Events unfold in Europe at a lightning pace, with the latest a vow by the Europe’s leading economies to pledge a new cash infusion in yet one more attempt to stave off the crisis.
Meanwhile, pressure is pulling German Chancellor Angela Merkel in two directions — first, to take a more active financial role in aiding the contient’s stricken south, and, closer to home, a legal challenge to her relentless drive to strip nations of financial sovereignty.
Then it’s on to Greece, where there’s another Grexit warning as the new coalition government formulates its own plan for altering the notorious austerity memorandum forced on the nation by the Troika, another sell-off of a major state asset, a riposte to Germany by a legendary Greek war hero,
The latest news from Spain and Italy is equally grim, with the Spailout now all but a done deal and a demand from Finland for a share of ownership in Spanish banks in return for financial help.
And there are new signs of economic troubles for Germany, coupled with a real estate as foreign buyers scoop up German real estate.
We close with a veteran journalist’s cautionary take on Merkel’s plans to forge a new Europe run from Brussels.
Promises, promises — but just how significant?
There is — maybe — a new European bailout fund, but just what it is and where it’s money is coming from are still open questions, at least for the moment.
From John Hooper and Ian Traynor of The Guardian:
The leaders of the eurozone’s biggest economies announced on Friday night that 1% of the European Union’s GDP was to be set aside to help the continent grow its way out of the financial crisis. But doubts were immediately expressed as to what share of the package – said to be worth €130bn (£105m) – would be genuinely new money.
After several hours of apparently tense discussions, there was no immediate agreement on a plan outlined by Italy’s prime minister, Mario Monti, on Thursday, aimed at stabilising Europe’s banks and protecting countries under attack in the markets.
“There was an agreement between all of us to use any necessary mechanism to obtain financial stability in the eurozone,” said Mariano Rajoy, the Spanish prime minister, afterwards.
But the German chancellor, Angela Merkel, insisted that the EU must take full advantage of the instruments already at its disposal. Her remark suggested she is wary of two new funds – to guarantee bank depositors and as a lender of last resort to ailing banks – understood to have been on the agenda at Friday’s talks.
In a sign that tempers are becoming increasingly frayed before next week’s crucial summit, the normally gentlemanly Monti used his closing remarks to attack France and Germany publicly.
With Merkel and the French president, François Hollande, standing just feet from him on the podium, he reminded the world’s media that it was not Greece or any of the other alleged EU basket cases that had first broken the rules on fiscal discipline in the eurozone, but the single currency’s two biggest nations – albeit with the endorsement of Italy, which then held the EU presidency.
German opposition challenges Merkelmania
The German chancellor’s relentless drive to strip European nations of sovereignty over their budgets keeps hitting speedbumps in her own country.
From Deutsche Welle:
Politicians in Berlin celebrated a breakthrough on European economic policies and the fiscal pact on Thursday, only for the Constitutional Court and then President Joachim Gauck to throw a spanner in the works.
President Joachim Gauck announced on Thursday that he would not ratify the EU’s second-generation rescue fund, known as the European Stability Mechanism (ESM), until legal challenges to the fund had been cleared. The German Constitutional Court had asked earlier in the day that the president grant the Karslruhe judges time to examine a probable legal challenge from the Left party.
A spokesman for Gauck said that “the German president intends to acquiesce to this request,” saying it was in the traditional spirit of cooperation between the main German political entities and out of respect to the Constitutional Court in Karlsruhe.
This decision means that the ESM and the fiscal pact will probably not be able to come into force across the entire bloc on July 1 as previously planned.
We find a certain degree of delicious irony in the German challenges to Merkel’s zeal in demanding subservience from EU member states.
[For more ruminations from another journalist, see the final item in today’s wrap-up.]
Lagarde does some leaning on the Iron Chancellor
Not because of Merkel’s mania for consolidation of power in Brussels, but her reluctance to cough up more German cash for the bailout fund.
