As we write, the Panhellenic Socialist [sic] Party [PASOK] is making its final stab at forming a government. Given that it placed third in Sunday’s election, analysts say its chances are poor.
You can follow the day’s developments at the Athens News liveblog here.
We open with the latest apocalyptic rating agency warning, then explore PASOK’s frantic efforts, catch the latest dismal news from Span [more bank woes], pick up on the growing unpopularity of Germany’s Iron Chancellor, and look at yesterday’s massive one-day public sector strike in Old Blighty.
Fitch warns: If Greece goes, eurozone downgraded
The American-based rating agencies have emerged as real power players in the European crisis, with their judgements deeply impacting the rate nations pay for debt.
Now Fitch has dropped a bombshell.
From Athens News:
Fitch ratings agency said on Friday that if Greece left the euro zone as a result of its political crisis or its economy failing to stabilise, it would impact the sovereign ratings of euro zone countries across the board.
It said it likely would put all euro area ratings on negative watch if Greece were to leave and that those countries currently on negative outlook would be at the most immediate risk of a downgrade. It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium.
Venezelos meets with conservative leader
Between them, PASOK and New Democracy come within two votes of a parliamentary majority, and so the leader of the once dominant PASOK huddled with the leader of New Democracy, the party which came in first in Sunday’s vote.
New Democracy itself failed to form a government earlier this week.
From the Associated Press:
Former finance minister and socialist party head Evangelos Venizelos met Friday with election winner Antonis Samaras, the leader of Greece’s conservative party, in a last ditch effort to form a coalition government in the crisis-struck country.
Both leaders know that failure to agree a deal could see Greece hold fresh elections next month that could put the country’s membership of the euro at risk.
Samaras, whose New Democracy party suffered a big loss in support in Sunday’s elections and failed to win enough seats in parliament to form a government, said there was still a chance for a deal.
“We are fighting for a government to exist — and there is still hope this can happen,” he told his deputies in a speech after his meeting with the former finance minister.
Venizelos’ PASOK party was hammered by furious voters, who blame it for its handling of the financial crisis. Its third place was its worst electoral showing in nearly 40 years, giving it
Courting the swing votes
Since the other parties who won seats have rejected the austerity measures imposed by the Troika’s bailout lords, the only way Venizelos can form a government is to entice one of them to soften its stance.
His homes seem to ride on reaching a compromise with a moderate Left party, but it looks like that’s not in the cards.
Venizelos’s hope of reaching a last-ditch deal have rested with the Democratic Left party, a small moderate splinter group.
But its leader, Fotis Kouvelis, insisted on Friday he would not join a coalition with the pro-bailout parties unless anti-bailout parties were also included and the new government pulled out of the loan deal.
“Our proposal for an ecumenical government seeks to ensure the participation of all those forces that can serve two aims: the gradual disengagement from the loan agreement and staying in the euro zone”, Kouvelis told Skai TV.
One socialist party official said on Thursday there was a “very slim” chance for a coalition if Kouvelis agreed, “but his party is split right down the middle.”
New Democracy is willing
The Greek version of the Republican Party says they’ll play ball.
New Democracy leader Antonis Samaras on Friday said his party would be willing to participate in a national unity government aimed at keeping debt-wracked Greece in the eurozone and revising the bailout agreements with its foreign lenders.
“We are struggling to form a government. There is still hope,” he said.
Addressing his conservative MPs, Samaras launched an all out attack on SYRIZA Coalition of the Radical Left, warning that the party’s “irresponsible and populist” tactics are jeopardizing Greece’s membership of the euro area.
“Party with power but without responsibility does not exist anywhere in the world,” Samaras said of SYRIZA, accusing the leftist party of having no plan to deal with the crisis.
“They have no idea how the banking system works,” he said of the leftist party which won second place in Greece’s parliamentary elections on Sunday.
And then there’s Syriza
The Left coalition placed second in Sunday’s vote, but according to post-election polls, it would capture the lead in the election that’s inevitable should Venizelos fail in today’s efforts.
So Venizelos is talking to Alexis Tsipras, Syriza’s leader. But what does he he have to gain by going along?
From Niki Kitsantonis of the New York Times:
With pressure growing on Greece to honor its commitments to foreign creditors and decide whether it intends to remain in the euro zone, Greek political leaders on Friday appeared unable to break a deadlock left by inconclusive general elections last Sunday, suggesting that a second round of polls may be inevitable
The country’s fate appeared to depend on the stance of Alexis Tsipras, the leader of the radical leftist party Syriza that made huge gains in Sunday’s elections on an anti-austerity platform and which a new opinion poll shows to be Greece’s most popular party.
