We’ve got more woes for Italy and Spain, a bid to reign in rating agencies, a Cameron/Hoillande spat, and a lot more.
But Greece comes first
No sooner did the Greeks follow her bidding that Angela Merkel retreated from her hardline stance opposing the use of the eurozone’s cash cache to buy up bonds of bankrupt nations.
And we use bankrupt instead of ‘ailing economies” because that’s the reality. The countries can’t pay the mountain of debt they’ve accumulated, and the rules of the game demand that the charade be kept going for one simple reason: Once it stops, it collapses.
The notion of a “debt jubilee” simply can’t be entertained, so more debt is accumulated while peoples and nations are plundered for the very last cent, because pain and discipline are just what’s required to whip the hapless and helpless into line to ensure that the plundering goes on til the very last drop of blood is drained.
A whole Greek chorus echoed Merkel’s merciless mantras, scaring just enough of the Greek people in just the right way to get the desired result at the ballot box.
Merkel’s stance had yielded great profit for the Bundesbank, with investors stashing their cash in German bonds that pay effectively zero interest.
But that was just a little too outrageous, and, what with the Greeks doing what they were told and Spain and Italy in bailout territory, the German stance is softening.
Gotta have growth to raise the cash to pay off the interest on that ever-growing Mount Everest of debt.
From The Guardian’s Patrick Wintour:
Angela Merkel is poised to allow the eurozone’s €750bn (£605bn) bailout fund to buy up the bonds of crisis-hit governments in a desperate effort to drive down borrowing costs for Spain and Italy and prevent the single currency from imploding.
Germany has long opposed allowing the eurozone’s rescue fund, the European Financial Stability Facility, to lend directly to troubled eurozone countries, fearing that Berlin would end up paying the bill, and the beneficiaries would escape the strict conditions imposed on Greece, Portugal and Ireland.
But Merkel has come under intense pressure as financial markets have pushed up borrowing costs for Spain to levels that many analysts see as unsustainable.
Analysts are likely to see the decision as the first step towards sharing the burden of troubled countries’ debts across the single currency’s 17 members, though it falls short of the collective loans or “eurobonds” proposed by the European commission president, José Manuel Barroso.
Government — or not — in Greece?
Lots of wheeling and dealing going on in Athens, negotiating a package of compromises that would make a coalition workable.
While Tuesday morning talk of an imminent deal has given way to promises that the deed will be done Wednesday, the notion of a New Democracy/Pasok/Democratic Left coalition was always in place.
Now comes the vow from New Democracy that the memorandum, that austerity mandate imposed by the Troika Merkel had said was sacrosanct, will be rengotiated.
From Louise Armitstead, and Alex Spillius of the London Telegraph:
Dimitrios Tsmocos, a senior economic adviser, said Mr Samaras intends to “honour Greece’s contractual obligations but will actively and aggressively renegotiate the memorandum”. Another senior aide warned of a “social explosion” in Greece if the bail-outs terms were not relaxed.
Athens has to reduce its budget deficit to below 3pc of GDP by 2014 and find a further €11.5 bn in public spending cuts by 2014. In a new agreement the next government is likely to ask for that deadline to be extended by two years. But spiralling economic woes have already driven Greece off course.
However, experts warned Greece will need another cash injection if the terms are relaxed. Joerg Asmussen, executive board member of the European Central Bank, said: “If one is pressing to shift fiscal targets, one should be so honest to also say that as long as a country is running a primary deficit, extending the fiscal targets will automatically mean that there will be an additional external financing need.”
Fitch, the rating agency, said: “It will be challenging to significantly ease the austerity programme without receiving additional funds, although there is some room for manoeuvre on the financing profile of the existing programme.”
ANSAmed, the Italian-based news service covering Mediterranean Europe, has a detailed list of Samaras’s proposed memorandum modifications, covering a wide range of topics, including:
- Reduction in cuts demanded for pensions
- A lower corporate tax rate and reductions in tax rate for those with high-salaried [good Republican that he is]
- Reducing the demanded public sector layoffs from 150,000 to 15,000
- Restoring collective bargaining rates for organized labor [a concession to PASOK?]
Read the details here.
But the chief money minister says no major changes
The word comes from the the head of the council of the common currency nation’ finance ministers.
The one concession proffered is delaying some of the pain.
Substantial changes to Greece’s bailout terms are out of the question but discussions about extending the timeframe for some of the cuts are possible, Eurogroup chief Jean-Claude Juncker said Tuesday.