Since Germany has been hauling in cash through sale of bonds that pay no interest, there’s a certain logic in the IMF boss’s call for German to chip in more to maintain the system Merkel’s so eager to consolidate.
From The Guardian’s Julia Kollewe:
The head of the International Monetary Fund has piled pressure on Germany by recommending a series of crisis-fighting measures that chancellor Angela Merkel has resisted.
IMF managing director Christine Lagarde warned that the euro is under “acute stress” and urged eurozone leaders to channel aid directly to struggling banks rather than via governments. She also called on the European Central Bank (ECB) to cut interest rates.
Her comments came as Italy’s prime minister, Mario Monti, warned of the apocalyptic consequences if next week’s summit of EU leaders were to fail.
The stark message from Lagarde, delivered to eurozone finance ministers who were meeting in Luxembourg, will increase pressure to come up with a unified approach to tackle problems including Spain’s struggling banks. She urged the 17 eurozone countries to consider jointly issuing debt and helping troubled banks directly. She also suggested relaxing the strict austerity conditions imposed on countries that have received bailouts.
“We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area,” Lagarde said after the meeting.
“A determined and forceful move towards complete European monetary union should be reaffirmed in order to restore faith,” she said. “At the moment, the viability of the European monetary system is questioned.”
Citigroup economist declares Grexit all but inevitable
And after Greece, Italy and Sp;ain would be the next to go.
From A. Papapostolou of Greek Reporter:
Citigroup chief economist Willem Buiter has fired off another shot today in the intellectual battle over Greece. In an op-ed piece in the Financial Times the expert claims that despite the recent formation of a new coalition government “we consider it highly unlikely that Greece will comply sufficiently with even ‘lite’ fiscal austerity conditionality, let alone with structural reform conditionality, including privatization targets, which are unlikely to be relaxed.” He also notes that political opposition to austerity measures and reforms is ‘stronger (?) than ever before’.
In his opinion, the ‘troika’ (European Commission, European Central Bank and International Monetary Fund) might allow a Greek failure in September’s program evaluation, but it is unlikely they will tolerate it yet again in December. “Grexit (term for Greece’s exit from the euro) may well be triggered by a troika review declaring Greece willfully non-compliant with the conditionality of its programme, stopping the disbursements to the Greek sovereign,” Buiter writes.
Thus, the Citigroup economist remains convinced that the country will default and the Eurozone emergency financing will be suspended. “At that point Greece exits the euro area, following the imposition of capital controls, foreign exchange controls, restrictions on deposit withdrawals and a temporary suspension of the Schengen agreement,” he says.
Under that scenario, Buiter believes that it is “highly unlikely the core Eurozone would be willing to take on significant exposures to Spain and Italy.” Fear of contagion would effectively put the breaks on any aid to these last two countries. It is for this reason that Buiter argues for a banking union that could limit the risk of a run on banks.
Greek coalition lays out memorandum edits
When the Greek parliamentary campaign began, New Democracy and PAOK were swearing absolute fealty to that noxious memorandum demanded by the Troika as a condition of a bailout that wasn’t.
Almost none of the money furnished by the Troika went to Greece; rather the cash went right back to the north to pay off previous loans.
Syriza’s aggressive stance on the memorandum [itself subsequently tempered], forced the coalition parties to alter their stance.
Now they’ve come out with their own proposals.
Greece’s new conservative-led coalition government said Thursday in its first pronouncement that it planned to revise the country’s EU-IMF loan bailout while safeguarding its place in the eurozone, according to Agence France-Presse.
A joint statement by the conservative, socialist and moderate leftist parties said the government aimed “to revise terms of the loan agreement without endangering the country’s European course and its place in the euro” during its four-year term.
The coalition is headed by the New Democracy party and backed by the Pasok socialists and the small Democratic Left party. It can count on 179 deputies in the 300-seat parliament.
The new team also pledged to honour Greece’s targets on deficit reduction, debt control and structural reforms.
