What's the Greek debt crisis all about?

 

By Louise Armitstead 11:02AM GMT 23 Feb 2012

Even for the Greek finance minister, Evangelos Venizelos, this week’s €130bn bail-out agreement was “great, painful and complicated”. They are about the only three words everyone involved in the debt crisis agrees on. Despite the breakthrough, the odyssey of the Greek debt crisis is nowhere near a conclusion, so if you’ve lost sight of how it all started, here’s a refresher:

Athens has tough conditions to meet to secure the actual payments within the next few days, as well as over weeks and months. Photo: GETTY

Background

The first sign of trouble in Greece was when George Papandreou took over as prime minister in October 2009 and found that the government had been understating its public debts for years. Two months later Fitch downgraded Greece’s debt to BBB+, the lowest credit rating in Europe. Financial traders scrambled to work out the implications of a European Monetary Union that contained members with such different profiles as Greece and Germany.

But the reality was that the EMU was a very thin veneer over deep economic, political and cultural divisions.

Despite being poor, the Greek government has for decades sought to be generous to its people. Historians point to the war-torn decades, including a civil conflict after the Second World War that wiped out 10pc of the population followed by bloody clashes between Cyprus and Turkey in 1974: the Greek state has tried to soothe its people by creating a big welfare state and generous pay and pensions - including low retirement age and the famous 13th and 14th monthly salaries.

When it came to joining the euro in 2001, it should have been obvious that Greece did not meet the debt conditions. But, by spinning the numbers, Greece gained entry, not just to the single market but to debt markets that allowed it to borrow as though it was as dependable as Germany.

Greece went on a spending spree on infrastructure, services and public sector wages. Meanwhile, the Greeks stopped paying taxes. To Athens’ delight, banks and the financial markets filled the gap by lending billions of euros. With the onslaught of the credit crunch, Greece’s vast debts were exposed - but so was the exposure of European banks. If Greece went bust, untold damage could be unleashed across Europe and beyond: for a global economy still shattered from the 2008 banking crisis, the prospect of another one was intolerable.

 

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Who's holding the debt?

Banks in Germany and France have the biggest exposure to Greek debt. According to the Bank for International Settlements they hold $22.6bn (£14.4bn) and $15bn of Greece's government debt respectively. These numbers soar with estimated private sector exposure - to $34bn for Germany and $56.7bn for France.

Behind the debt are vast amounts of CDOs - complex financial instruments bought by investors from investment banks to insure the debt - adding another threat from default.

Outside the eurozone, exposure to Greek debt is relatively small. But, whatever Brussels says, Greece is not a unique case: Portugal, Ireland, Italy and Spain also have vast debt piles that are also held by global banks.

British banks hold just $3.4bn of Greek sovereign debt and a total of $14.6bn with private lending exposure. But it has far closer links with Ireland, the UK’s biggest trading partner. And with London at the centre of European financial services, Britain also stands in the firing line of any banking crisis.

Solving the problem

The solutions have actually made things worse - or more complicated at least.

Politicians have been driven by a determination to make Greece pay for its overspending. Mr Papandreou unveiled the first austerity package in January 2010. Meanwhile, eurozone leaders resolved that despite being called “bailouts” the help would be in the form of loans. Their other key strategy has been to persuade others to buy the debt - from banks, central banks and governments.

Or, as critics point out, they decided to solve the debt crisis with more debt - and a highly contagious situation with an even more complex web of exposure.

In May 2010, leaders unveiled a €110bn (£93bn) bailout with money from the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF). But the so-called troika set tough conditions in return: the money would be released in 10 tranches and only once Greece had met tough austerity targets of spending cuts, tax rises and structural reforms.

At the same time, the European Financial Stability Facility (EFSF) was created to “provide financial assistance” to struggling eurozone countries. The fund was authorized to borrow up to €440bn, €250bn of which was immediately allocated to Ireland and Portugal as part of their bailouts.

The EFSF was to be backed by a €60bn European Stability Mechanism (ESM) - a permanent support vehicle for eurozone countries to borrow from, backed by the European Commission using the EU’s budget as collateral.

The bailout funds and mechanisms have sucked countries both inside and outside the eurozone into the debt crisis, not least through the EU, ECB and IMF support.

Not enough

Within months it was clear the first Greek bailout fund was too small and Greece was missing its spending targets. Its total public debts were expected to hit 160pc of gross domestic product by the end of the 2011. Worse, starting with Germany and France, there was political backlash against any further exposure to profligate Club Med countries.

Meanwhile, the nail-biting roller coaster rides between tranche payments to Greece was becoming intolerable for financial markets and an embarrassment for Brussels.

In July leaders agreed another €109bn bailout, this time with an agreement that private bondholders would take a €50bn hit by accepting losses on their bonds without triggering CDS. They also said they would leverage the EFSF into a “big bazooka” bailout fund with €1 trillion firepower.

Political stand off

The deal was accompanied by more austerity demands on Greece that were duly passed in October. But the violence and opposition in Athens led to Mr Papandreou calling a referendum on the package without consulting the troika. Germany retorted by saying Greece would be cut off if the austerity measures were not agreed.

The political hand grenade was defused by a change of leadership in Greece. But the previously unmentionable option of a Greek exit and eurozone break-up had been let out of the bag.

Situation now

The €130bn bailout will allow Greece to pay a €14.5bn bond due on March 20 and so avoid immediate default. This time round, private bondholders, banks and the ECB have all shared some costs in a bid to reduce Greece’s debt load. Even so, Athens has tough conditions to meet to secure the actual payments - including asset sales and deep spending cuts - within the next few days as well as over the coming weeks and months.

And to make it harder, Greece’s economy has collapsed. A document leaked on Tuesday shows that even the troika reckons the targets won’t be met and Greece will need yet another bailout.

The document said: “Even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole.”

It reckoned that the bailout may help reduce Greece’s debt to 160pc of GDP - not the 120pc target - by 2020. And even then Greece will need €245bn of extra support.

So that means more bailouts.

What's the Greek debt crisis all about? - Telegraph

Greeks will suffer for five years as part of resolving eurozone crisis

David Gow in Brussels guardian.co.uk, Tuesday 21 February 2012 19.59 GMT

Scale of cuts required to implement rescue package prompted analysts to raise spectre of another debt crisis later this year

Greek finance minister Evangelos Venizelos arrives at a news conference in Athens. Photograph: Thanassis Stavrakis/AP

Greeks will suffer austerity measures for another five years as the price of their government securing a €130bn (£109bn) bailout to prevent national bankruptcy and chaos within the eurozone, it has emerged.

The scale of the wage and spending cuts required to implement the rescue package prompted an array of analysts to raise the spectre of yet another Greek debt crisis later this year and the country's exit from the euro as recession deepens.

But Olli Rehn, the EU economic and monetary affairs commissioner, said Greece had lived beyond its means for a decade and savage cuts in labour costs were vital to restore competitiveness and growth.

The Greek prime minister, Lucas Papademos, and finance minister Evangelos Venizelos talked up the agreement, reached after 14 hours of talks at 5am on Tuesday, as "avoiding a nightmare scenario."

José Manuel Barroso, the European commission president, said the deal "closes the door on an uncontrolled default, with all its economic and social implications that would mean chaos for Greece and the Greek people." The deal helped push the Dow Jones index in New York over 13,000 for the first time in almost four years.

Senior EU officials admitted, that, after enduring wage cuts of 30% since 2009, Greeks would suffer a further 15% reduction in the next three years and even more cuts would be required after that.

The country's economy, which contracted by 7% last year, is forecast to decline by a further 4.5% this year, stagnate in 2013 and then grow by 2% in 2014. But officials conceded that the Greek rescue programme is "accident-prone" and their forecasts are high-risk. Greece has been in recession for five years, losing 17% of its GDP.

Unemployment, now running at around 20%, is expected to remain above 18% this year and next, be just below 17% in 2014 and still be above 15% in 2015.

The Greek government has barely a week to implement tough "prior actions" to release the next tranche of loans enabling it to pay €14.4bn of debt by March 20 and securing final eurozone approval for the second bailout within less than two years.

These include legislation to set up a blocked account to ensure that EU/IMF loans are used to service debt, not meet current spending on health, pensions and the like.

Thereafter, subjected to unprecedented budgetary surveillance by an increased posse of inspectors and advisers, Athens will have to find further savings equivalent to 5% of GDP by the end of 2014.