“There can be no discussions about changing the substance of the agreements but as I indicated three or four weeks ago we can by all means talk about extensions to the timeframe,» Juncker told Austrian radio.
“With the recession in Greece much deeper than originally foreseen we could talk about extending the timeframe. This depends however on Greece … not wishing to revisit the entire programme,» he told Oe1.
The comments followed a telephone conversation between Juncker and Antonis Samaras, Greece’s possible next prime minister after his conservative New Democracy came first in elections on Sunday, Juncker said.
Anonymous stories sing in harmony
Here’s the first, from David Böcking and Lamprini Thoma of Spiegel:
According to a report in the Wall Street Journal on Monday afternoon, ND and PASOK will ask Europe for a two-year extension to the deadline by which they are to meet their fiscal targets. Citing officials involved in the preparation of the request, the paper reported that Greece would need an additional €16 billion in aid funding as a result, on top of the €130 billion Europe earmarked for the country earlier this year.
It is unclear how Europe would respond to such a request, though it seems clear that Germany would offer significant resistance. Chancellor Angela Merkel’s coalition is anything but harmonious and internal bickering would almost certainly result, should she agree to increase funding for Greece. At the G-20 summit in Mexico on Monday, she said that Athens “must fulfil its commitments quickly,” adding that “there won’t be any changes to the memorandum of understanding” which laid out the conditions Greece must meet in exchange for bailout aid.
Still, the two-year extension was a significant part of Samaras’ campaign platform. Furthermore, he was only a late convert to the European bailout conditions, and came around only after being subjected to immense pressure from conservative parties elsewhere in Europe. It seems likely that his party would be decidedly unhappy were Samaras to prove unable to fulfil his promise of an austerity respite.
The story’s from an anonymous highly placed source, usually meaning that it’s sent as a signal, often to test reactions and raise public expectations.
Despite the promises, austerity hasn’t brought stability to Greece [duh], and with the rise in Syriza’s vote over the course of two elections, the eurocrats know that more misery could tip a lot more Greeks over the line that separates fear from anger.
Given that enough Greeks toed the line, something’s got to give, especially as an example to Spain and Italy — proof that discipline and suffering will be rewarded.
Now here’s another anonymously sourced story, a leak suggesting that just such a plan may have been put on offer, perhaps when Samaras went a-courtin’ in Brussels last week.
From Agence France-Presse:
European and IMF partners will need to re-negotiate the terms of Greece’s bailout this summer due to the worsening economic situation, a senior European Union official said Tuesday.
“It is delusional to say we cannot or need not re-negotiate the Greek programme,” the official said on condition of anonymity ahead of talks among eurozone finance ministers in Luxembourg on Thursday.
It would be “stupid” to keep the memorandum intact because the economic environment has deteriorated in and outside Greece, the official said as Greek parties tried to form a coalition government after Sunday’s elections.
“We would be signing off on an illusion,” the source said, citing a lengthy period of limbo around back-to-back elections in less than two months, plus tax receipts and privatisations income that was off track.
This “will not be done in two weeks’ time,” the official said, but likely “in the course of the summer.”
And the Obama administration is pushing for a renegotiation, too, as AFP reports in a second story:
Speaking on the sidelines of the G20 summit in Los Cabos, Mexico, senior US official Lael Brainard said “there is ample room for both sides to sit back down” and hammer out a new deal giving Greece more time to meet its obligations.
“We expect to see on the part of the European partners and the IMF recognition that Greece’s program has gone off-track for some period of time in part because they had a protracted political process and have not had a government,” she said.
“And there is always in stabilization programs, financial, fiscal and structural programs, the ability to recognize that you need to give some more time, recognize that economic outcomes did come out quite the way it was originally projected.
“So there’s room I think for both sides to move forward, and that, certainly, we’re going to support.”
Cash trickles back into Greek banks
Yet another anonymously sourced story from Reuters says that the flow of billions of euros out of Greek banks has stopped, thanks to the outcome of the election.
The sources? “Several Greek bankers.”
Panicked Greeks who had withdrawn up to 800 million euros from major banks daily in the run-up to Sunday’s vote on fears a leftist victory would push the country back to the drachma were now bringing back some of the money stashed at home, they said.
“The bleeding has stopped,” one Greek banker said to Reuters on condition of anonymity.
One Greek bank that was losing about 30 million euros a day in the days leading up to the election – more than half of which was taken home or put in safe deposit boxes – found the trend had quickly changed course on Monday.