ANSAmed has the details:
After three days of intense negotiations, the three parties that form the new Greek coalition government – New Democracy (centre-right), Pasok (socialist) and Dimar (Democratic Left, moderate) – have reached agreement on 14 points. The deal, the economic newspaper Kerdos writes today, has been summarised in an 8-page document that will be released today or tomorrow. These, according to the newspaper, are the 14 points:
- Stop all layoffs in the public sector;
- Block all wage and pension cuts;
- Recapitalise the Agriculture Bank, which will be used as development instrument;
- Lower VAT on food products;
- Regulate loans (each installment has a maximum of 30% of a person’s income);
- Reinstate dismissal pay; 7- Return to collective wage deals as of September 2012;
- Keep corporate tax at current levels;
- The so-called “Ragusis law” stays in force as it is. This law grants children of immigrants born in Greece the Greek nationality;
- Increase citizen security;
- Reduce party funding by 20%;
- Abolish pensions for new MPs and define a ceiling for the pensions of sitting MPs.
- Impound properties of politicians who cannot explain where their income has come from;
- Retroactive inspection of properties of all politicians including party leaders.
“The necessary programme consensus has been reached on many important point,” said Prime Minister Antonis Samaras in his report to the Council of Ministers.
A famous Greek asset goes on the block
The Troika has demanded Greece conduct a ruthless program of privatization as one of the conditions of the memorandum, and now a premiere resort that’s partly owned by the nation is going on the block.
And the major reason for the sale is to test whether the country can profitably sell off still more of its patrimony.
National Bank of Greece SA is preparing to sell an Athenian Riviera resort, visited by world leaders and movie stars for more than half a century, in a test of the country’s ability to sell assets amid concern that it will leave the euro, according to Bloomberg.
The 3.3 million-square-foot (307,000 square-meter) Astir Palace complex has already drawn investors’ interest, according to Aristotelis Karytinos, general manager of real estate at the lender. The Athens-based bank and Greece’s privatization fund, which owns part of the property, will put out a public tender in coming months, he said.
Greece attracted 16.4 million international tourists last year as industry revenue reached 10.5 billion euros, up 9.3 percent from a year earlier, according to a report by the Association of Greek Tourism Enterprises, also known as SETE.
National Bank of Greece in December paid 43 million euros for a 40-year lease of the tourist port that connects the resort by sea to make the asset more attractive. It spent 70 million euros refurbishing the hotels before the 2004 Olympics, according to the bank’s annual reports.
Samaras cuts cabinet salaries
Call it an exercise in the politics of symbolism, a clever move to be sure, but a placebo measure more than a real reform, designed to seel the message to the Greek people that they too will have to live with reduced salaries and pensions.
From Keep Talking Greece:
New Greek Prime Minister Antonis Samaras certainly surprised the ministers at the very first cabinet meeting of his coalition government. He announced a 30% cut in their salaries and advised them to reduce the use of vehicles to a necessary minimum. Further, he suggested they should refrain from unnecessary presence in television channels and from showing opinion difference among the cabinet ministers. “Certainly not every day on the TV screen if there is no reason,” Samaras said .
He stressed that he wants reinstall the trust between the citizens and the politicians. “We have to make the difference from the beginning,” Samaras stressed.
A hero of the resistance takes aim at Germany
One of Greece’s most famous World War II heroes who’ll be sitting in Parliament as the Syriza’s leading vote-getter in Sunday’s elections has a word for Angela Merkel: You owe us.
Manolis Glezos, an 89-year-old leftist politicians famed for climbing up to the Acropolis in May 1941 and tearing down the Nazi occupiers’ swastika flag, says Germany still owes Greece more in wartime reparations than the entire cost of the bailout.
“We don’t owe the Germans money, they owe us,” he told Reuters in an interview in his central Athens office, sitting in front of a line of campaign posters for his radical Syriza bloc, which placed second in last Sunday’s Greek parliament election.
“The total they owe us is 162 billion euros without interest. If you add 3 percent interest, it’s more than a trillion euros. But we can accept a haircut on the interest.”
