April 15, 2024

Ex-Defense Minister on Trial in Greek Bribe Case

Mr. Tsochatzopoulos, 73, a onetime socialist heavyweight, is on trial with his wife, daughter and another 16 former aides and associates alleged to have participated in the scheme. He, his relatives and another five suspects have been in custody at Athens’ high-security Korydallos Prison for the past year.

Mr. Tsochatzopoulos and his wife, who were transferred to the courthouse on Monday morning by a police bus, have been subjected to intense media scrutiny of their wealth as the living standards of ordinary Greeks plummeted after three years of austerity. Dressed in a dark blue suit and clutching a file of documents, the white-haired minister held his head high as police escorted him into the court building while his 50-year-old wife, a former assistant in his political office, appeared pale and drawn.

The charges are highly unusual in a country where top-ranking state officials are rarely prosecuted. During his stint as defense minister between 1996 and 2001 and for several years after that, Mr. Tsochatzopoulos is alleged to have used a network of offshore companies to siphon off millions of euros in bribes he is said to have taken in exchange for procurement contracts including the purchase of a Russian missile defense system and German submarines.

According to prosecutors, around €160 million, or about $210 million, in bribes was paid for those two deals which were worth an estimated €3 billion. Authorities have traced €57 million.

The former minister, a founding member of the country’s once dominant socialist Pasok, which is now part of a conservative-led coalition, has denied the charges, claiming his prosecution is politically motivated. He has called for members of the political and defense council that co-signed the contracts for the defense deals — including two former prime ministers, Costas Simitis and George Papandreou — to testify at his trial which is expected to last several months. The request has been rejected by the Greek judiciary which said the bribery allegations, not the deals, were under scrutiny.

Irrespective of the outcome of his trial for money laundering, which could yield a 20-year prison term, Mr. Tsochatzopoulos will not escape jail time. Last month he was sentenced to eight years in prison for concealing assets from the authorities, notably by failing to report the purchase of a neo-Classical mansion near the Acropolis. That property has been linked to the money laundering scheme Mr. Tsochatzopoulos is alleged to have set up.

With public anger growing after the years of economic crisis, the government of Prime Minister Antonis Samaras has vowed to crack down on corruption among the political elite whom most Greeks blame for the dysfunctional state system that created the country’s huge debt problem and led it to dependence on foreign rescue loans. In an unusually severe sentence in February, a court in Salonika, Greece’s second-largest city, convicted the former mayor, Vassilis Papageorgopoulos, to life in prison for embezzling at least €18 million from city coffers.

Last September, the Greek authorities began examining the bank accounts of more than 30 politicians to determine whether they should be charged with tax evasion and other crimes and last month three former ministers were charged with submitting false income declarations.

Mr. Tsochatzopoulos is the most senior government official to stand trial since the former prime minister and Pasok founder, Andreas Papandreou, was acquitted in 1991 on charges of accepting bribes in return for forcing state companies to prop up a troubled private bank.

Article source: http://www.nytimes.com/2013/04/23/world/europe/ex-defense-minister-charged-in-greek-bribe-case.html?partner=rss&emc=rss

Greek Coalition Partners to Back New Reforms

Prime Minister Lucas Papademos had sought agreement among coalition partners on the broad outlines of a deal with private creditors to erase $130 billion of debt as well as a recovery plan suggested by the European Commission, European Central Bank and International Monetary Fund, collectively known as the troika.

Athens had reported progress over the weekend between Greece’s political leadership and Charles Dallara of the Institute of International Finance, the bankers’ lobby representing most investors, regarding how much of a loss the private sector creditors would be willing to accept on their bond holdings. A deal is expected within days.

The statements on Sunday by Greece’s technocrat premier suggested that he had overcome some of the objections of the party leaders — his Socialist predecessor George Papandreou, the conservative leader Antonis Samaras and the right-wing leader Georgios Karatzaferis — to new austerity measures proposed by the troika, although some points of contention remain.

