The Euroo crisis

Eurozone shuttle diplomacy to pick up pace before critical month

After a brief summer lull, euro zone leaders are gearing up for a round of shuttle diplomacy in the run-up to what could be a crucial month in the 2-1/2-year debt crisis.

Reuters,

16 August, 2012

Greek Prime Minister Antonis Samaras will fly next week to meet German Chancellor Angela Merkel and French President Francois Hollande, according to Greek and German government officials.

Earlier in the week, he will see Jean-Claude Juncker, who heads the group of euro zone finance ministers.

Merkel and Hollande will meet next Thursday, a day before the Greek premier arrives in Berlin, German government sources said, and the round of talks will extend well beyond Greece.

Merkel, now in Canada, will visit Spain's Mariano Rajoy early in September, according to the Spanish premier, and Italy's technocrat leader Mario Monti has said he would travel to Berlin before August is out.

The flurry of activity presages a crucial period for the euro zone after European Central Bank President Mario Draghi bought a measure of calm by announcing he would do whatever it took to shore up the bloc, including tackling high Spanish and Italian borrowing costs.

On September 6, the ECB may spell out at its monthly policy meeting exactly how it could intervene in the bond market if asked. Markets will be on red alert for ongoing signs of internal opposition after Bundesbank chief Jens Weidmann made clear his reservations about the plan.

Six days later, Germany's constitutional court will deliver a ruling on the euro zone's permanent ESM rescue fund before which Berlin cannot ratify it. Dutch elections are held on the same day.

The expectation is that the court will not block the fund's inception but it could demand greater political oversight.

Draghi has said the ECB could only intervene to lower borrowing costs if a euro zone sovereign had first asked for similar help from the bloc's bailout funds, to which conditions would be attached.

On September 14/15, European Union finance ministers meet in Cyprus. By then, the troika of EU, IMF and ECB inspectors may have delivered a verdict on Greece's debt-cutting progress.

Rajoy and Monti, who have consistently urged the ECB to act, are expected to put their heads together later in September.

Financial markets are stuck in a rut, knowing that next month could see fireworks.

"Everything depends on the data and ECB policy signals, what exactly they will do and when they will do it. Will Spain request aid?" said Nordea rate strategist Niels From.

GREEK PROGRESS

Spain remains the biggest concern for euro zone leaders since a full bailout would stretch its resources to the limit.

Having insisted that Madrid needed no sovereign aid, Rajoy has now said he would consider seeking further help on top of a bank bailout of up to 100 billion euros but says he needs to see the ECB's cards first. In three weeks time, he might.

"Until we know what decision the ECB has taken on this matter, we aren't going to take one either," Rajoy said on Tuesday.

Samaras will meet Merkel on August 24 and will insist he can ram through an austerity package worth about 11.5 billion euros (9 billion pounds) -- a key condition to continue receiving EU/IMF bailout funds and avoid default and a possible exit from the currency club.

"Our key priority is to regain our credibility by showing our determination," a Greek government official said.

Samaras will also raise a long-standing proposal that the austerity measures be spread over four instead of two years, to soften their impact on a Greek economy enduring its longest and deepest recession since World War Two.

No formal request will be made but the proposal will be broached as part of exploratory talks, the official said.

A two-year extension to narrow the budget deficit below 3 percent of GDP in 2016 instead of 2014 was a key plank of Samaras's campaign for the June 17 election that brought him to power as head of a fragile three-party coalition.

Berlin insists that Athens honour its pledges but will listen to what Samaras has to say, government spokesman Steffan Seibert said.

Many Germans oppose giving any more help and Merkel's room for manoeuvre appears to be shrinking at a time when both Greece and Spain may soon require new rescues.

Greece has yet to nail down the requested austerity package but there is a clause in the current bailout deal that says the deficit adjustment period might be extended if recession is deeper than expected.

EU officials told Reuters last month that Athens was way off its bailout targets, was unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary if it was not to be abandoned.

GREEK CRISIS: Why Antonis Samaras will not be going into battle unarmed next week.

The Greek Prime Minister has some good cards close to his chest, according to Slog sources

the Slog,

16 August, 2012

You can hardly blame many EU commentators for having found The Slog’s‘ bondholder haircut and debt forgiveness’ Greek story  from last weekend far-fetched. But an increasingly wide range of observers have since emailed me to say they’re convinced that the story is well-founded. Now more clues are emerging….and again, they relate to three consistent themes in The Slog’s approach to the Greek crisis: Samaras is being (with his Finance Minister) increasingly secretive towards his Coalition partners; the geopolitical dimension remains as important as ever; and the Germans are not going to budge: either the Greeks toe the line, or they’re out. (And if Berlin’s will doesn’t prevail, they’reoff).

Earlier this week, Merkel spokesman Stefan Siebert said there would be no more compromise with Athens, but then made what I found an odd statement under the circumstances. He said that “further decisions will have to wait until after a report from the troika is released in October.”