Glezos says Germany failed to pay compensation to Athens for the Nazi occupation and looting of mainland Greece from 1941-44, or to repay a forced loan extracted by the Third Reich.
Germany denies it still has outstanding debts for war-era reparations.
Athenians flock port drug stores
The reason: Athens pharmacies refuse to honor the country’s health care system’s drugs plans, while druggists in the port city of Piraeus have reversed an earlier decision to follow suit.
From Keep Talking Greece:
Hundreds of distressed Athenians rush to stand line outside the pharmacies of the port city of Piraeus in order to get prescription medicine without having to pay it in advance from their own pockets. Reason for this incredible “population movement” is that the Athens Pharmacists Association continues to boycott the country’s unified insurance fund EOPPY and do not give insured patients prescription medicine on credit, while the Piraeus Association does not.
Athens Pharmacists demand that EOPPY pays them out all the outstanding debts even though the state started to pay them in installments.
During a heated debate on Thursday, with the chairman of APA threatening to resign, pharmacists in Athens decided to continue their boycott until June 30, 2012 with 491:478 votes.
Piraeus and Thessaloniki Pharmacists Associations cancelled their boycott a week ago. However pharmacists in Thessaloniki threaten to start their mobilization again if the state would not pays them April debts until June 25th.
Spanish prime minister begs for eurocash
With two of Spain’s leading banks short of funds, it’s time for the folks up north to chip in some cash, he says.
Say €60 billion+ for starters.
From Agence France-Presse:
Spanish Prime Minister Mariano Rajoy welcomed Thursday results of two audits of its stricken banks, but said European funds were needed “as soon as possible” to help in their recapitalization.
Rajoy was speaking in Sao Paulo after Spain released the results of audits finding that the country’s crisis-torn banks need up to 62 billion euros ($78 billion) to survive a severe financial slump, well within the scope of a vast eurozone rescue loan.
The results “reduce the capital needs to manageable margins and ensure that the financial assistance being made available to Spain by our European partners is more than enough,” Rajoy said.
He repeated his “wish” that the assistance be “adopted as soon as possible.”
And whilst you’re at it, buy our bonds, too
It’s not just Spain; Italy needs some bondage help, too.
From Bernd Riegert of Deutsche Welle:
Secretary General of the Spanish Banking Association, Pedro Pablo Villasante admitted that his country soon might not be able to bear the mounting costs of selling new government bonds. The statement came just before the eurozone’s for most important countries are to meet for a mini summit in Rome on Friday.
Spanish Prime Minister Mariano Rajoy does not only need some 100 billion euros ($126 billion) to help his country’s ailing banks but he also urgently needs buyers for Spanish government bonds.
Madrid has to pay record interest for the bonds, and it’s a problem shared by Italy. Italian Prime Minister Mario Monti also has to pay record interest for his country’s bonds. Monti suggested the European partners to buy up his country’s bonds in a scheme similar to when the European Central Bank (ECB) bought up Italian and Spanish bonds on a large scale.
But the ECB is hesitating before buying the debt out of fear of its own balance sheets. ECB executive board member Benoit Coeure suggested the eurozone rescue funds should step in to buy up the Spanish and Italian bonds, arguing that the EFSF had all the means necessary to relieve market pressure. Monti so far is against that idea. According to the Italian daily Corriere della Sera he is worried about a full fledged bailout by the EFSF as it might cost him his job as prime minister.
Debt — the monster lurking behind all the financial crises sweeping the globe — ain’t no solution to problems caused by debt.
Piling on more debt to pay off the interest on earlier debt is the very definition of bond-age, and a profoundly anti-human, anti-life exercise in collective suicide.
Money ministers to Spain: Get your ask together, quick
Once you do, we’ll send the loan sharks your way, and then come the derivatives, and then. . .then comes the inevitable total makeover, the next round of austerity, obligation, and misery. . .the next round of looting of an ancient national legacy.
