulty in the next year. Its majority is slim and so is the trust of the electorate. Although it is likely that the upcoming EU Council in June 27-28 will reward the new government with an extension on its debt payments and may even grant new loans quickly, the terms of the Memorandum will not be substantially renegotiated and the state of Greece’s bankruptcy will continue, as will the general economic decline of the entire Eurozone. Impoverishment will get worse and social unrest will increase. Since the ND-PASOK coalition has shown itself capable of only capitulation to external forces, its internal political legitimacy, now bolstered by insecurity and fear, is bound to collapse. And SYRIZA must remain the primary vehicle for the alteration of the old political system.