Publicly, Greece can’t wait that long. The Athens bond issue raised more than enough to pay off the ECB’s maturing bondholding on August 20th. Several sources across the markets think it highly likely that Mario Draghi bought a fair chunk of them himself, in order to neutralise the potential insolvency. But having scraped through that hole in the wall, the Greeks are still left with only a week or more of money – by which time they will need the €13.5bn bailout tranche to avoid insolvency again. The new Samaras/Coalition plan for additional savings is €4bn short of what the Troika wants.

Somebody, somewhere put a proposal(s) to the Coalition and the Troika last week, the substance of which was enough to reduce the tension. My own view is that the Siebert remark referred to above unconsciously recognised its existence. But it now looks highly likely that Angela Merkel herself wasn’t in that loop. The view from the Chancellery yesterday was brutally clear: if the Greek government doesn’t find the €4bn saving shortfall (and it hasn’t yet) Merkel’s patience will be exhausted.

Angela’s patience is a very political one: Germany’s legislators and voters are all Greeked out. They won’t stand for any more backsliding or delays. Which is a toughie, because Samaras wants an extension of the austerity period, in order to ease the burden on ordinary Greeks.

Although this is all getting incredibly complicated, in one line, it comes down to this:

If Antonis Samaras goes on his tour of EU capitals next week with no aces up his sleeve, he will fail in his bid to get a repayment extension.

Samaras is a smart bloke – and his finance minister Yannis Stournaras is well connected internationally and diplomatically. The two men have been inseparable of late. There is a general feeling across my European and US contacts that what they’re doing is collecting aces….both inside and outside the eurozone.

Officially, the Israeli Ambassador to Greece Arye Mekel on Monday ‘briefed Finance Minister Yannis Stournaras on the interest of Israeli businesses in participating in the privatisations programme’. Actually, they discussed Israeli help in the event of a Greek insolvency and eurozone exit.

Officially, the US ambassador to Greece Daniel Smith yesterday to underline that ‘a new business and economic environment is a necessary precondition for the recovery of the economy and the creation of new job positions and attracting foreign investors to Greece ‘. Actually, Smith and Stournaras discussed plans already mooted by a Geithner envoy (who was at College with Stournaras in the States) for specific aid in return for energy rights and military bases.

Officially, Antonis Samaras is on holiday on the island of Pylos, to inaugurate the Marine Antiquities exhibition. Actually, although Samaras does have a residence there, security is abnormally tight. Some high-level talks have clearly taken place.

Officially, Samaras is in constant touch with his Coalition colleagues. But the reality is that the political party leaders backing the government will not see Samaras again before his meeting with Eurogroup Chairman Jean-Claude Juncker next week.

At the inordinately expensive Hilton Pool Club in Athens, regulars include quality press editors, MPs, cabinet technocrats, and bankers. The Hilton is 5 minutes drive from parliament, but represents a relaxing haven in which this elite can meet and gossip. It has always been a solid source of information for Greek insiders. In the last few months alone, the Troika, Shimon Peres, and Vladimir Putin have all been residents. This from a highly-placed member:

“Normally in August everyone is away. Not this year! Pool members leaving Athens this summer leave for only a few days. Very unusual. Institutions/papers are on hold, waiting; senior people are kept in town. Silence reigns, the same silence that accompanied the Drachma’s 50% devaluation in the 1950s. Poolside gossip this week mirrors The Slog very closely…the [Samaras] Pylos holiday is assumed to be very much a working one.”

By ‘mirroring The Slog’, my contact means ‘looking for aces in order to play for high stakes and win’.

The French diplomat quoted in last weekend’s Slogpost also remains convinced that Antonis Samaras is after the strongest poker hand he can get.

“Always the trouble with Berlin is, as I have told you many times before – who are we dealing with here and how influential are they? I don’t think Merkel has engaged with Samaras in secret at all. But I can tell you that France, Spain and Italy have.”

“The Israelis and ourselves remain close to the action,” a longstanding Washington source claims, “and the long-term strategy remains the same….to make more friends in South East Europe and the Middle East than we had traditionally. I can honestly tell you that Greece need suffer no fear of isolation, however this [debt crisis] pans out in the end”.

“Samaras trusts Stournaras, but not Venizelos,” says a well-placed Greek expat now living in the UK, “They are working in secret because they see Venizelos as Brussels’ man. Antonis is determined there will be no leaks, that he will not be caught at a disadvantage.”

It would be a mug’s game trying to predict the reaction in Berlin if and when Samaras plays an ace. But I suspect Angela Merkel will wind up between a rock and a hard place: that is, a choice between expensive Grexit and yet another compromise.

Stay tuned.

Related: How Greeks evade amost half of all taxes

Canada refuses to help bailout Eurozone

Calgary Herald,

16 August, 2012

Conservative government on Wednesday rejected calls from Germany and the eurozone that Canada give to a bailout fund, even as German chancellor Angela Merkel arrived in Ottawa for two days of meetings with Prime Minister Stephen Harper.

Mr. Harper and Finance Minister Jim Flaherty have repeatedly rejected entreaties from Europe to contribute to a $450-billion bailout pot, managed by the International Monetary Fund, for troubled eurozone economies.

For article GO HERE