Eurozone ministers are pressing Spain to formalise its bank aid request at the latest by Monday, and promise to send international creditors to Greece to hold talks with the newly formed government.
Eurozone finance ministers met yesterday (21 June) in Luxembourg to discuss how to channel up to €100 billion in aid to Spanish lenders weighed down by bad debts from a burst property bubble. Madrid’s economy minister said a formal request would be made in days for the bailout, which was agreed two weeks ago.
Many in the markets see the package as a mere prelude to a full programme for the Spanish state, which Madrid vehemently denies it will need.
Spain’s financial plight took centre stage a week before a European Union summit on 28-29 June tackles long-term plans for closer fiscal and banking union in a bid to strengthen the euro’s foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2-1/2-year old debt crisis.
Finland demands a piece of the banks
They’ll lend some cash, but only if they get a cut of the business in return.
From Agence France-Presse:
Finland’s Finance Minister said Thursday her country wants shares in Spanish banks in exchange for participation in their bailout, and balked at the idea of loosening bailout restrictions for Greece.
“Finland would want shares of viable Spanish banks in exchange for support for those banks,” Jutta Urpilainen told Finnish news agency STT, adding that “weak banks should be shut down.”
Urpilainen, who had previously said Finland might demand guarantees before taking part in a rescue operation of Spanish banks, stressed that the Finnish line was not completely set since Spain had yet to officially request aid.
“We haven’t discussed the terms yet. The order of business is that we first need an official request for help and then we will start preparing the programme,” she said.
Monti states the grimly obvious
The Italian Prime Minister’s the consummate technocrat, an economics prof who became a university president, then a member of the European Commission, and, finally, an unelected Troika-imposed prime minister who also holds the finance minister’s portfolio.
His mandate: Impose austerity.
He got an impossible job, and he’s admitted he’s incapable of carrying out his assignment.
But his warning of the consequences of failure to adhere to the rules of debt game pretty much define what we’ve seen happening whenever the austerians bring out their whips and chains.
From Nikolaj Nielsen of EUobserver:
Italy’s technocratic leader Mario Monti is warning of dramatic consequences should leaders at next week’s EU summit fail to find concrete solutions to save the euro and prevent contagion.
He told reporters in Rome on Thursday (21 June) that the doomsday scenario at the EU summit would invariably lead to higher borrowing costs on all EU countries.
“There would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries,” he said.
An EU summit stalemate would risk turning Italians even more against the EU, he noted, with his government pushing through unpopular labour reforms, tax hikes and pension cuts.
Monti is also calling for a fuller banking union, a European deposit guarantee, and “new market-friendly policy mechanisms” to help struggling countries.
The mechanism would apply to countries who “respect the rules on public finance and structural reforms”. Monti did not disclose the full details of his plan but said he favours the purchase of bonds of countries under attack, reports the Guardian.
German companies, fearing the future
Another story that should come as no surprise to anyone following the news these days.
The notion that Germany could escape the latest wave of collapse was ludicrous.
German companies are becoming more worried about the eurozone debt crisis, Ifo economist Klaus Wohlrabe said on Friday after data showed business sentiment declined in June for a second month running to its lowest level in over two years.
“The euro crisis is really hitting home,” he told Reuters. “It’s right on the front doorstep.”
He said the data showed companies were adopting a wait-and-see attitude and were holding back on investments.
“Until now Germany was really doing quite well, if you ignore the small dip in the winter,” Mr Wohlrabe said.
Germany’s economy contracted by 0.2 percent in the fourth quarter of 2011 before growing by 0.5 percent in the first quarter of 2012.
But Mr Wohlrabe said the situation in Germany was changing for the worse and added that the economy’s growth dynamic would weaken further.
But one German sector’s booming
Just as investors are parking their cash in the safe haven of zero-interest German bonds, they’re parking some more in German real estate — and for the same reason.
While the rush to buy German bonds has led to zero interest, the hunger for German property has sent prices up.