Grief for Greek textile trade
More proof that austerity hasn’t brought stability, fromANSAmed:
The main indices of the apparel and textile sectors in Greece were in free fall in the first quarter of the year, reflecting the rapid deterioration of economic conditions compared with 2011. In apparel, as daily Kathimerini reported, the turnover index declined by 16.6% in the year’s first quarter from the same period in 2011, with the biggest drop (17.9%) recorded in the domestic market. Clothing production in Greece suffered a 16.5% contraction, while new orders in the domestic market fell 18.8%. The sector also reported a negative picture in external trade: Clothing imports declined by 9.2% in the January-March period, amounting to 374 million euros, while exports dropped 12.4% compared to last year, to 131 million euros. Retail sales of apparel in the domestic market decreased 21.7% year-on-year.
The situation was even more disappointing in the textile sector, with the only redeeming feature being the soaring of cotton exports by 162% compared with the first quarter of last year. Their total value amounted to 148 million euros. Textile production contracted by 22.7% in Q1 from last year, while turnover slid 22.8%, as the reduction in the domestic market came to 24.4%.
Pain in Spain continues
The market laughed again at the Spailout announced with much fanfare just over a week ago.
From the London Telegraph:
The Spanish government sold €3.39bn (£2.7bn) in 12- and 18-month bonds, beating the top end of its target to sell €3bn, but the interest cost on the loans almost doubled.
The interest rate on the 12-month bills shot up to 5.07pc from 2.98pc at the last such auction on May 14. The rate on the 18-month bills soared to 5.1pc from 3.3pc.
In the secondary market, where previously issued debt is traded, the yield on benchmark 10-year Spanish bonds remained perilously high at 7.13pc.
Spain’s bailout cry? Imminent
No great surprise.
From The Guardian:
German chancellor Angela Merkel expects Spain to make a formal request for aid for its banks soon.
This is the €100bn bailout money previously announced, but news of the delay to the audit report on the country’s banks has prompted speculation that €100bn may not be enough.
Speaking at the G20 in Mexico, Merkel said banks that were not sufficiently capitalised posed a danger to a stable economy. The key question surely is, though, how much extra funding is needed to make sure global banks are sufficiently capitalised.
Meanwhile French president François Hollande said both he and Merkel were aware the eurozone must find its own solution to the crisis, and not rely on outside help. The IMF was not there to provide a backstop for the eurozone, even if it did that for countries like Greece.
IMF boosts their emergency bailout fund
And there’s a new player in the game, China, which came in for almost a tenth of the action.
From Al Arabiya:
International Monetary Fund (IMF) chief Christine Lagarde said on Monday that member states had promised a total of $456 billion (361 billion euros) for its new crisis fund, $26 billion more than a target set in April.
China, which had held back on how much it would offer for months, will contribute $43 billion, according to the IMF.
“With today’s announcements by an additional 12 countries, a total of 37 IMF member countries… have joined this collective effort, demonstrating the broad commitment of the membership to ensure the IMF has access to adequate resources to carry out its mandate in the interests of global financial stability,” Lagarde said.
“Countries large and small have rallied to our call for action, and more may join. I salute them and their commitment to multilateralism. As a result, total pledges have risen to $456 billion, almost doubling our lending capacity.”
The leaders of Brazil, Russia, India, China and South Africa, meeting before a Group of 20 summit in Mexico, said they “agreed to enhance their own contributions to the IMF.”
EU ratings agency regulations in the works
Yeah, maybe it’s a good idea to keep a close eye of those oracles of doom whose pronouncements can set of panics.
From the European Parliament website:
Draft credit rating agency reform legislation designed to regulate sovereign debt ratings, reduce reliance on agency ratings and restrict the scope for conflicts of interest, was voted in the Economic and Monetary Committee on Tuesday.
MEPs sought to ensure that the legislation injects more responsibility, transparency and independence into credit rating activities, and helps to enhance the quality of ratings issued in the EU, thereby improving protection for users and investors.
“The debt crisis in the Eurozone has shown that credit rating agencies have gained too much influence, to the point of being able to influence the political agenda. In response we have strengthened rules on sovereign debt ratings and conflicts of interest”, said Leonardo Domenici (S&D, IT), the MEP steering the reform through Parliament,
Meanwhile, ratings agency says all’s cool
Or at least cool enough not to downgrade the common currency countries.
Fitch Ratings on Monday said it saw a lower risk of a disorderly Greek debt default and exit from the euro area following the narrow victory for the pro-bailout New Democracy party in Greek parliamentary elections on Sunday.
