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Protesters Clash in Athens on Second Day of Strike

October 20, 2011 by Leave a Comment

Inside Parliament, Prime Minister George A. Papandreou made a last-minute appeal to win over wavering lawmakers to endorse the package. Without its passage, Greece’s foreign lenders have said they will not release the funds, which the debt-ridden country will need to meet expenses. 

During a heated debate in Parliament, Finance Minister Evangelos Venizelos said that if the new austerity measures, including changes to collective-bargaining agreements and the firing of public workers, were not approved, “the country will be exposed to the risk of a nonrational development” — an apparent reference to a debt default — “and will once again become the scapegoat for Europe’s historic, political and institutional shortcomings.”

 The climate in Athens was extremely tense with demonstrations turning into violent street skirmishes that went on for hours, well into the afternoon. Some demonstrators hurled firebombs not at the police but into the crowd. The scene outside Parliament looked like a war zone, with members of the Communist-backed labor union, PAME, and anarchists confronting each other with stones and firebombs while police stood by.  

Athens police said some 50,000 demonstrators had poured into the central Syntagma Square overlooked by the Parliament building. Greek media reported that one person died of a heart attack hours after being hit on the head with a stone, and another 16 people were injured, three seriously, but there was no official confirmation.

On Wednesday evening, as garbage fires smoldered in the streets, the Greek Parliament approved the new package in a first round of voting, with all 154 governing party legislators in Greece’s 300-seat Parliament voting in favor. But the measures will not become law until Thursday’s second vote.

The package is expected to be approved, even over the reluctance of the governing Socialist Party, which helped build up the welfare state it is now charged with dismantling. The ballot is all the more important as Greece awaits two critical developments beyond its borders.

European Union leaders are to meet Sunday for a final decision on the release of the next, $11 billion installment of aid to Greece, part of a $150 billion bailout engineered last year. They will also be looking at a much broader European rescue designed to protect the bloc should Greece default. And, within days, a so-called troika made up of the European Commission, the European Central Bank and the International Monetary Fund is to issue its newest report on the Greek crisis.

A draft report prepared by the commission, in “liaison” with the E.C.B., recommended the next installment of financial support to Athens be released as soon as possible after the latest austerity measures are enacted. On Thursday, Reuters quoted unidentified European officials as saying that the I.M.F. believes European assessments are too optimistic and wants to await a clearer outlook before signing off on the next installment.

“The vote will boost our negotiating position; it will give us strength for the E.U. summit,” Prime Minister Papandreou said this week. The main goal for Greece, he added, is “to stay in the euro zone.”

On Wednesday, tens of thousands of people turned out to protest on the first day of a two-day general strike. Although the demonstration was organized by leading labor unions, everyone from trash collectors, teachers, retired army officers, lawyers and even judges walked off the job to protest the government-imposed wage cuts and tax increases that they say are squeezing the debt-ridden country into penury.

“There’s no precedent for this,” said Anastasia Dotsi, 70, a retired bank worker who said anger had driven her out to protest. After two years of austerity measures, “we have been crushed as a people.”

She said her son and daughter, who both work in the private sector, had not been paid in months and were struggling to pay their mortgages and support their families.

On Thursday, the strike showed some signs of easing as air traffic controllers returned to work and flights resumed. But workers in most other sectors continued the stoppage.

Alan Cowell contributed reporting from London.

Article source: http://feeds.nytimes.com/click.phdo?i=200af364db4f77e5c0a204f85b2106e7

Filed Under: Business News Tagged With: , ,

News Analysis: E.C.B. Could Survive a Greek Default, but What About the Banks?

September 30, 2011 by Leave a Comment

FRANKFURT — The European Central Bank’s holdings of Greek government bonds are small enough for it to be able to survive even a large haircut if the country defaults, and its main concerns lie with the impact on the banking sector.

The E.C.B. has spent more than €150 billion, or $200 billion, on peripheral government bonds through its Securities Markets Program, which started in May 2010, first buying Greek, Irish and Portuguese bonds and more recently Italian and Spanish.

Analysts estimate the E.C.B. holds about €45 billion to €50 billion of Greek government bonds it has bought in the secondary market at well below face value, weakening the hit the central bank would have to take in a debt restructuring.

“The E.C.B. by definition has been buying in times of stress, so a rough calculation shows, if they’ve been buying at 70-75 percent (of face value), they would effectively take only a 25 percent haircut,” a Nomura economist, Laurent Bilke, said.

This would mean the E.C.B. would have to accept a loss of around €15 billion to €20 billion from a 50 percent haircut to the face value of the bonds.

“It’s a large amount, but it’s not going to bring the E.C.B. under, it’s not going to go bankrupt,” Mr. Bilke said.

Capital and reserves of the E.C.B. and national euro zone central banks amount to more than €81 billion, the central bank’s balance sheet showed.

The Greek media reported a week ago that Finance Minister Evangelos Venizelos had discussed plans for an orderly default with the International Monetary Fund chief Christine Lagarde and the president of the European Central Bank, Jean-Claude Trichet, as one of three possible scenarios for resolving the country’s fiscal woes.

Officials played down the reports and Mr. Venizelos described them in a statement as an unhelpful distraction from the central task of sticking to Greece’s E.U.-I.M.F. bailout program.

Until recently, European leaders have rejected any chance of Greece defaulting, but are moving to allow for the possibility of this happening.

Klaas Knot, a member of the European Central Bank’s governing council from the Netherlands, on Sept. 23 became the first euro-zone central banker to warn outright of the possibility of a Greek default.

If it comes to a default of Greece — orderly or disorderly — the bigger problem for the E.C.B. would be the systemic risks stemming from such a step.

“It will be very difficult for Portugal and Ireland not to suffer a loss of confidence then,” said Silvio Peruzzo, a Royal Bank of Scotland economist, also pointing to Italy and Spain.