Rehn indicated this could be eased by a clampdown on tax evasion, aided by officials from other EU countries. They and others are to be permanently stationed in Athens to "further strengthen Greece's institutional capacity".

The UK government welcomed the deal. David Cameron said the next step was "constructing a firewall large enough to prevent contagion within the eurozone."

European diplomats indicated that next week's EU summit would be asked to endorse proposals to merge the lending capacity of the existing eurozone bailout fund, the EFSF, with that of the new European Stabilisation Mechanism – giving a firewall of between €650bn and €750bn.

This is short of the €1 trillion suggested by eurozone leaders last autumn or the €2trn foreseen by markets. Christine Lagarde, IMF managing director, held out for EU commitments on this firewall before committing her organisation to a contribution to the Greek bailout.

Wolfgang Schauble, the German finance minister, said, the IMF share would be just €23bn, including €10bn rolled over from the first €109bn Greek rescue package. This is short of IMF loans to Portugal and Ireland but may be a sticking point for non-euro IMF members such as Britain.

George Osborne, the chancellor, said at a meeting of all 27 EU finance ministers: "Of course resolving the Greek situation is only part of resolving the eurozone crisis but I think we took a really significant step towards that last night and it's good for Britain because resolving the euro zone crisis is the biggest boost Britain could get for its economy this year.

"The important thing about this deal is that they have tried to get Greece into a reasonable place vis-a-vis its debt sustainability. That's been the crucial missing ingredient." The deal is designed to cut Greek debt to 120.5% of GDP by 2020 from the current 160%.

This breakthrough was provided when Jan Kees De Jager, Dutch finance minister, persuaded Schauble to back a scheme for the ECB to release its profits on its holdings of Greek debt to national central banks to lend onto the EFSF.

This helped governments reduce the interest charged to Greece for its first bailout by up to 1.5 percentage points.

Private bondholders were leaned upon to accept an increased "haircut" of 53.5% on the nominal value of the Greek debt they hold – or 74% of the bonds' net present value. They agreed to avoid a "disorderly default".

But the deal could still unravel, with Jorg Kramer, Commerzbank chief economist, suggesting debt levels will rise as recession deepens and/or resumed growth falters.

Jennifer McKeown, senior European economist at Capital Economics, said there was a risk of a eurozone exit later this year because of the austerity measures, social unrest and deeper recession.

Greeks will suffer for five years as part of resolving eurozone crisis | World news | The Guardian

Greek relief over bailout fails to soothe anger from voters

Helena Smith in Athens guardian.co.uk, Tuesday 21 February 2012 20.06 GMT

Prime minister Lucas Papademos cites 'historic day' but other parties cite €130bn deal as delay tactic that does stop default

Greece's prime minister Lucas Papademos has said the €130 bailout agreement marked a 'historic day', but failed to quell anger from voters. Photograph: John Kolesidis/Reuters

Greeks reacted with relief, anger and fear to the news that their country has been granted what is the biggest bailout in western history – not once, but twice in less than two years.

For the prime minister, Lucas Papademos, the €130bn deal was nothing less than a "historic day" with an end to the ferocious negotiations between Athens, foreign lenders and private creditors who hold its debt. Finally, he said, an end had come to the uncertainty that has enveloped Greece.

"We now have the ability to progress with stability, to limit uncertainty. and to increase trust in the Greek economy in order to create better conditions," he said after 14 hours during which the rescue plan was agreed.

For the first time, said his finance minister, Evangelos Venizelos, Greece had found a formula where its €350bn debt mountain was "reduced rather than augmented".

There was marked relief among politicians on both the left and right who have put aside ideology to back Papademos's emergency coalition government. Last week, as Germany piled the pressure on Greece, casting doubts over its trustworthiness and place in Europe, it appeared far from sure whether the deal would be done.

"It was not a given, we had many objections from many sides, and many open issues," government spokesman Pandelis Kapsis, said. "After very difficult negotiations, we achieved a very good result." He emphasised the agreement of the private sector to participate in a bond swap aimed at lessening the country's debt burden by €100bn.

Failure would have exacted a heavy toll. Athens faces €14.5bn in maturing debt next month. Without the money to cover the loan repayments the country would have been forced into a messy default with potentially disastrous consequences for its people and for the eurozone.

"It is an important decision that distances Greece from [the spectre of] bankruptcy," said the conservative New Democracy party leader, Antonis Samaras, who dropped his once vehement opposition to the fiscal policies demanded to join the national unity government in November.

Greece now had "to exploit the opportunity," its head of state, President Karolos Papoulias declared. "[We must] overcome past negligences so we can move ahead on a path of development."

The media agreed. After another all-night "thriller", Greece had once again been brought back from the brink. The country could turn a "new page" implementing modernising reforms that its creditors at the EU, ECB and IMF had made clear was the price of further salvation.

But the voices of relief were matched by voices of discontent. Even before the technocrat prime minister had arrived back in Athens, the deal was being denounced as little more than a delaying tactic that had not only put off default – an inevitability in the eyes of many – but sentenced Greeks to at least a decade of punishing austerity.

The KKE communist party pledged country-wide resistance to cuts that have sent poverty levels soaring, and issued a call to arms for people across Europe to join Greeks in their battle against "monopolies and profits" – the real forces, it said, behind the rescue plan.

"[This] is a temporary agreement of controlled default for Greece in the eurozone … and uncontrolled bankruptcy of its people," said Aleka Papariga, the party's leader on the draconian cuts and structural reforms envisaged in the accord. "As a result a new hell awaits [the Greek people]."

Alexis Tsipras, leader of the Radical Left, said the deal was "signed by a government that had neither been elected nor invested with a popular mandate".

Fotis Kouvelis, who heads the Democratic Left, said the package "did nothing to stimulate growth". Instead, it condemned Greece, a country trapped in a fifth year of recession, to an even deeper economic death spiral.

Such dissent might not matter if leftwing parties had not also seen their popularity ratings soar on the back of opposition to austerity. For many Greeks, the left's ascent is the best reflection yet of the anger unleashed by successive waves of cuts and tax increases in a nation whose economy has worsened dramatically under international tutelage.

An overwhelming 90% of Greeks are opposed to the interim government and its decision to tackle the crisis by pursuing a tough regime of austerity reform. Unemployment is nudging a record 21% mostly as a result of the collapse of small business.

Yet for all the social unrest and disquiet that such measures have triggered, commentators have taken heart that, despite a third year in the eye of Europe's debt storm, Greeks remain fervent supporters of the euro. Bankruptcy and the chaos that would ensue should Greece exit remains for many a nightmare scenario.

"The agreement offers a window of opportunity to stabilise the situation," Costas Panagopoulos, a political analyst told the Guardian. "But it's not enough. The market is practically dead, and with the present policies we can't restart the engines of the economy. Over and above Tuesday's decision, Greece needs a Marshall lan to secure its development."

Greek relief over bailout fails to soothe anger from voters | World news | The Guardian

Opinion: The eurozone is just buying time

 

Henrik Böhme from DW's business desk

A new aid package and a debt write-off - that is how Greece is meant to be saved from bankruptcy. But the effect of these measures remains uncertain, says Henrik Böhme from DW's business desk.

We have already got used to this ritual. First comes the deadline, in this case March 20. Then the usual statement: if there Greece doesn't get the extra aid money by then, the country will go bankrupt. Then come days and weeks of negotiations and finally, a crisis meeting. That all ends with an early morning announcement that everyone can now relax, the situation has been resolved "at the last minute." Following the 100 billion euros that Athens received in 2010, this second aid package is worth 130 billion euros and even includes a debt write-down.

One thing is for sure: It won't be the last aid package for Greece. Sure, the government in Athens had to make some tough compromises this time round. Repayments will be made from a trust account. That can almost be seen as a loss of national sovereignty. But at least that ensures that Greece really does pay its debts back and is not using the money for other things.

Now there are two facts which need to be noted. Firstly, this rescue package is not just about Greece. Even though not all their demands have been met, the finance industry is also being helped here. Greece has most of its debts with private banks, investors and insurance companies. A quarter of the aid money won't even go to Athens, but will head straight to creditors. The banking lobby has once again done their best to predict horror scenarios about incalculable chain reactions, loan default insurance problems and the possible breakdown of the whole financial system. This, for such an economically insignificant country as Greece.