Mr. Tsipras was to meet on Friday evening with the Socialist party chief Evangelos Venizelos, the third political leader this week to receive a presidential mandate to try and form a government. Mr. Venizelos, the former finance minister who negotiated Greece’s $170 billion loan deal with foreign creditors, was expected to press Mr. Tsipras for a compromise to avert new elections that could fuel further instability.
A day after indicating that there was hope for a unity government to be formed following talks with the leader of the smaller, moderate Democratic Left party, Mr. Venizelos was tight-lipped. He made no statements following talks with the leader of the conservative party, Antonis Samaras, who co-signed the loan deal in February.
Meanwhile, Venizelos stages a purge
Given his party’s dismal finish Friday, Venizelos has decided on a PASOK purge, apparently hoping a rearrangement of the window display will entice mroe voters to but.
PASOK chief Evangelos Venizelos asked the party’s political council members to tender their resignations on Friday afternoon.
The move came after the May 6 general elections pushed the Socialist party into third place with 13.23 percent of the vote, or 41 seats. It was the party’s worst showing at the polls since it was founded in 1974.
Venizelos is expected to ask members of all of PASOK’s regional councils to step down as well, while according to reports, he has set up a steering committee to oversee the party’s overhaul.
Gold Dawn threatens a mayor
The neo-Nazi Golden Dawn captured nearly eight percent of the votes Sunday, though post-election polls show dwindling support.
But that hasn’t stopped the party from adopting an increasingly bellicose stance, as one elected official can testify.
From Athens News:
The mayor of Nemea Vangelis Andrianakos on Thursday reported that he had received threats from the Golden Dawn – Chrysi Avgi MP for Corinth Efstathios Boukouris. The mayor said that Boukouris called him on the telephone shortly after midnight on Sunday, when the result of the general elections became known, and said he would become his “shadow” in Nemea “and make you start in your sleep”. In an informal meeting of the municipal council convened so that the mayor might inform councillors of the threats, Boukouris also sent him a message via an opposition municipal councillor, the mayor said in a written complaint to police and a public prosecutor in Corinth.
Boukouris has denied the accusation, saying that Andrianakos was making the claim in order to damage his reputation and that of the Chrysi Avgi party.
European Commission sees no Greek upturn
Gee, ya think?
From A. Papapostolou of Greek Reporter:
Greece’s economy remains mired in a deep recession with no signs of an upturn in sight, the European Commission said Friday, as waves of austerity measures and collapsing consumer and business confidence weigh on output.
According to the spring forecasts from the Commission, gross domestic product will shrink by 4.7% this year and will be flat in 2013, it said, reaffirming the most recent outlook from Greece’s troika of international lenders–which includes the Commission, along with the International Monetary Fund and the European Central Bank.
“In 2012 a further contraction is expected, resulting from both a significant fall in internal demand and less dynamism in exports than expected. Households’ disposable income being hit by rising unemployment, cuts in private sector wages and the fiscal measures will keep domestic demand contracting,” the Commission report said.
“Also, unfavourable business and consumer sentiment and difficulties in access to credit for firms and households will contribute to their postponing spending decisions,” it added. “The recovery, which was previously expected for this year, will be further delayed with, at best, an insignificant improvement in activity in 2013.”
In another Greek Reporter story, Papapostolou paints a dismal picture of the Greek housing market:
Prices of residential apartments in Greece slumped by almost a tenth in the first quarter of 2012 and the volume of property transactions halved, the central bank said, illustrating the depth of an economic recession now in its fifth year.
Higher property taxes to help plug the country’s budget gap coupled with tight credit conditions and rising unemployment have put pressure on the real estate market as the country struggles to emerge from its debt crisis.
Signs that the pressure is growing were reflected in Thursday’s Bank of Greece data, which showed the annual pace of price falls accelerated to 9.3% in the three months to March from a quarterly average of 5.3% last year.
The volume of residential property transactions and appraisals based on square metres fell 52.1% year-on-year after a decline of 40.7% in 2011.
Property accounts for a quarter of total investment in Greece and 82% of household wealth.
The country has one of the highest home ownership rates in western Europe – 80.1% versus 70.4% in the European Union as a whole – according to European Mortgage Federation data.