The conservative leader of New Democracy, Antonis Samaras, will now try to form a new government after edging out the radical leftist anti-bailout party SYRIZA, causing relief across the euro zone. SYRIZA had vowed to tear up the 130 billion euro ($164 billion) rescue agreement with the European Union and International Monetary fund.
“A new government that is supportive of the EU-IMF programme is likely to be in place prior to the EU Leaders Summit on 28-29 June,” Fitch said in a statement, according to Reuters.
“Consequently, Fitch will not place all eurozone sovereigns on Rating Watch Negative as it had indicated would be the case if a Greek euro exit were a probable near-term event,” it said.
Court strikes a blow at Merkel’s mandate
The German chancellor’s bear on a tear about that package of austerity-justified centralization of national budgetary controls in Brussels, and she’s whipped most oif Europe in line.
But not the highest court in her own country said she had illegally shoved the package down Germany’s own throat.
From the BBC:
Germany’s top court has ruled that its parliament was not given a proper say in Chancellor Angela Merkel’s decisions on EU bailouts and budgetary rules.
The Constitutional Court found MPs had not been involved early enough when the permanent EU bailout fund was set up.
Mrs Merkel drove through her plan for tighter eurozone budget rules without informing MPs sufficiently, it added.
A BBC correspondent says the German chancellor may now find it harder to respond quickly to the euro crisis.
Last year, the Constitutional Court obliged the government to seek the approval of the Bundestag’s budget committee before agreeing to German participation in eurozone bailout operations.
Tuesday’s judgment underlines the increasing constraints on Chancellor Merkel as leaders outside Germany seek a change of policy, the BBC’s Stephen Evans reports from Berlin.
Italy feels the Grecohispano blues
And Prime Minister Mario “Three-card “ Monti is feeling the heat.
Those ungrateful Italians, unhappy with the unelected technocrat shoved down their throast by the Troika.
From Ariana Eunjung Cha of the Washington Post:
[S]even months after the well-regarded economist Monti was tapped to replace billionaire playboy Silvio Berlusconi, faith in the Italian government is again plummeting — inside and outside the country. And with global investors increasingly squeamish about lending Italy money, the interest rate on government bonds is soaring again, breaching the dangerous 6 percent level on Monday.
Monti’s problems are as much about politics and public perception as they are about the economy. Since he and his team of technocrats took over, they’ve managed to push through a number of radical belt-tightening measures, aimed at taming the government’s mammoth debt, but have failed to reassure nervous investors. The cost of lending Italy money, especially as measured in terms of the interest-rate “spread” compared with safe German bonds, resumed its ascent three months ago.
“We’re dealing with market psychology, which due to investors’ prejudices believes Italy will be the next domino to fall,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London.
Italian media outlets, which in the beginning hailed Monti as a hero, have begun criticizing him with gusto. Vauro Senese, a popular political cartoonist for Il Manifesto newspaper, drew a cartoon featuring Monti with a top hat and cane titled “Spread Astair.” Another depicted a future scenario in which the people of Italy are ushering Monti out the door. It states, “When Berlusconi left, Italians threw coins at him. When Monti left, they didn’t have even that.”
Monti wants interest leveling
Basically, he’s say that with Germany getting all that cash for no interest, why should Italy have to pay so much on its bonds?
Of course interest soars when risk rises, and in a common currency zone, that creates the kinds of tensions that can ultimately tear it apart, so long as cash is created as debt. . .
Valentina Pop of EUobserver:
Debt-stricken Italy is pushing for a “semi-automatic mechanism” to lower eurozone countries’ borrowing costs compared to Germany in a veiled admission that it is also heading for a bail-out.
“The idea is to possibly discuss at the Eurogroup/Ecofin this week mechanisms which would be triggered semi-automatically when spreads widen too much, with the aim to reduce them,” Italy’s EU affairs minister Enzo Moavero told reporters in Brussels on Monday (18 June).
He said the idea was on the table for talks among eurozone finance ministers (the Eurogroup) on Thursday in Luxembourg.
Amid continued uncertainty about Greece and bleeding banks in Spain, Italy has also seen its borrowing costs soar. Its 10-year bond has climbed to 6.06 percent on Monday, while Germany’s bunds are trading at record low rates.
Italy’s Beppo Grillo wants a Nuremberg trial for pols
As best we can tell, Grillo’s an ec-centrist, a comedian turned populist who has embodied the frustrations a growing number of Italians.
He’s known more for what he opposes [corruption and lack of democracy in the institutions of government] than for what he supports.
A recent post in his blog has set Italy buzzing, especially in light of his new political party’s strong showing in last months Italian municipal elections.