After all, and this is the second aspect: in reality, Greece has been bankrupt for some time now. It's just that it's not official. It has debt levels of 160 percent in comparison to economic performance. The aim is to reduce this debt to 120 percent. How would that be any better? The truth is much easier to understand: Greece is stuck in the past. Investment funds have long since categorized it as an emerging economy. Banks are already considering the scenario of the country returning to its former currency, the drachma. It has a huge amount of ineffective, overly bureaucratic, administrative bodies. Why was the report from the so-called troika of the EU, European Central Bank and International Monetary Fund basically kept secret? Because it speaks out about these problems. Namely, that 130 billion euros will not be enough to stop the economic downfall of the country.

That's why the solution needs to be much more radical. We can not force Greece to leave the eurozone. So we have to make it clear to the people of Europe: this is going to be expensive, for a long time. The tactic of aid packages has to be ended, immediately. We have to properly help the country to reinvent itself. There needs to be incentives to invest. People in the development business call it "state building". Probably the only thing that will help is Greece going officially bankrupt. This may happen by the fall, by which time Spain and Italy have hopefully restabilized. Hedge funds are already betting about when it will happen.

Author: Henrik Böhme / al
Editor: Joanna Impey

Opinion: The eurozone is just buying time | Europe | DW.DE | 21.02.2012

So what next for Greece?

 

 

Experts already agree the second aid package for Greece will not be enough. What's missing, they say, is a convincing growth-driven business model.

Economists assume that Greece, after its second aid package, will not escape its debt trap without further aid.

"The plan to radically revive the Greek economy with the euro is an illusion," said Hans-Werner Sinn, head of the Ifo-Institute for Economic Research who has long called for Greece to leave the eurozone.

Many financial experts expect that sooner or later, another much larger debt "haircut" or write-down will be necessary. "Everyone knows that the current package is not enough," said Ansgar Belke, a macroeconomics professor at the University of Duisburg-Essen.

"It's not about buying time. The troika, which consists of the European Commission, the European Central Bank and the International Monetary Fund, has said in internal papers that it expects Greece to remain dependent on financing eight years from now."

Fear of a deep recession

A central problem for many experts is Greece's underperforming economy. As long as the country stays on its austerity path, they say, the economy will be unable to recover. In an internal debt analysis that the Financial Times obtained and partially published on its website, the troika warns of a deep recession in Greece. If necessary reform measures like privatization are delayed, then the country's total debt in eight years could remain at 160 percent.

Commerzbank chief economist Jörg Krämer also has his doubts

"The danger remains of Greece "saving its way' into an economic depression, sliding into bankruptcy and abandoning the eurozone," Christian Schulz, an analyst with Berenberg Bank, wrote in a report. To increase the chances of recovery, he argues that the focus needs to shift from austerity efforts to structural reforms.

Jörg Krämer, chief economist at Commerzbank, is singing the same tune. "Our calculations show that Greece will hardly be in a position to carry the significantly reduced debt load in the long term without implementing deep structural reforms. There is a possibility that in the second half of the year, a frustrated euro community could cut off funding for the country."

Numerous economists also question what can be achieved if Greek debt is actually reduced from its current 160 percent of economic output to 120 percent. "According to the Maastricht Treaty, only 60 percent sovereign debt is allowed," Belke told DW. "There is no economic reason that debt should be exactly 120 percent."

What is more important, Belke maintains, is that the economy grows to pay off debt and pay interest. "And that's the big snatch in Greece," he said. There is massive opposition to reforms within Greece, he noted, adding that "politicians also don't give the impression of really wanting to move forward."

Author: Rolf Wenkel / jrb
Editor: Joanna Impey

So what next for Greece? | Business | DW.DE | 21.02.2012

Greek Bailout Deal A Farce To Benefit Banks At The Expense Of Greece

 

As it stands right now, the Greek bailout and debt deal agreed by European Finance Ministers is a farce, a program designed to pay Greece’s international creditors and buy time to somehow engineer growth in a completely uncompetitive economic environment.

A leaked internal Troika memo proves that even under a relatively optimistic scenario, Greek debt-to-GDP levels would only fall to 129% by 2020 and could remain as high as 160%, while financing needs would still exceed Greece’s capacity to pay, prompting German daily Der Spiegel to ask the EU to admit Greece is bankrupt and stop the bailout package.

On Tuesday, the EU, the ECB, and the IMF – collectively known as the Troika – agreed to a €130 billion bailout package for Greece; this is the second bailout the Hellenic Republic gets after a €110 billion package approved in May 2010 .  Markets essentially yawned.  The bailout comes with conditions of further austerity, expectations that a “voluntary” debt restructuring (PSI) goes through, and promises that debt-to-GDP levels will be brought down to the arbitrarily sustainable figure of 120%.

Only six days before, on February 15, the same authorities that agreed to give the bankrupt Hellenic Republic another bailout warned that their own conditions wouldn’t be met, begging the question as to what the actual value of this “can-kicking” experiment is.  In a “strictly confidential” memo titled Greece: Preliminary Debt Sustainability Analysis, Troika researchers note that debt-to-GDP levels will remain well above the 120% mark, that “additional debt relief from the official or private sectors” will probably be needed, and that “prolonged financial support […] by the official sector may be necessary.” (To see the memo, go to this article on FT Alphaville).

From the memo:

There is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term. In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatization implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.

It is clear from the official study that the current deal is definitely broken, the question is how it’s broken and why it’s going through anyways.  According to Der Spiegel’s Christian Rickens, the second bailout package “isn’t geared to the requirements of the people of Greece but to the needs of the international financial markets, meaning the banks.”

Rickens makes a strong point.  “How else,” he asks, “can one explain the fact that around a quarter of the package won’t even arrive in Athens but will flow directly to the country’s international creditors?”  He explains that about €30 billion will go to holders of Greek government bonds “as an incentive to convert old paper into new bonds.”

The reasoning is simple: the financial sector is trying to keep alive the illusion that Greece isn’t bankrupt, “cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction” in order to get paid.

Greece is indeed broke, and the reason why all the bailout money being thrown into the pot should isn’t being used to foster competitiveness and help the country get back on its feet is because this bailout isn’t actually going to fix Greece: rather, it’s an attempt to buy time so that it doesn’t become Germany, France, and the rest of the EU’s problem.

Private investors can say they are “voluntarily” forgiving about 70% of the debt (according to net present value calculations by Barclays), but they are getting paid while Greece falls deeper into what already is a 5-year recession.  Among the largest IIF creditors involved in the discussion are the National Bank of Greece, BNP Paribas, Commerzbank, Deutsche Bank, Intesa San Paolo, ING, Allianz, and AXA, according to BusinessWeek.  Major US institutions like JPMorgan Chase, Citigroup, and Bank of America have a substantially smaller exposure to Greece.  While there is nothing wrong in creditors protecting their capital, policymakers appear to have decided on their behalf at the expense of the Greek economy.

Troika estimates show that Eurozone bank recapitalization needs have increased to about €50 billion.  It also suggests that given the PSI, Greece’s capacity to access capital markets has fallen dramatically, forcing it to rely on official sector help to avoid a default to the magnitude of around €50 billion from 2015 to 2020 “before actions to reduce debt.”  Privatizations and asset sales will deliver substantially less funds than previously anticipated and it will probably take Greece a lot longer to take its primary surplus to sustainable levels from the -1% projected for 2012, according to the memo.

Thus, any sort of real solution to the Greek problem is once again pushed off, while banks (which are the major holders of Greek debt) are getting some sort of payment.  At the same time, the Greek population faces pension and healthcare cuts, wage freezes, and continued layoffs.

Maintaining the integrity of markets is a completely valid goal, but paying creditors by bailing a country out (which is already a way to break market dynamics) while forcing a population deeper into recession doesn’t make sense.

 

Greek Bailout Deal A Farce To Benefit Banks At The Expense Of Greece - Forbes

Plans Revealed for Greek Default on March 23

Written by Bob Adelmann Monday, 20 February 2012 22:30

Writer Bruno Waterfield’s claim that Germany has drawn up plans to deal with the inevitable Greek default was published in the British newspaper The Telegraph a little after 8 p.m. Saturday night. Within hours his claim was confirmed separately by blogger John Ward with times, dates, and consequences all spelled out by those drawing up the plans.

German Finance Minister Wolfgang Schauble has increasingly voiced his opinion that the economic implosion taking place in Greece would result in its bankruptcy despite official protestations to the contrary from German Chancellor Angela Merkel. One official close to Schauble said, “He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he ... [is] convinced it will not pull Greece out of the hole.”