Tourism, Greece’s main industry, collapses
Here’s a development that’s hardly surprising.
From Areti Kotseli of Greek Reporter:
Greek tourism seems to be paying the price for the unending political turmoil in Greece. Recent developments urged agents to ring the alarm bell for the future of tourism, the most lucrative business sector of the country.
The president of the Association of Greek Tourism Enterprises (SETE), Andreas Andreadis, noted that tourist reservations from foreign countries have dropped by 50% during the previous two days while he was speaking to journalists during the presentation of a new cruise ship in Marina Zeas.
That sets a big obstacle, as the already negative press coverage of Greece in Germany, England, France and other EU countries becomes even harder to reverse.
Another election warning — from a bank
Alpha Bank, Greece’s second largest and owned by the same family since its founding in 1879, has a big financial stake in the outcome of the elections.
Any discussion for the formation of a government to discharge the Memorandum and the country’s obligations arising from loan agreements leads to a forced exit of Greece from the Eurozone on its own initiative, according to the Weekly Economic Bulletin by Alpha Bank.
This will happen due to the cancellation of significant financial assistance provided to the country and will lead the Greek banking system to exit the European System of Central Banks and to a monetary (inflationary) financing of Greece’s increasing budget deficits. In particular, if Greece resorts to this action and cancels the Memorandum and the second loan agreement, and most importantly, if we leave the programme of fiscal adjustment and reform, then we lose the important aid given to the country, which, as noted, is the highest financial aid ever been offered to a country in world history.
In this case, the country will be forced to “disorderly bankruptcy” and the Greek people will bear the entire cost of dissolution of the basic institutions of the economy and the cost of exit from a crisis that will be prolonged even more, acquiring much more dimensions.
So let ‘em leave, says Germany’s finance minister
Okay, so we’re paraphrasing, but that’s the clear message.
The euro area could handle Greece’s exit from the currency union because the risk of contagion has waned, German Finance Minister Wolfgang Schaeuble was quoted as saying in comments to the Rheinische Post newspaper.
“We have learned a lot in the last two years and built in protective mechanisms,” the Dusseldorf-based newspaper quoted Schaeuble as saying in an interview published Friday, when asked whether the euro area is girded for a Greek exit. “The risks of contagion for other countries of the eurozone have been reduced and the euro zone as a whole has become more resistant. The notion that we wouldn’t be able to react in a short time to something unforeseen is wrong.”
“We want Greece to stay in the euro zone,” Schaeuble said. “But it has to want this and has to accept its commitments. We can’t force anyone. Europe won’t go under that quickly.”
The Merk’s feeling un-kozy these days
And not just because she lost her BFF Sarko.
The German chancellor’s facing some political troubles back home. Seems she’s getting unpopular.
In Berlin, he is known as Angela Merkel’s smartest minister. But Norbert Röttgen has led a lacklustre campaign ahead of key elections this Sunday (13 May) in North Rhine-Westphalia, where opinion polls predict a historical defeat for the Christian Democrats in Germany’s most populous state.
In Berlin, German environment minister Röttgen is known as “Merkel’s darling”.
But his fortunes could change dramatically this weekend as opinion polls predict the worst ever result for Angela Merkel’s Christian Democratic Union (CDU) in North Rhine-Westphalia, where Röttgen is attempting to dislodge Social-Democrat Hannelore Kraft as Prime Minister.
The German press is widely predicting Röttgen’s defeat. Financial Times Deutschland pronounced the “Crash of a High-Flyer”, while Süddeutsche Zeitung dubbed him “The nail in Merkel’s coffin”.
To make matters worse, Röttgen linked the regional poll to a vote of confidence on Merkel’s European austerity policy in pre-election statements.
Banks already preparing to trade drachmas
This one’s probably the best indicator yet of what lies ahead.
From the prolific A. Papapostolou of Greek Reporter:
Banks are quietly readying themselves to start trading a new Greek currency. Some banks never erased the drachma from their systems after Greece adopted the euro more than a decade ago and would be ready at the flick of a switch if its debt problems forced it to bring back national banknotes and coins.
From the end of the Soviet Union – which spawned currencies such as the Estonian Kroon and the Kazakh Tenge – to the introduction of the euro, they have had plenty of practice in preparing their systems to cope with change.