From Renuka Rayasam of Spiegel:
[E]ven as housing market recovery in the United States, Spain and other struggling countries muddles along, Germany’s real estate market has taken off. After years of stagnating, German prices for both residential and commercial real estate began rising again in 2009. Buoyed by trouble in other euro crisis countries, German property has become a safe haven for both German and international investors looking for a secure place to store their money.
Indeed, German real estate prices rose 3.5 percent between September 2010 and the same month the following year, according to the Organization for Economic Cooperation and Development (OECD). Meanwhile, the average price for homes rose 5.5 percent in 2011, according to the Bundesbank, Germany’s central bank. And major German cities such as Berlin, Hamburg and Munich have seen between 10 and 13 percent increases in prices for existing and new apartments, offsetting flat and declining prices in rural parts of the country.
Though these price increases sound impressive, they hardly indicate a dreaded housing bubble. By comparison, during the first quarter of 2005, as prices approached their peak ahead of the US housing crisis, they rose 12.5 percent over the previous year, with costs for homes in places like California, Nevada and Florida going up some 20 percent a year. Still, the price increases in Germany have the Bundesbank worried enough that it said recently it was monitoring the situation to keep it from getting out of hand.
But the real estate situation in Germany “is not comparable with the US and Spain,” says Steffen Sebastian, chair of real estate finance at the University of Regensburg, in the southern German state of Bavaria. Today’s real estate price increases are also nothing like Germany’s real estate bubble in the mid-1990′s, when Helmut Kohl’s government provided tax breaks to support post-reunification investment in the former East German property market. Those tax benefits have since been halved.
To close, a journalist on Merkelmania
Gareth Haqrding spent 15 years reporting in the European Union, and now heads the Missouri School of Journalism’s Brussels programme.
He writes at EUobserver:
Aside from widening Europe’s democratic deficit, there are two grave risks with moving towards economic and political union. The first is that governments and electorates will be unwilling to accept the loss of sovereignty this entails. Will, for example, governments slash health and education spending in order to comply with debt diktats from Brussels – even if that runs counter to the wishes of voters? Will taxpayers in richer states willingly part with large chunks of their hard-earned money to subsidise poorer parts of the union they have little in common with? And will prime ministers agree to send their sons and daughters to fight for the EU if they are opposed to a war sanctioned in the Union’s name by the majority?
There is already plenty of evidence from the current financial crisis to suggest that governments are loath to comply with painful policies they have signed up to. Almost the first act of Spanish premier Mariano Rajoy was to tell the Commission he had no intention of meeting the debt cuts agreed in Brussels. And when Economics Commissioner Olli Rehn asked the Belgian government in January to slash €1.2-2 billion in spending or face the prospect of hefty fines, the response of Socialist minister Paul Magnette was “Who knows Olli Rehn? Who knows this man’s face?”
The second great risk with political union is that it will tear apart the EU. As countries like Britain, Denmark, Sweden and half a dozen central European countries will remain outside the federal eurozone through choice or necessity, the European Union will cease to be a union in anything but name. Some may rejoice at the prospect of ridding the EU of its most skeptical members. But a smaller European grouping without Britain and others will inevitably be a weaker actor globally and poorer economically.
At the end of the recent G20 summit in Mexico U.S. President Barack Obama confidently predicted: “Europe is moving towards further integration rather than break-up.” In fact, it is precisely further integration on the scale envisioned by Merkel and co. that will lead to the break-up of the union.
From the Austro-Hungarian empire to the Soviet Union, history is littered with examples of artificial political constructs that have come unglued because of overstretch. The dilemma for the EU is that without more integration the euro will fail and with it the 27-member club risks splintering.
The obvious solution would be to admit the euro was an ill-conceived project that has no popular legitimacy, has created division not unity and brought penury not prosperity to many. A looser club of sovereign nations – as the EU has been for most of its history – would disappoint the dwindling band of EU federalists but at least preserve some of the big benefits the Union has brought over the last 65 years.