Schauble’s opinion gained increasing credence by a report issued last week by the European Commission, the European Central Bank, and the International Monetary Fund (EC, ECB, and IMF — the “troika”). According to their report, even if Greece were successful in accomplishing all that it has promised in order to secure the next round of financing, it will still fall far short of bringing down its debt load to manageable levels. Waterfield went on to say that Schauble, behind the scenes, is pushing Greece to declare itself bankrupt and demand a 70 percent “haircut” from the banks holding the bulk of its debt.

The timetable is pushing events inexorably forward: Greece must receive the next round of financing in order to pay debt service of $20 billion on March 20. Without it the debt will default and government checks will start bouncing. But it will take at least four weeks to get a formal agreement on the haircut, which puts it just days before March 20. A Eurozone diplomat explained: “The private sector involvement takes at least four weeks to issue the prospectus and to get subscribers, and without an [immediate] deal then time will run out in March.”

Ward’s separate and reliable sources told him that there will be “an inevitable Greek default some time in the third week of March 2012.” His anonymous source told him that there is nothing in writing, and the meetings to plan for the Greek bankruptcy were few in number and lightly attended. But the firm date is Friday, March 23, after which Greece will be officially declared in default by the credit rating agencies. All bank accounts will be frozen over the weekend with no withdrawals allowed. All Greek financial markets will be closed for at least one day, perhaps longer. 

Marc Slavo, in reviewing Ward’s warnings, told his readers to follow the advice given by an observer: “Sell up fast, do a sale and leaseback on property, empty bank accounts, and change to a hard currency.”

Despite Merkel’s continued insistence that Greece will stay in the Eurozone and that the next round of financing will proceed as planned to keep Greece afloat for another few months, banks are continuing to unload risky securities and moving into dollars and U.S. treasuries.

Slavo has issued a disclaimer: “While the sources for the above report are as of yet unconfirmed, and no copies of it have been made available, if true we will likely see bits and pieces emerge over coming weeks.” He added:

There have been false alarms in the past and we won’t deny that this may be one of them. But we’re of the view that when a smoke alarm goes off, we evacuate first and substantiate it once we’re out of harm’s way. The alternative is that you end up trapped in a burning building.

What’s most persuasive about the scenario painted by Ward and his informants is the denial by Merkel that anything of the sort is likely to happen.

Photo: Greek Parliament building

Plans Revealed for Greek Default on March 23

A country in decay: Greece's youth pay bitter price for the wisdom of their elders

 

By David Blair, Athens

Greek youths will be victims for years to come thanks to the austerity being demanded in return for the 130 billion euro bail-out that was hammered out in Brussels overnight. David Blair reports from Athens.

Greeks are bitterly aware that "bread, education and freedom" will be an empty dream for years to come, thanks to the austerity demanded by Eurozone finance ministers in return for a euros 130 billion bail-out being hammered out Photo: EPA

The knot of 100 black-clad protesters strode out under an anarchist banner through the heart of Athens, their cry simple as it was stark: "bread, education, freedom!".

But for all the sound and fury passers-by barely seemed to notice their fist-waving presence. Ordinary Greeks, wearied by their country's all-consuming crisis, have become inured to demonstrations and the chosen slogan of Monday's march seemed almost quaint.

Greeks are bitterly aware that "bread, education and freedom" will be an empty dream for years to come, thanks to the austerity demanded by Eurozone finance ministers in return for a euros 130 billion bail-out being hammered out.

Athenians now live in a city where physical decay mirrors social malaise: traffic lights have broken down across the capital, either because demonstrators have smashed them or the state, which is sacking thousands of personnel, no longer troubles to fix them. City thoroughfares are stained with graffiti, shops are boarded-up and Stadiou street, scene of the last big protests, is lined with the blackened shells of burnt-out buildings.

Meanwhile, a pack of stray dogs roams the street beside the Parthenon, snarling at passers-by and running in demented pursuit of motorcyclists.

 

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Greece had endured five consecutive years of recession even before the looming onset of this new round of deflation. Unemployment for those aged under 25 already stands at 48 per cent, having risen by more than a third since November 2010. Perhaps most stark of all is a national suicide rate that has doubled from 2.8 per 100,000 people in 2008, to about 6 last year.

Erasmia Dimoula, 25, qualified as a nursery schoolteacher two years ago. Since then, she has not had a job, save for a brief stint as a waitress. She now lives at home, in a state of enforced dependence on her parents, along with her similarly unemployed sister who speaks three languages and has a master's degree in psychology.

"If there wasn't a financial crisis, I would be working now. I'm sure of it," said Miss Dimoula. She will not vote in the elections expected in April and, like many Greeks of her generation, expressed nothing but contempt for the politicians of all parties who brought the country to its current pass.

"I don't expect anything from any government, from any politician. I can only expect things from myself," she said. "You have to take responsibility if you give your vote to these people. Then you'd have to shut up about what's going on."

Young Greeks cannot be blamed for their nation's crisis, but what about an older generation who voted for corrupt governments, handed out jobs according to family or political ties, and artfully avoided taxation? This generation launched a famous student revolt at Athens Polytechnic in 1973, toppling a military regime and bringing in democracy. Then, arguably, they went on to cripple the country.

"A lot of people my age are blaming the Polytechnic generation," said Miss Dimoula. "I found myself doing it as well. But you can't blame a whole generation."

She added: "They are an optimistic generation: they thought things will be better for them and for their children. But we can't be optimistic. We can't believe in anything."

Those from the Polytechnic era who played by the rules were not always rewarded. Miss Dimoula's father worked for 35 years and must now support two unemployed adult daughters from his pension, which has inevitably been cut.

"I want to try and do better, I want to not let this thing get on top of me, but it's very difficult," she said. "There are times that I cry because of all this." Miss Dimoula left for an interview for a vacancy as cashier of an Athens taverna.

One possible answer for young Greeks is to emigrate. Kyriakos Soubasis, 28, graduated in mechanical engineering four years ago and has been unable to find a job. "In the last two years, I never went to an office. I send my CV by email, but no one answers. I have no income right now, I live with my family," he said.

Those of his university contemporaries who do work have often left Greece. "Many of them go abroad: to London, to Berlin. And those who stayed here, some have jobs, but no pay. If the bosses have no money, they don't pay you, perhaps for two or three months."

Half of all small businesses in Greece are unable to meet their payroll costs, while a quarter of companies have gone bankrupt since 2009. Greeks have shown how little they trust their banks by emptying their accounts and stashing savings under metaphorical mattresses: about a third of the money on deposit has been withdrawn.

The established parties of left and right, PASOK and New Democracy respectively, have alternated in power since the advent of democracy in 1974. The leaders of both movements have pledged to implement the agreed austerity measures in return for the bail-out package. Success will mean reducing Greek national debt from today's level of 160 per cent of gross domestic product to a mere 120 per cent by 2020.

"The political system is incapable of handling the situation. The people who created the problem are now going to solve the problem: that's the paradox," said Stelios Kouloglou, a current affairs presenter on national television.

"It is doomed to fail. This just creates more and more recession. It's a vicious circle between more recession and more measures."

One policy, aimed squarely at the poorest members of the workforce, might serve to symbolise them all: the minimum wage will fall by 22 per cent to Pounds 490 per month, less than half of the Pounds 1,050 equivalent in Britain.

In the meantime, Greece has suffered perhaps the most wounding blow of all – its national dignity and self belief has been undermined.

Mr Kouloglou deeply resents the media caricature of the easy-living, non-taxpaying Greek. "It's becoming kind of racist," he said. "You cannot have an honest solution when you have an image as bad as that."

A country in decay: Greece's youth pay bitter price for the wisdom of their elders - Telegraph

Greece's despair is the product of political ignorance

 

Apostolos Doxiadis guardian.co.uk, Monday 20 February 2012 11.00 GMT

To save itself, Greece must realise that its crisis is the result of three decades of incompetence and corruption

Although a minority protest, 'the majority of Greeks face the crisis by trying to make ends meet'. Photograph: Louisa Gouliamaki/AFP/Getty Images

Contrary to what outsiders may think, most Greeks do not spend their time throwing Molotov cocktails, or even protesting. In fact, though the austerity measures demanded by our international lenders have affected millions of lives, some hundreds of thousands of them dramatically, the great majority of Greeks face the crisis by doing what most people do during hard times: they try to make ends meet as best they can.