Planning behind the scenes has been underway since Europe?s debt crisis erupted in Greece in 2009, said U.S.-based Hartmut Grossman of ICS Risk Advisors who works with Wall Street banks, Reuters reported.
“A lot of the firms, particularly in Europe and also here, have been looking at that for a long time,” said Grossman, who added that the latest Greek political crisis had brought matters “to a little bit of a head”.
Dutch Treat: A European sayonara?
Another bank assessment, and one from a institution whose head also sits on the European Central Bank’s governing council.
Again, we’d have to largely agree with the prognostication.
Europe is at risk of a Japanese-style “Lost Decade” of low economic growth, weak consumer spending, poor company investment and tougher borrowing conditions, the Dutch central bank said on Thursday.
It said in a report there were some similarities between Europe’s current situation and Japan in the 1990s, when the latter suffered from a troubled financial sector and reduced private sector spending.
“Now that the risk emerges that Europe also faces a ‘Lost Decade’ of low economic growth, the Japanese experience offers important insights,” the central bank said in its semi-annual risk report on the Dutch financial sector.
Japan’s situation showed the need for the central bank to aggressively fight deflation, and let banks take credit losses quickly, the bank said, adding that fiscal stimulation did not offer a way out of low economic growth.
The bank, which is led by Klaas Knot, who is also a European Central Bank governing council member, said the risk of a double dip recession had become reality in Europe.
What bothers us about all these assessments is the meaning of that word “growth.”
For economists and banksters, the word means an expansion in revenue-generating activity, which in turns means measuring growth in terms of currencies created as interest-bearing debt.
But that’s certainly a very small portion of what growth really is, and leaves out such things as increases in community ties, the creation of alternative institutions less reliant on the generation of death [ranging from community gardens, tool-sharing programs, mentoring programs, new skill learning, enhancement of learning, and so many other activities that lead to enriched communities and individuals.
Maybe it’s not entirely a bad thing that the rich nations of the global North learn to get by through reducing human exploitation of the resources [a word we hate, because it implies exploitation and privatization of the environment].
Just a thought.
Now for a word from the optimists
Look, I see recovery ahead, says the European Commission’s money man.
From the BBC:
The eurozone economy is forecast to shrink this year as its debt crisis continues to bite.
The European Commission’s spring forecast confirmed its prediction of a 0.3% contraction in 2012 in the economies of the 17 countries that use the euro.
It predicted growth of 1.0% for the eurozone in 2013.
European Commissioner for Economic and Monetary Affairs Olli Rehn said “a recovery is in sight” for the eurozone.
But he added: “The economic situation remains fragile, with still large disparities across member states.”
For all 27 countries in the EU, the Commission is predicting zero growth for 2012, with 1.3% growth next year.
The grain of salt we take on reading these words has a particular flavor.
When listening to government policy-making types, it’s always important to bear in mind that their pronouncements have a policy agenda.
It’s Rehn’s jobs to make things as right as possible when it comes to the money game, so his principal interest is in building confidence. One could argue that he’s sees things as much bleaker than his words allow. But if he said so, people might spend less and investors would sit on their cash.
Inflation creeps upward in Spain
What’s interesting in this story is the source of inflation.
Turns out the largest share of the increase comes from on single austerity measure.
Spain’s annual inflation stood at 2 percent in April, up from 1.8 percent in the previous month, the National Institute of Statistics (INE) said here on Friday.
The figure is 0.1 percentage point higher than previously predicted, but still one percentage point lower than that of September last year.
Month on month, consumer prices rose by 1.4 percent in April from the previous month, after rising 0.7 percent in March.
INE attributed the rise mainly to a 7-percent increase in electricity costs imposed by the government which came into effect on April 1st.
And Spain puts the squeeze on banks
From the BBC:
The Spanish government is to force its banks to take on an extra 30bn euros ($39bn; £24bn) of capital to cushion themselves against loans going bad.
The banks will have to raise the money or borrow from the government at an annual interest rate of about 10%.
The government said it was determined to take the necessary measures to restore credibility and trust to the financial system.
Earlier in the week, the Spanish government took a 45% stake in Bankia.
Bankia had a 4.47bn-euro loan by the Spanish bailout fund converted into shares.
The Spanish government has already forced banks to make provisions of 54bn euros to cover bad loans.
If banks have to go to the government to borrow money, the loans will be structured so that they could ultimately be converted into partial state ownership.
The government is now appointing independent auditors to value the banks’ property assets.
