Monday, 19 September 2011

More on events in Europe over the weekend

Things Get Worse, As Troika Reportedly Demands Massive New Spending Cuts In Greece



None of the news coming out of Greece this weekend has been reassuring, starting with the dramatic development whereby George Papandreou had to turn his plane around, while en-route to DC, in order to attend to matters back in Athens.


Now, according to a Greek newspaper (via Matina Stevis) the troika (EU, ECB, IMF) is demanding the Papandreou government sack another 100,000 public sector workers over the next two years in exchange for the next tranche of bailout money. The Troika is also demanding deeper pension cuts than had been planned to.


Eurozone threat looms over IMF meeting


EU's failure to resolve Greek problem adds to tensions as world's finance ministers and central bankers gather at IMF

the Guardian,, 18 September 2011 18.58 BST


Investors are poised for another week of turmoil in the global financial markets as finance ministers and central bankers gather in Washington for the International Monetary Fund's annual meeting amid the biggest crisis since the collapse of Lehman Brothers three years ago.

A weekend meeting of EU finance ministers in Poland failed to resolve any of the issues in the beleaguered eurozone, instead casting more doubt over the future of Greece by delaying a decision on a much needed €8bn (£7bn) bailout payment until next month. Reports in Greece suggested the EU, IMF and European Central Bank were asking for further austerity measures, including 100,000 public sector job cuts, in an attempt to resolve Greece's budget deficit and avoid a default.

Greece's prime minister, George Papandreou, who has cancelled plans to attend the IMF meeting in favour of dealing with the crisis, held an emergency cabinet meeting on Sunday to discuss additional cutbacks before a conference call with the EU and the IMF on Monday.

Meanwhile Moody's is expected to announce imminently whether it plans to downgrade Italy's credit rating, a move that would escalate the European debt crisis and cause problems for French banks exposed to the country's debt.

For article GO HERE

At eurozone meeting, ministers find unity only in rejecting Geithner


At a meeting of European finance ministers in Poland, leaders largely rejected proposals from Treasury Secretary Timothy Geithner on how to rescue the ailing eurozone.
BERLIN
16 September, 2011

At the end of tumultuous week at financial markets and in European politics, European Union finance ministers meeting in Poland were trying to get a grip on the eurozone debt crisis.

Investors in global markets pinned a lot of hope on the two-day meeting, expecting it to provide a message of unity and strong governance within the monetary union. But at the end of day one, analysts say so far this message still can’t be heard. Instead, many say, a new level of dissent has emerged, this time between Europe and the US.

In a sign of growing international concerns about the crisis, US Treasury Secretary Timothy Geithner took part in the talks.

According to the Dow Jones news agency, Mr. Geithner urged his EU colleagues to overcome their divisions on how the debt crisis should be solved. He reportedly said: "What's very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the European Central Bank."

His remarks were not received well. Austrian Finance Minister Maria Fekter seemed to speak for most of her colleagues when she said, rather frankly: "I found it peculiar that even though the Americans have significantly worse economic data than the eurozone, they tell us what we should do."

But observers of the talks sided with Geithner. “What we should get from this meeting in Wroclaw is a clear roadmap on how to solve Europe’s debt crisis,” says Jan Randolph, Director of Sovereign Risk with the IHS information service in London. “They have to stop the mixed signals coming from policy makers. But we might be disappointed.”

The so-called Ecofin meeting – a monthly gathering of European finance ministers plus the head of the European Central Bank and the EU’s finance commissioner – had several issues on the agenda:

• When to hand out fresh money to Greece to help it avoiding insolvency

• Whether to accept Finland’s demand Greece should provide some form of collateral for any further credit

• How and when to enlarge the European rescue fund (EFSF) which has been created to help other eurozone members in financial trouble

• And whether Europe should follow America’s example and put up an economic stimulus plan.

Behind all these issues is the question of the eurozone’s future: Can it survive without member countries giving up sovereign powers like budgetary and fiscal authority.

EU finance ministers in stalemate over euro crisis

18 September, 2011

European Union finance ministers made little progress in settling differences about how to deal with the growing sovereign debt crisis yesterday, amid continuing fears that Greece will default on its debt.

At their meeting in Wroclaw, Poland, which attracted thousands of protesters, they continued to squabble over a financial transaction tax and boosting the eurozone's rescue fund.

For article GO HERE


Bailout Rebellion in Germany Heats Up
Zero Hedge
18 September, 2011


For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.

"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.

Even Timothy Geithner, who attended the meeting of European finance ministers in Poland, fired off a broadside in Rösler's direction. In the same breath, he proposed the expansion—through leverage, of all things—of the European bailout mechanism, the EFSF. According to Austrian Finance Minister, Maria Fekter, who witnessed the scene, he warned of "catastrophic" economic risks due to the disputes among the countries of the Eurozone and due to the conflicts between these countries and the ECB. Then he demanded in dramatic terms, she said, that "we grab money with our hands to stabilize the banks and expand the EFSF unconditionally."

The smack-down was immediate. German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout "with tax money alone in the quantity that the USA imagines will not be feasible," Schäuble said. (Wiener Zeitung, article in German).

Vocal support for Rösler came today from a group of 16 prominent German economists. If the government in its efforts to stabilize the euro didn't consider the insolvency of a member country, they warned, Germany would become subject to endless extortion (FAZ, article in German). And to impose a Denkverbot concerning it would be a step back into "top-down state thinking." 

They further lamented that these policies would turn the Eurozone into a transfer union. If the government wanted to establish a transfer union, it should discuss that with the German voters, they demanded, because it would be a fundamental change in the E.U. constitution and should be legitimized by vote. Otherwise, Germany would be "threatened by a populist movement to exit the E.U."

Meanwhile, on his visit to Rome, Rösler had to face down Italian Finance Minister, Giulio Tremonti, who'd "vehemently" demanded the creation of Eurobonds, sources of the German delegation said (Zeit, article in German). President of the European Commission, José Manuel Barroso, supported Tremonti's demands. But Rösler, like Merkel and others, rejected the idea. 

Transferring liabilities to other countries would remove pressure from debtor nations to reform, he said, differences in yields being a market-driven incentive to get the budget in order. Eurobonds are also legally impossible, he added, based on a recent decision by the German Federal Constitutional Court.

Eurozone must be honest: Big haircuts for bond holders, debt limits for all, says Die Zeit (article in German). 

The drama of saving European banks that hold Greek debt, and the debt of other tottering Eurozone nations, has been going on for a year and a half. Each effort to keep Greece on track follows the familiar script. Politicians promise spending cuts. Greeks demonstrate. E.U. inspectors check things out and leave angry. Germans declare that Greece will not get any relief until it fixes its problems. Then Greece notices that it needs yet more money and threatens to default. 

Germany nods. And the next installment gets paid.

By now, all hope for a happy ending has dissipated. Greece is suffering from a multitude of problems that defy quick fixes, among them a huge pile of debt, an inept and corrupt fiscal system where taxes are simply not collected, dysfunctional institutions, and a government-dominated economy. Even unlimited amounts of money can only defer the end game.

But there are already victims. The most recent one: The concept of an independent, apolitical central bank whose primary purpose is guarding the value of the currency, rather than monetizing the debt of countries that have spent beyond their means.

To see how it all started, read my first post on the Bailout Rebellion in Germany


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