Yet this does not make good television, while militants in hoods and gas masks firebombing policemen does. So, many non-Greeks believe Greeks are not just lazy but also ungrateful and, probably, mad. None of these generalisations is true: most Greeks are hard-working people, the extremists who provide such great TV to the world number no more than a thousand, and the great majority of the demonstrations that daily disrupt Athenian life are only attended by a few hundred cadres of the parties or public-sector employees' unions organising them.

This is not say Greeks are happy with their situation. They are not. But though the hardships of many, especially the jobless, are undeniable, I believe our despair is more due to ignorance than anything else. In fact, though I generally subscribe to less optimistic explanations of human motivation, the present Greek crisis reminds me of Socrates's most-often quoted piece of wisdom: that all evil is due to a lack of knowledge. I can't help thinking that if only someone (old and bearded, ideally) could reveal the essence of our problem convincingly, then Greeks and non-Greeks alike would see the truth, and implement the actions necessary to solve our problems. For you cannot have good therapy without good diagnosis.

What makes ignorance particularly frustrating in this case is that the facts are at our fingertips. Let me give you one: although 750,000 people (15% of our workforce) have lost their jobs since the crisis began, not a single one is from the wider public sector, which employs one out of four Greeks.

The story behind this figure tells us all we need to know. First: what we call a crisis is the result of actions performed over decades. Second: its creator is an ineffective, incompetent and corrupt political establishment, which transformed politics into a mechanism for exchanging favours with votes, most of the former having the effect of making the state more ineffective and costly. Third: the critical point came when this mechanism became so ineffective and costly that it brought down the rest of the economy. Of course, the international financial situation, banks, speculators, crooks, etc played their part in making things worse. But they couldn't have done so if Greek politicians had not destroyed, over 30 years, the heart of our economy.

Today, politicians are bickering about who is doing more to save the country: the loan-signers, who are agreeing to more and more austerity measures, or the loan-deniers, proposing what they call a "nationally proud solution", a catchphrase that appears in various forms in the rhetoric of extreme right and extreme left alike. But both sides are denying a truth: the loan-signers that the reason more austerity measures are required is that they are unable and unwilling to cut public spending in rational ways; and the loan-deniers that their "proud solution" is a synonym for the indescribable misery of default. Both are lying for profit: the first to protect their clientelist networks, financed by public money, the second to drive Greece to the state of chaos and misery that forms the preferred habitat of extremist politics.

Actually, we don't need a bearded old man to tell us the truth about the crisis, but a little boy. For the statement that Greek politicians are to blame is as obvious as the emperor's nakedness in Hans Christian Andersen's famous fairytale.

Greece's despair is the product of political ignorance | Comment is free | guardian.co.uk

Germany's smear campaign against Greece

By Ambrose Evans-Pritchard Economics Last updated: February 16th, 2012

Greece is burning, and Germany is stoking the flames

Germany’s Wolfgang Schäuble is entering into ever more dangerous waters.

His apparent demand that Greece postpone elections scheduled for April, and impose a technocrat junta (a l’Italiana) for another year without PASOK and New Democracy, takes your breath away. Is this really the position of the German government? Greek democracy be damned?

I presume he has seen pictures of the blackened buildings below the Acropolis – and yes, the evidence is everywhere: a neo-classical house near my hotel at Monastiraki metro station was completely gutted, as was a building across the road. (There were four homeless sleeping in the cold alley next door, being comforted by a young volunteer.)

I presume too that Mr Schäuble has been well-briefed on the explosive political mood in Greece, so one can only view such a demarche as deliberate provocation – like the Austrian ultimatum to Serbia in 1914 (a miscalculation, as it later turned out, since "contagion" from Serbia could not be contained).

"Who is Mr Schäuble to insult Greece? Who are the Dutch? Who are the Finns?" retorted President Karolous Papoulias, himself a teenage resister against the Wehrmacht in Epirus almost seventy years ago – though he later took political asylum in Germany from the Greek junta and worked for Deutsche Welle.

"We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all Europe."

It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.

"There are some who don’t want us in the eurozone any more," said Evangelos Venizelos, the Greek finance minister. "They are playing with fire."

Indeed they are. Kostas Kiltidis, a Macedonian MP from the orthodox LAOS party, could hardly contain his fury when we had coffee in the members’ hall of the Greek parliament.

"You answer war with war. We are the cradle of European civilization and nobody can take us out of our own home. There is no legal mechanism for this. If they try, others are going to die economically with us."

"We know our country will have to live in poverty if the worst happens, but at least we will be proud."

We can have an honest argument about the level of Greek compliance with Troika demands. The country is exasperating, of course – but that was the case long ago, when EU officials gave Greece a clean bill of health for EMU membership, and six years ago when Brussels was still writing glowing reports on Greek progress.

But what is compliance? Michael Theodorou, head of the Evangelismos public hospital in Athens, told me that his budget had fallen from €149m in 2009 to €112m last year, even though the number of patients had risen from 82,000 to 99,700, due to the reliance of the newly pauperised middle class on public health as they lose their private insurance.

This was achieved by slashing drug costs – switching to generics – and cutting the salary of nurses to the bone. "We have re-engineered the hospital," he said.

The aggregate salary cut in Greece since the crisis began is 30pc (including all the quirky bonuses and extras). And no, it is not true that pensions are 97pc of previous income, the highest in Europe. That is a Wagnerian myth, much propagated by Bild Zeitung. The pensions are calculated off the "base salary", which is only half actual earnings.

The single greatest cause of the missed budget targets is the collapse of the Greek economy. GDP contracted 6.8pc last year, accelerating to a 7pc rate in the last quarter. That is the main reason why tax revenues have fallen off a cliff.

The Greek Labour Institute – uncannily accurate until now – expects to the economy to contract by another 7pc this year. This will take the combined slump to 22pc. Debt is compounding exponentially on a shrinking base.

I notice that failure to meet the privatisation schedule of €5bn by the end of 2011 and €50bn by 2015 is widely cited as an egregious case of Greek foot-dragging. But how on earth is Costas Mitropoulos from the Hellenic Republic Assets Development Fund supposed to attract buyers until the threat of Greek default and euro exit – or "Grexit", in the jargon – is taken off the table?

"The criticisms are totally unfair," he told me, in his tiny office overlooking at the statue of Kolokotroni – the Kleftis leader and hero of Greek independence against the Ottomans. "Investors are not prepared to commit funds until uncertainty is down to manageable and hedgeable levels."

Half the assets are Greek property. They cannot be dumped simultaneously on the market without causing a further crash in prices. Mr Mitroupoulis said the Troika had agreed to stretch out the process. The target is now €19bn by 2015.

All the money is paid into a special account for foreign debt repayment. Not one penny goes to the Greek budget.

In my view, the original Troika demand was off the wall. There is no precedent anywhere in the world for the privatisation blitz imposed on Greece. The German Treuhand disposal of DDR assets after reunification is the closest parallel, but even that took twelve years.

The Treuhand money at least stayed inside Germany. It was not seized by foreigners. But that did not prevent the assassination of manager Detlev Rohwedder by radicals, probably the Red Army Faction.

"The Treuhand manager was shot dead," said Mr Mitropoulos wistfully, gazing out at Kolokotroni.

Difficult times. Do not make it harder, Herr Schäuble.

Germany's smear campaign against Greece – Telegraph Blogs

There is only one end to Greece’s torment

By Telegraph View 7:57PM GMT 16 Feb 2012

Greece requires a significant devaluation to be competitive with Germany – which can only be accomplished outside the euro.

Greece has imposed a savage austerity programme, which has sent shockwaves through society and plunged the economy into a death spiral Photo: REX FEATURES

In Greek mythology, the sinners of the underworld were condemned to tasks involving back-breaking effort and perpetual, agonised frustration. For the country’s present leaders, the torments of Sisyphus or Tantalus would seem entirely familiar. In pursuit of economic salvation, they have imposed a savage austerity programme, which has sent shockwaves through society and plunged the economy into a death spiral. Yet every time they think agreement has been reached on a second bail-out package – every time the boulder has been pushed all the way up to the top of the peak – another objection is raised, and the whole thing crashes back down.

The immediate need is for Greece to repay bond payments worth 14.5 billion euros on March 20. To do that, the new bail-out will have first to be finalised, and then endorsed by other governments. But even if that can be agreed, it is increasingly difficult – impossible, in fact – to see a stable future for Greece within the single currency. The question is not whether it will default and exit the euro, but when.

For the other members of the single currency, that has long been the nightmare scenario. Indeed, one of the factors that has exacerbated this crisis has been the desperate attempt to sustain the unsustainable – the ideological commitment to maintaining the eurozone as originally envisaged. Now, however, the Greeks’ partners are losing patience: Germany’s finance minister, Wolfgang Schäuble, appears to be especially keen on shoving them towards the exit.