A housing boom and bust has left many small lenders holding mortgage debt that may not be repaid.
Let’s see if we’ve got this right.
Spain’s banks fueled a huge construction boom, and they’ve run into trouble because construction and a lot else has collapsed.
Banks have been going bust, even Bankia, which was formed for the merger of seven other failing banks.
So the Spanish government’s just decided to make banks boost their cash reserves.
But boosting cash reserves means there’s less money to lend, in turn meaning less economic activity, prolonging the slump.
And the banks have to pay ten percent to borrow the needed cash, costs they’ll pass on to their customers.
Yep, that’s sure to work.
Germany’s got a plan that will fix it all
It’s not spending more; it’s about spending the same amount better.
Yep, the European economy must have order, dammit!
From Deutsche Welle:
Foreign Minister Guido Westerwelle has called for a new approach to spending that boosts growth without increasing debt. He also warned that Greece can expect help from the EU, but only if it sticks to its commitments.
In a speech to Germany’s lower house of parliament, the Bundestag, Westerwelle on Friday unveiled a six-point plan to boost European economic growth. It includes stricter controls on spending and putting around 80 billion euros in EU funds into increasing the bloc’s competitiveness. But the liberal FDP party politician said he rejected the idea of government stimulus to boost growth.
“One cannot buy growth by incurring new debt,” he said, adding that “the European Union cannot spend more than before, but it must use its means better than it has so far.”
The six-point plan from Westerwelle is meant to complement the EU fiscal pact, which requires governments to take steps to rein in public debt.
Germany’s opposition expressed skepticism, with the Social Democrats criticizing the lack of measures to tackle high youth unemployment and the Left party calling for tax increases for the wealthy.
Swedes sour on the eurozone
And we’re shocked! Shocked! [wink wink]
Sweden’s resisted adopting the euro, despite the overwhelming public support of the idea.
That is, until now.
Only one in ten Swedes would today support the adoption of the euro, according to a research study published by Gothenburg University.
The eurozone debt crisis is to blame for the negative Swedish view of the euro says Sören Holmberg, the professor who conducted the research.
Holmberg carried out the research in the autumn of 2011, but he expects the support for the euro in Sweden to be even lower at this time.
“I would suspect that there is an even weaker support for the euro now,” he told Sveriges Radio. “But now it’s at such a low that it’s difficult to see it getting even lower.”
A recent opinion poll showed 54% would vote against Sweden joining the eurozone. Only three years ago, the number of people who said they would vote “yes” in a referendum was higher than those voting against. Today, only 12% of Swedish voters want to replace the Swedish crown with the euro.
Cypriot proposal to tax the richer
It’s those damn commies! The ones who were elected to run the government.
Ruling Communist party AKEL has drafted a legislative proposal which aims to set a so-called “luxury tax,” a scaled tax on vehicles above 3000 cc. The aim – as Cyprus Mail reports – is to tax the rich to benefit the needy. Exempted are vehicles used for public transport, ambulances, self-propelled caravans, vehicles for the disabled, and those used to transport merchandise. It has also tabled a proposal for a special construction fee for houses and apartments over 300 square metres. The fee would be paid on applying for a building permit. For properties with an area between 301 and 400 square meters, the special fee per square meter over and above the 300 square meters would be 50 euros.
For properties between 401 and 500 square meters, the fee would be 100 euros per square meter over and above the 400 square meters. AKEL proposes that the measure, if passed, be implemented as of July 1. Both proposals are currently being processed by the House Finance Committee.
And a walkout in Britain
Hundreds of thousands of British public sector workers staged a walkout Thursday to protest the David Cameron government’s austerity measures over cuts in pay and pensions.
From Rob Williams of The Independent:
Prison officers [Thursday] staged a surprise walkout in England, Wales and Scotland in protest at proposed changes to their pay and conditions.
Some reports claimed that guards had walked out at 80 per cent of jails in England, causing inmates to be placed on lock down and leaving minimal cover.
The protest is the first by prison officers in five years.
Strike action by prison workers is specifically banned under section 127 of the Criminal Justice and Public Order Act 1994.
The prison staff join hundreds of thousands of public sector workers who are today taking part in a UK-wide strike in opposition to planned pension changes.
Up to 400,000 public sector staff members are holding a day of protest against pension changes and government austerity measures.
NHS workers, border control staff, civil servants and lecturers are all taking part in the 24-hr strike with tens of thousands of people expected to attend a central London rally.