Talk that Europe needs to shore up its banks — if necessary with capital from taxpayers — is gathering strength. The past recession, losses on sovereign debt and higher funding costs are weighing heavily on banks’ balance sheets, and some suggest there should be forced recapitalization by governments if it does not happen otherwise.

The International Monetary Fund reckons Europe’s banks could need to recapitalize to the tune of €200 billion and many bank analysts are far gloomier than the Fund.

To ease stress on banks, the E.C.B. already reintroduced its longer-term, six-month refinancing operation in August and last week joined other major central banks in offering three-month U.S. dollar loans to commercial banks to prevent money markets from freezing up again.

There is now talk of offering longer, one-year liquidity to banks.

Stress in the interbank lending market is already an “indication that the crisis has moved into systemic mode,” Mr. Peruzzo said.

Crippled banks are also likely to leave the E.C.B. holding collateral with little value, but since it accepts all collateral at market value minus a haircut, its losses from this would be manageable — especially since governments would be loathe to let banks collapse as they fear contagion.

Major European banks would probably be able to take such a hit but for Greek banks it could be the last straw.

“Collateral becomes a problem only if Greek banks go under,” Mr. Bilke at Nomura said. “There would be a general issue with Greek banks, they would have to take a big loss and probably some of them would not be able to go through if there’s a big haircut.”

To prevent a Greek default from infecting the whole banking sector, authorities would have to come up with a program to keep banks afloat — and this would have to come mainly from governments, keeping E.C.B. exposure manageable.

So, while the E.C.B. could take the direct losses in its stride, the fear of instability and economic collapse keep it opposing Greek default.

Article source: http://www.nytimes.com/2011/10/01/business/global/ecb-could-survive-a-greek-default-but-what-about-the-banks.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Greeks Discuss Drastic Moves to Receive Aid

September 19, 2011 by Leave a Comment

FRANKFURT — Greek leaders struggled through the weekend to agree to a set of radical budget reductions that would satisfy foreign lenders’ demands even as they tried to stave off mounting resistance to those cuts at home.

Reflecting the urgency of the situation, the prime minister of Greece, George A. Papandreou, canceled a planned trip to Washington this week and held talks with his cabinet on Sunday.

The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt. Over the weekend, European finance ministers issued stern warnings at a meeting in Poland that failure to meet financial targets would imperil the release of the payment.

The payment is just one installment in a larger package of 110 billion euros, or $152.6 billion, in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, or $150.2 billion, was agreed to in July, though that has yet to be ratified.

To reach the financial targets, Greek leaders discussed a range of draconian layoffs and pay reductions among public sector workers. While these measures have long been planned, but never carried out, to the frustration of foreign lenders, the discussion of these cuts represented a marked change in approach for the Greek government, with the emphasis on reductions over revenue increases.

“Everyone wants a smaller state,” the finance minister, Evangelos Venizelos, said on Sunday.

After the meeting, the Greek government reaffirmed its commitment to hit budget targets for 2011 and 2012, to avoid generating new debt and to revamp the dysfunctional economy. The measures are “in order to avoid bankruptcy and remain in the euro zone but also to stop the country being blackmailed and humiliated,” Mr. Venizelos said.

Mr. Venizelos also appealed to Greeks to take responsibility for the challenges they face.

“What is being disputed on a global level is not the ability of the government but the ability of the country to do what is necessary,” he said, in an apparent reference to strong labor union resistance to reforms and persistent tax evasion.

More specifically, Greece officials are being pressed to put thousands of civil servants deemed to be “surplus” on a standby status at a reduced wage. The government has not yet pushed ahead with this measure, which is very unpopular in a country where nearly one million people out of a population of 11 million work for the government.

Several Greek news media outlets, including the influential center-left newspaper To Vima, on Sunday cited an internal government e-mail that set out priorities by Greece’s foreign creditors aimed at raising much-needed revenue quickly. These include cuts in the pensions of Greek sailors and employees of the state telecommunication company OTE, the immediate merger or abolition of 65 state agencies and the freezing of state workers’ pensions through 2015.

Adding to the Greeks’ dilemma is that the proposed cuts come as the Greek economy is contracting faster than expected. Last week, Mr. Venizelos warned that the economy would shrink much more sharply this year than anticipated — by 5.3 percent instead of the 3.8 percent originally forecast in May. The budget deficit is on track to reach 8.2 percent of gross domestic product this year, well ahead of the original estimate of 7.4 percent.

The original aid package requires Greece to reduce its deficit to 7.5 percent of gross domestic product this year, and below 3 percent by 2014, according to the International Monetary Fund.

The reduced number of workers employed in the public sector would only add to the difficulty of meeting these targets as payroll tax collections shrink.

Despite the dire circumstances, Mr. Venizelos denied rampant speculation that the country was on the brink of default.

Acknowledging that the mood in both Greece and the euro zone is “fluid and nervous,” he said the country was committed to taming its widening budget deficit and carrying out reforms, one of which is a new levy intended to ensure that property owners pay taxes.

Mr. Venizelos also lashed out at “those intent on speculating against the euro and carrying out organized attacks on the heart of the euro zone.”

Greece, he said, risks “becoming a scapegoat and an easy alibi for institutions that are unable to curb the crisis and to respond to attacks on the euro.”

On Monday, Mr. Venizelos will have a chance to make his country’s case in a conference call with representatives of the foreign lenders known as the troika: the European Commission, the European Central Bank and the International Monetary Fund.

Jack Ewing reported from Frankfurt, and Niki Kitsantonis from Athens. Stephen Castle contributed from Wroclaw, Poland.

Article source: http://www.nytimes.com/2011/09/19/business/global/19iht-euro19.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,