The hope is that Europe has decoupled itself sufficiently from Athens – and built enough of a “firewall” within the banking system, thanks to a flood of cheap money from the European Central Bank – that its default and departure would not trigger a wider crisis. The same hopes were expressed in 2008, in advance of the bankruptcy of Lehman Brothers. The firewall may well do its job: this week, a senior eurozone official put the odds of a repeat of that catastrophe at no more than 10 or 20 per cent. But those are hardly odds on which to gamble the world economy, especially given the way in which the Lehman situation spiralled out of control.

Even if the amputation is successful in the short term, the problem remains. However many reforms are imposed, countries such as Greece still require significant devaluation to be competitive with Germany – which can only be accomplished outside the euro. In Greece’s absence, the markets will turn on Portugal, Spain, Italy, Ireland or even France. The more appropriate myth may be that of the hydra: every time one head is lopped off, another takes its place. And these days, monster-slayers are in short supply.

There is only one end to Greece’s torment - Telegraph

The callous cruelty of the EU is destroying Greece, a once-proud country

 

By Peter Oborne 8:44PM GMT 15 Feb 2012

Britain should play its part to end this Greek tragedy by standing up for the underdog.

It is scarcely a generation since Greece emerged from a military dictatorship and sinister forces are once again on the rise Photo: AFP

For all of my adult life, support for the European Union has been seen as the mark of a civilised, reasonable and above all compassionate politician. It has guaranteed him or her access to leader columns, TV studios, lavish expense accounts and overseas trips.

The reason for this special treatment is that the British establishment has tended to view the EU as perhaps a little incompetent and corrupt, but certainly benign and generally a force for good in a troubled world. This attitude is becoming harder and harder to sustain, as this partnership of nations is suddenly starting to look very nasty indeed: a brutal oppressor that is scornful of democracy, national identity and the livelihoods of ordinary people.

The turning point may have come this week with the latest intervention by Brussels: bureaucrats are threatening to bankrupt an entire country unless opposition parties promise to support the EU-backed austerity plan.

Let’s put the Greek problem in its proper perspective. Britain’s Great Depression in the Thirties has become part of our national myth. It was the era of soup kitchens, mass unemployment and the Jarrow March, immortalised in George Orwell’s wonderful novels and still remembered in Labour Party rhetoric.

Yet the fall in national output during the Depression – from peak to trough – was never more than 10 per cent. In Greece, gross domestic product is already down about 13 per cent since 2008, and according to experts is likely to fall a further 7 per cent by the end of this year. In other words, by this Christmas, Greece’s depression will have been twice as deep as the infamous economic catastrophe that struck Britain 80 years ago.

 

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Yet all the evidence suggests that the European elite could not give a damn. Earlier this week Olli Rehn, the EU’s top economist, warned of “devastating consequences” if Greece defaults. The context of his comments suggests, however, that he was thinking just as much of the devastating consequences that would flow for the rest of Europe, rather than for the Greeks themselves.

Another official was quoted in the Financial Times as saying that Germany, Finland and the Netherlands are “losing patience” with Greece, with apparently not even a passing thought for the real victims of this increasingly horrific saga. Though the euro-elite seems not to care, life in Greece, the home of European civilisation, has become unbearable.

Perhaps 100,000 businesses have folded, and many more are collapsing. Suicides are sharply up, homicides have reportedly doubled, with tens of thousands being made homeless. Life in the rural areas, which are returning to barter, is bearable. In the towns it is harsh and for minorities – above all the Albanians, who have no rights and have long taken the jobs Greeks did not want – it is terrifying.

This is only the start, however. Matters will get much worse over the coming months, and this social and moral disaster has already started to spread to other southern European countries such as Italy, Portugal and Spain. It is not just families that are suffering – Greek institutions are being torn to shreds. Unlike Britain amid the economic devastation of the Thirties, Greece cannot look back towards centuries of more or less stable parliamentary democracy. It is scarcely a generation since the country emerged from a military dictatorship and, with parts of the country now lawless, sinister forces are once again on the rise. Only last autumn, extremist parties accounted for about 30 per cent of the popular vote. Now the hard Left and hard Right stand at about 50 per cent and surging. It must be said that this disenchantment with democracy has been fanned by the EU’s own meddling, and in particular its imposition of Lucas Papademos as a puppet prime minister.

Late last year I was sharply criticised, and indeed removed from a Newsnight studio by a very chilly producer, after I called Amadeu Altafaj-Tardio, a European Union spokesman, “that idiot from Brussels”. Well-intentioned intermediaries have since gone out of their way to assure me that Mr Altafaj-Tardio is an intelligent and also a charming man. I have no powerful reason to doubt this, and it should furthermore be borne in mind that he is simply the mouthpiece and paid hireling for Mr Rehn, the Economic and Monetary Affairs Commissioner I mentioned earlier.

But looking back at that Newsnight appearance, it is clear that my remarks were far too generous, and I would like to explain myself more fully, and with greater force. Idiocy is, of course, an important part of the problem in Brussels, explaining many of the errors of judgment and basic competence over the past few years. But what is more striking by far is the sheer callousness and inhumanity of EU commissioners such as Mr Rehn, as they preside over a Brussels regime that is in the course of destroying what used to be a proud, famous and reasonably well-functioning country.

In these terrible circumstances, how can the British liberal Left, which claims to place such value on compassion and decency, continue to support the EU? I am old enough to recall their rhetoric when Margaret Thatcher was driving through her monetarist policies as a response to the recession of the early Eighties. Many of the attacks were incredibly personal and vicious. The British prime minister (who, of course, was later to warn so presciently against monetary union) was accused of lacking any kind of compassion or humanity. Yet the loss of economic output during the 1979-82 recession was scarcely 6 per cent, less than a third of the scale of the depression now being suffered by the unfortunate Greeks. Unemployment peaked at 10.8 per cent, just over half of where Greece is now.

The reality is that Margaret Thatcher was an infinitely more compassionate and pragmatic figure than Amadeu Altafaj-Tardio’s boss Olli Rehn and his appalling associates. She would never have destroyed an entire nation on the back of an economic dogma.

One of the basic truths of politics is that the Left is far more oblivious to human suffering than the Right. The Left always speaks the language of compassion, but rarely means it. It favours ends over means. The crushing of Greece, and the bankruptcy of her citizens, is of little consequence if it serves the greater good of monetary union.

Nevertheless, for more than a generation, politicians such as Tony Blair, Peter Mandelson, Nick Clegg and David Miliband have used their sympathy for the aims and aspirations of the European Union as a badge of decency. Now it ties them to a bankruptcy machine that is wiping out jobs, wealth and – potentially – democracy itself.

The presence of the Lib Dems, fervent euro supporters, as part of the Coalition, has become a problem. It can no longer be morally right for Britain to support the European single currency, a catastrophic experiment that is inflicting human devastation on such a scale. Britain has historically stood up for the underdog, but shamefully, George Osborne has steadily lent his support to the eurozone.

Thus far only one British political leader, Ukip’s Nigel Farrage, has had the clarity of purpose to state the obvious – that Greece must be allowed to default and devalue. Leaving all other considerations to one side, humanity alone should press David Cameron into splitting with Brussels and belatedly coming to the rescue of Greece.

The callous cruelty of the EU is destroying Greece, a once-proud country - Telegraph

Greek-German relations at new low as eurozone crisis rumbles on

 

Helena Smith guardian.co.uk, Wednesday 15 February 2012 20.39 GMT

Hostility levels have reached maximum as savage austerity measures threaten to bring Greece to its knees

A young man eats outside a soup kitchen in Athens. More and more people are becoming destitute as austerity measures bite. Photograph: Orestis Panagiotou/EPA

There may never have been much love lost between Germany and Greece but on Wednesday it was clear relations between Europe's paymaster and its most indebted state had reached a new level of hostility.

If there was any doubt that the gloves were off it was removed by Evangelos Venizelos, the Greek finance minister early in the day. "Our country," he said, "is waging a battle of survival within the eurozone. This is because, manifestly, there are now powers in Europe who are playing with fire, who believe not all requirements will be met … and who consequently want Greece out of the eurozone."

Three years into the debt crisis it was clear that any diplomacy that might have dominated attempts to end it thus far had been replaced by anger and exasperation. And not just in the capitals of northern Europe.