From Corriere della Sera in Milan:
“A public trial of the political class is necessary. Without violence. We are a civilised people. Swindled, fleeced, screwed, impoverished, derided, but we are civilised anyway. No one can think about being a substitute for the magistracy or to evoke new situations like the slaughter in piazzale Loreto. Beppe Grillo expresses the hope in a blog post with the significant title “Italian-style Nuremberg”, followed up on Twitter with “Loro non si arrenderanno mai (ma gli conviene?). Noi neppure” [They will never surrender (but why should they?). Neither will we].
The violence of the tone was matched by the reply from Fini supporter Deodato Scanderbech: “I will not take a media lynching from a comedian who has achieved nothing good in his entire life. Not everybody in Parliament is a Lusi or a Belsito. To the contrary, most of my colleagues are respectable people who do their duty every day”. Grillo, leader of the Five Star Movement (M5S), points out that “Saint-Just and Robespierre are not examples to be imitated, even because they too ended up on the cart that carried the condemned people to the guillotine. The trial must be moral and collective. Each citizen must have the right to deliver a virtual spit”.
The attack on the bipolarism-based post-First Republic system is stinging and directed at both sides of the political fence. The impression is that Beppe Grillo’s initiative seeks to garner consensus among people who have chosen to abstain because they are dissatisfied with politics in the wake of recent scandals.
Like the American Bob Newhart, Grillo was an accountant before he took to comedy.
Poll reveals Grexit worries
The worriers are investors.
More than half of investors believe that it is highly possible at least one country will leave the eurozone next year, according to a latest Barclays survey.
The Global Macro Survey Q2 edition, released on Monday, showed that 58 percent of investors interviewed expect at least one country to leave the single-currency area next year, an increase of 19 percentage points from March.
And 50 percent of respondents believe an exit would be confined to Greece.
Germany economic confidence falls
And the loss of faith is for reasons you’ve already guessed.
The ZEW think tank’s economic expectations index plunged 27.7 points to minus 16.9 points, “the steepest fall since October 1998,” the organisation said in a statement.
“The escalation of the situation in the Spanish banking sector contributed to the sharp drop in the indicator,” said ZEW president Wolfgang.
In addition, the poll was carried out before the outcome was known of the Greek elections at the weekend, he pointed out.
“Analysts’ expectations offer a stern warning against an over-optimistic assessment of Germany’s economic outlook this year,” Mr Franz said.
Cross-Channel political jousting
From a Troy to a Socialist [sic] and back again, and its about taxing the rich.
In a gesture of pan-European solidarity British Prime Minister David Cameron has renewed an age-old invitation to French businessmen: if you do not like your government, then come to Britain.
“When France sets a 75% top income tax we will roll out the red carpet and we will welcome more French businesses who will pay their taxes in Britain. That will pay for our public services and schools,” he said at the G20 in Mexico.
The invitation has been laughed off by the French government, which must be privately seething.
“I don’t know how you lay a red carpet out across the Channel, I’m afraid it’ll get rather wet,” said French labour minister Michel Sapin, also in Mexico.
But the French seething has ceased to be quiescent, as Radio France Internationale reports:
France’s Socialist government said on Tuesday it was confident that patriotic business leaders would not flee the country over tax hikes, after Britain’s prime minister offered to “roll out the red carpet”.
“What I can answer to this statement from the British prime minister is that there are French bosses who are patriots, and there is a range of measures we will take in favour of business, measures that will support investment and encourage business to stay in France,” European Affairs Minister Bernard Cazeneuve told Canal Plus television.
“There are measures that we will take that will promote investment and innovation and support growth,” he said.
And to close, the politics of semantic distancing
American Public Media Marketplace reports a telling list, assembled by London investment bank Fairfax, of European [and one African] leaders defining their countries by what they are not:
- “Spain is not Greece.” Elena Salgado, Spanish Finance minister, February, 2010.
- “Greece is not Ireland.” George Papaconstantinou, Greek Finance minister, November, 2010.
- “Spain is neither Ireland nor Portugal.” Elena Salgado, Spanish Finance minister, November 2010.
- “Ireland is not in ‘Greek Territory.’” Irish Finance Minister Brian Lenihan. November 2010.
- “Neither Spain nor Portugal is Ireland.” Angel Gurria, Secretary-general OECD, November, 2010.
- “Spain is not Uganda” Spanish PM Rajoy. June, 2012
- “Uganda does not want to be Spain” (Ugandan foreign minister) June 13th 2012