Venizelos's outburst, hours before a crucial teleconference with eurozone counterparts over Athens's ability to apply cuts in return for the €130bn in rescue loans it desperately needs to stay afloat, was proof that tempers were being sorely tested in Greece, too.

The debt-stricken country may have delayed delivering the reforms its "troika" of international creditors at the EU, ECB and IMF say are vital to kick-starting its economy. But increasingly officials complain that the goalposts are also being constantly shifted.

"It's quite obvious studying their statements and their leaks," said a government source, referring to officials in Berlin, "that they are pushing for default. They want to get rid of Greece and then Portugal and create a smaller eurozone that will be closer to their interests. They start with leaks and then put them on the table as proposals."

Venizelos, he said, had been apoplectic at the latest leak that EU officials were considering delaying part, or all, of the rescue deal – the country's second bailout — until after general elections in April.

After weeks of talks between Athens and the troika, the Greek parliament endorsed draconian austerity measures attached to the loan agreement on Sunday, but not without violent street protests and both of the interim coalition government's major parties losing more than 40 MPs who refused to back the policies. An integral part of the deal – a bond swap with private sector holders of Greek debt that will automatically slice €100bn from Greece's €350 debt pile — has to be completed within days if it is to be ready in time.

"We're not going to play the proud Greek and do anything that would jeopardise our situation, but this latest leak that the program might be delayed until after elections made him [Venizelos] really angry," said the insider. "They say these things and then the markets react violently and then we've got another crisis. Every time we try to heal a little wound another one comes along."

"It's rough out there and not very polite," said another Greek official participating in the negotiations. "Our European partners look us straight in the eyes and say 'how can we trust you?'"

The release of a new poll on Wednesday showing a majority of German business leaders felt it was time Greece left the euro added to the sour mood. Although heartened by offerings of support by socialists in Europe, including the French presidential contender, François Hollande, Greek officials say the shock therapy now being administered to Greece after almost two years of savage spending cuts has dramatically hindered any attempt to improve its economic position.

Figures released by the nation's statistics agency this week showed that Greece is going through one of the biggest slumps in western history, with its GDP plunging 7% on an annual basis in the fourth quarter from a year earlier, faster than the 6.8%decline for all of 2011.

"They want sound figures in the economy but with dead citizens," said another insider, saying the austerity Greece was being forced to mete out in return for aid was coming perilously close to killing the patient.

Greek-German relations at new low as eurozone crisis rumbles on | Business | The Guardian

Eurozone crisis: contingency plans in place for Greek debt default

Larry Elliott, Ian Traynor in Brussels and Heather Stewart

guardian.co.uk, Wednesday 15 February 2012 19.28 GMT

The European commission and UK authorities have been analysing the potential impact of Athens defaulting – while Brussels warns of 'devastating' consequences

A woman threatens to jump after her employer, the Labour Housing Organisation in Athens, was labelled for closure. Photograph: Alkis Konstantinidis/EPA

Central banks across Europe have a collective nightmare. It is of the day Greece defaults on its debts, and the Aegean Sea is awash with small boats in which fleeing Greeks huddle with suitcases full of euros. Guards patrol the border in an attempt to prevent the flight of capital. Things get ugly and there are shootings, captured on film. Despite the best efforts of policymakers in Athens, Brussels and Frankfurt, it proves impossible to contain the panic, which spreads to Portugal and Ireland, the other two countries going through tough austerity programmes in return for bailouts from the EU and the IMF.

Across Europe, governments are engaged in contingency planning for this sort of scenario. In the UK – which had first-hand experience of how crises can escalate when there was a three-day run on Northern Rock in 2007 – the Bank of England, the Treasury and the Financial Services Authority have been "war-gaming" what might be expected in the event of Greece repudiating its debts and leaving the single currency.

Most big businesses across the UK have also made preparations for a euro meltdown, fearful not just of the direct impact on sales but of a drying up of credit and trade finance. Few doubt that a messy Greek default would lead to a credit crunch at least equal in severity to that which followed the collapse of Lehman Brothers in September 2008.

Sir Mervyn King, the governor of the Bank of England, said it was impossible for any government to be fully prepared, but said the UK authorities were braced for a range of outcomes. Threadneedle Street is convinced that failure to end Europe's long-running debt crisis would have severe implications for the UK economy. King said there would be a substantial fall in spending, exports would collapse and hopes of rebalancing the economy would be dashed.

Policymakers have stepped up the pace of their planning in recent days following the marked deterioration in the relationship between Greece and its single-currency partners. Athens believes that the rest of the eurozone wants Greece out, while Germany is leading the group of hardline countries demanding assurances before the €130bn bailout is agreed.

While Germany's finance minister, Wolfgang Schäuble, says "we're better prepared than two years ago", others believe the ramifications of a Greek exit would be felt globally. "The consequences would be devastating for Greek citizens and particularly for the most vulnerable," predicted Amadeu Altafaj, spokesman for Europe's commissioner for economic and monetary affairs, Olli Rehn. "Consequences would be felt throughout the eurozone and beyond."

European policymakers are looking beyond contingency planning for a Greek default to the possibility of the country crashing out of the euro. Greece would probably have to impose capital controls – limits on the amount of money that can be taken in and out of the country – while it implemented "drachmatisation". All balances at Greek banks would probably be redenominated at a fixed exchange rate with the new (or rather the old) currency; but banks could be shut, or strict limits placed on withdrawals from cash machines, while the details were worked out.

These capital controls, and the difficulty of getting hold of cash inside Greece, would have knock-on effects for any businesses, holidaymakers or ex-pats in the country at the time.

In the UK, Whitehall insiders said the various government departments that would have to be involved have been discussing how to minimise the impact for months. The Foreign Office would have to think about how to bring home Britons trapped in Greece without enough funds to get out; Vince Cable's Department for Business, Innovation and Skills would have to offer advice, and possibly funding, to businesses with exposure to the country; and the Treasury would also have a key role.

The other direct impact would be on the financial sector – for any banks still holding Greek bonds, for example. In the UK, the much-derided "tripartite committee" – the Bank of England, the Treasury, and City regulator the Financial Services Authority – would still be the locus for decision-making. As part of the government's new arrangements for coping with financial crises, the new Financial Policy Committee, chaired by King, would also meet to decide what action was necessary.

In the worst-case scenario, Greece could be followed by more countries as the markets speculated on whether Portugal, Ireland or Spain would be the next to default. If the bonds of all these countries were called into question, Britain's banks could be hit hard, and the Treasury could even be forced to contemplate fresh taxpayer-backed nationalisations.

It is to forestall a Greek domino effect that the European Central Bank has flooded Europe's banks with cheap money over the past two months, easing funding concerns and bringing down interest rates on Spanish and Italian bonds. Brussels believes the replacement of Silvio Berlusconi as Italian prime minister by Mario Monti has helped to create a firewall between Greece and its southern European neighbours. The containment strategy has worked up until now, but may be about to face its biggest test.

Eurozone crisis: contingency plans in place for Greek debt default | Business | The Guardian

Greece is being forced out of eurozone, Venizelos claims

Ian Traynor in Brussels and Larry Elliott

guardian.co.uk, Wednesday 15 February 2012 20.40 GMT

Greek finance minister says troika is shifting terms of €130bn bailout deal as part of move to force country out of eurozone

Greece's finance minister, Evangelos Venizelos, said: 'There are many in the eurozone who don't want us anymore.' Photograph: Louisa Gouliamaki/AFP/Getty Images

Greece rounded bitterly on its EU paymasters when the finance minister and socialist leader, Evangelos Venizelos, accused the eurozone of deliberately changing the terms of a proposed €130bn (£110bn) bailout because key players wanted to kick the country out of the single currency.

The charge that some eurozone countries were seeking to engineer a Greek sovereign default and exit from the euro deepened the rancour between debtor and creditors in the dangerous standoff."There are many in the eurozone who don't want us any more," Venizelos declared at a meeting with President Karolos Papoulias. "We are constantly being given new terms and conditions."

Papoulias went even further, denouncing Germany and Greece's north European creditors after Wolfgang Schäuble, the German finance minister, said that Greece must not turn into a "bottomless pit" for eurozone bailout funds and that Europe was better prepared than when the crisis erupted two years ago to cope with a Greek sovereign default.

"Who is Mr Schäuble to ridicule Greece? Who are the Dutch? Who are the Finns?" declared the Greek head of state. "I don't accept insults to my country by Mr Schäuble."

The bad-tempered rhetoric came as Greece's political leaders sought to assuage Berlin and Brussels by delivering on key conditions for release of the €130bn bailout, the second in two years, which takes Greece's rescue fund to €240bn.

Venizelos claimed the crucial debt swap with the banks – which technically requires three weeks to organise – will be announced on Monday provided the eurogroup signs off on the bailout.

The accord has to be in force well before 20 March when Greece is due to redeem €14.5bn of debt or face default.

Iran threatened to add to Greece's economics woes when Tehran said it was prepared to cut off oil supplies to six European countries in retaliation for Europe's latest sanctions. The price of crude jumped by a dollar a barrel to just over $118 after the ambassadors from Netherlands, Greece, France, Portugal, Spain and Italy were warned of the possible consequences of the actions that the EU has announced in an attempt to prevent Iran developing nuclear missiles.

Tehran was suspected of sabre-rattling, with analysts noting that Iran could ill afford to lose oil revenues from its six biggest customers.

Western policymakers are, however, concerned that the standoff could lead to dearer energy, hitting the global economy at a vulnerable time.

Sir Mervyn King, governor of the Bank of England, identified Europe as the biggest threat to the UK's still- faltering recovery from the 2008-09 recession but added that an oil shock from Iran had the potential to raise inflationary pressure.

Admitting that the Bank had made contingency plans against a worsening eurozone crisis, he said: "The biggest risk to the recovery stems from developments in the euro area, where there remain concerns about the indebtedness and competitiveness of some member countries."

In Athens, George Papandreou, leader of the socialist Pasok party, sent a signed pledge to respect the bailout terms after elections in April, although reports that the bailout could be delayed hit the euro.

His conservative counterpart, Antonis Samaras, who had been backing away from such a commitment, did likewise but appeared to reserve enough wiggle room to walk away from the promise.

Papandreou's task was easier since his party has slumped in the polls whereas Samaras is tipped to be next prime minister overseeing a eurozone-dictated austerity package that is hugely unpopular and which triggered riots in Athens.

Key players in the Greek debt drama made it clear the ball was in Athens' court and there would be no bailout unless Greek leaders met the terms: giving political pledges that rescue provisions were irreversible, regardless of a democratic vote in April, and that a funding gap of €325m in the €3.3bn austerity package be filled. Venizelos told reporters on Wednesday that both demands had been met.

Samaras's letter said that if his party, New Democracy, "wins the next election in Greece, we will remain committed to the programme's objectives, targets and key policies." But his pledge was conditional: he reiterated that he was of a mind to try to renegotiate the package.

"Policy modifications might be required to guarantee the full programme's implementation," he said. "We intend to bring these issues to discussion along with viable policy alternatives."

The "programme" of cuts has been scripted by the troika of the European commission, the European Central Bank and the International Monetary Fund.

Eurozone finance ministers had been scheduled to meet on Wednesday night to finalise the complex bailout, which, as well as the €130bn and the Greek austerity measures, entails a debt swap accord with Greece's private creditors writing down €100bn.

The meeting was called off because of the stalemate and ministers instead conferred by video ahead of a meeting scheduled for Monday.

Jean-Claude Juncker, prime minister of Luxembourg and head of the eurozone group of finance ministers, said later that he was confident the necessary decisions would be taken then.

"Further technical work between Greece and the troika has led to the identification of the required additional consolidation measures of €325m and the establishment of a detailed list of prior actions together with a timeline," said Juncker.

Given the uncertainties over the bailout and the febrile political atmosphere in Greece, frantic alternative narratives were being plotted. The overall bailout could be postponed until after the April elections have settled the political situation.

Greece is being forced out of eurozone, Venizelos claims | World news | The Guardian

Greek economy spirals down as EU forces final catharsis

 

By Ambrose Evans-Pritchard, in Athens

8:33PM GMT 14 Feb 2012

A Greek default and traumatic ejection from the euro moved a step closer last night after eurozone finance ministers cancelled a crucial meeting, accusing Athens of failing to flesh out austerity cuts.

An eldery woman begs by the Bank of Greece headquarters in Athens on Tuesday. The slogan on the wall at reads 'cops, your children will eat you'. Photo: AFP

The escalating brinkmanship came as fresh data showed that Greece's economy contracted by 6.8pc last year and at an accelerating 7pc rate in the last quarter, far worse than expected by the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF) "troika".

The country appears to be in a self-feeding downward spiral that is playing havoc with budget targets, leaving Greece with a Sisyphean task of ever deeper cuts.

Premier Lucas Papademos called his cabinet together late last night to find a further €325m (£272m) of fiscal austerity demanded by the troika, likely to be defence cuts and lower salaries.

The coalition parties failed to convince the Eurogroup that they would stick to the deal, and the mood has been poisoned by EU demands for an escrow account to seize Greek budget revenues at source.

Blackened buildings set alight by protesters on Sunday were cordoned off on streets around parliament in Syntagma Square, a vivid reminder to Greece's politicians that any misjudgment could push the country towards anarchy.

 

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Approval of EU finance ministers is needed to unlock all parts of the complex €130bn loan package, including a 70pc "haircut" for private holders of Greek bonds, allowing the country to avoid default in March.

Germany and Northern allies seem willing to force Greece out of the euro unless there is total compliance, calculating that the eurozone is now strong enough to stem any contagion.

Luc Frieden, Luxembourg's foreign minister, spelled out the warning in crystal clear terms. "If the Greek people or the Greek political elite do not apply all of these conditions, I think they exclude themselves from the eurozone. The impact on other countries now will be less important than a year ago."

Mr Frieden even suggested a return to the drachma. "It might be something which would allow Greece also to get a new start, to create an economy that can create jobs," he said.

The tone of recent comments from Germany, Holland and Finland suggest that the creditor powers have already decided to eject Greece, causing great bitterness in Athens.

"You answer war with war," said Kostas Kiltidis, an MP from the conservative LAOS party. "We are the cradle of European civilisation and nobody can take us out of our own home. There is no legal mechanism for this. If they try, others are going to die economically with us."

Eurozone finance ministers will today hold a teleconference today to discuss their next move. Jean-Claude Juncker, chair of the Eurogroup, said the sticking point last night was the failure of the parties to pledge that they would deliver on the planned cuts after elections in April.

Antonis Samaras, leader of political party New Democracy, enraged Berlin over the weekend by hinting that he would tear up the deal as soon as he had the chance.

"I want to avoid jumping over the cliff today, to buy time, and to go to elections tomorrow," he said, adding that Greeks would later be able to "change the policy forced on us".

However, polls show a splintering political landscape with a surge in support for the far Left and far Right. It is likely that the existing order will be overthrown.

"The next government is going to look like a gnu. It will be unstable, unworkable, and won't last, which is a disaster for us at this time," said Spyros Kouvelis, a MP who voted against the cuts on Sunday and resigned from the PASOK party.

The severity of the Greek slump may in any case render the latest EU deal dead. It also calls into doubt the strategy of troika, which brushed aside warnings that harsh austerity without the cushion of devaluation would asphyxiate the economy.

Unemployment is soaring and reached 20.9pc in November. It is certain to rise further as the government starts pruning 150,000 public sector jobs.

"We think GDP will fall by another 7pc this year, and our forecasts have been very accurate," said Yannis Panagopoulos, head of the Greek Confederation of Labour. "These cuts are going to fuel the vicious circle."

Angelos Tsakanakis from the Foundation for Economic and Industrial Research (IOVE) said the threat of EMU exit and a return to the drachma is preventing any hope of recovery.

"Nobody is going to make any plans to invest here until that currency risk is off the table. A belief has taken root that everything is now futile, as if the country was being abandoned," he said.

Mr Tsakanakis said Greece had clawed back 15pc of the lost labour competitveness since the crisis began and can regain viability if the EU fulfils its responsibilities as well.

"We are not some small child that ate a lot of ice cream and has to be punished. The deficits of Southern Europe were fuelled by the surpluses of the North," he said.

In a rare piece of good news for Greece, the ECB signalled that it is willing to help debt relief by forgoing profits on its €47bn holding of Greek bonds purchased at a 22pc discount.

Benoît Cœuré, France's ECB board member, said this could be done without breaching EU treaty law by distributing the money to member states, which could in turn help Greece.

It is not clear how this squares with promises by ECB chief Mario Draghi that the bank would not resort to "legal tricks" to circumvent the treaty ban on bailing out EU governments.

Greek economy spirals down as EU forces final catharsis - Telegraph