The three party leaders were later quoted on Sunday as saying that their only objections were to proposed cuts to wages in the private sector — which would intensify a deep recession — and to reported German demands for a European Union commissioner to oversee Greek budget decisions.

Still, any new measures could face a struggle to pass the Parliament, where many lawmakers remain resistant to unpopular measures.

Mr. Papademos said that the alternative to the completion of talks on the debt swap and on a second bailout for Greece was a potentially catastrophic default.

“If this process is not completed successfully, we will find ourselves faced with the specter of bankruptcy, which will have serious repercussions for society and especially for the economically vulnerable,” he said.

The talks with private creditors have broken down twice before, largely because the International Monetary Fund and European leaders have pushed for greater debt reduction in light of Greece’s worsening economic outlook, so there is again the possibility that these negotiations will founder.

Reining in Greece’s budget problems will not be the only item Monday in Brussels.

Leaders are expected to bow to mounting evidence that austerity alone risks stoking recession and plunging fragile economies into a downward spiral; a draft of the European Union summit meeting communiqué calls for “growth-friendly consolidation and job-friendly growth.”

Leaders will discuss long-term structural reforms and better use of European Union subsidies, while avoiding mention of fiscal stimulus from Germany, the powerhouse of the euro zone.

Then the meeting, which will be held at the same time as a national strike in Belgium, will try to satisfy Berlin’s desire for fiscal discipline by wrapping up talks on a new intergovernmental treaty.

Meanwhile, several nations are also expected to champion the need for a financial transaction tax, a plan that one official study suggested could cut growth.

Stephen Castle contributed reporting from Brussels.

Article source: http://feeds.nytimes.com/click.phdo?i=2b89d18b4bbd8a165b042f88551abf15

Greek Leaders Agree on New Government

ATHENS — After crisis talks on Sunday night, Prime Minister George Papandreou and his main rival agreed to create a new unity government in Greece that will not be led by Mr. Papandreou, according to a statement released Sunday night by the Greek president, who mediated the talks.

Mr. Papandreou and the opposition leader Antonis Samaras agreed to meet again on Monday to hammer out the details. The name of the new prime minister is not expected until then.

The new government is intended to govern for several months to put in place a debt agreement with the European Union, a step European leaders consider crucial to shoring up the euro. Then it is to hold a general election and dissolve.

 Mr. Papandreou has faced mounting pressure to resign, including from within his own party, the Socialists.

Before the meeting with the president, Mr. Samaras said he would enter talks on a unity government only if Mr. Papandreou resigned. Mr. Papandreou himself had repeatedly said that he would be willing to step aside for the deal to go through.

But after meeting with his cabinet in the afternoon, Mr. Papandreou said Mr. Samaras would first have to agree to a seven-point plan of priorities that would essentially commit the new government to the terms of the debt deal. The priorities include securing the release of European rescue funds, meeting fiscal targets imposed by foreign creditors, and passing the 2012 budget by the end of the year.

Mr. Samaras’s conservative New Democracy party has in the past voted against many of the unpopular austerity measures Europe has demanded in exchange for its help, leaving the Socialist government to shoulder the political burden alone.

Mr. Papandreou also insisted that the two sides agree on the composition of a unity government before he steps down.

“It’s clear this government is prepared to hand over the baton, but it can’t hand it over into a vacuum,” he said, according to a transcript of the cabinet meeting that was released to the news media. “It will hand over to the next government, if we agree and decide on it.”

It was not clear on Sunday night whether the opposition had agreed to the sevenpoints during the meeting with President Karolos Papoulias; nor was it clear when Mr. Papandreou would step down. Discussion of the composition of the unity government was left for Monday.

In one scenario discussed in the Greek media on Sunday, Mr. Papandreou might cede power to a unity govermnet including politicians from the Socialist and New Democracy parties but led by a nonpolitical figure. One name being mentioned as a possible leader for such a government is Lukas Papademos, a former vice president of the European Central Bank.

That scenario could set the stage for a power battle between Mr. Papademos and the current finance minister, Evangelos Venizelos, who has reportedly been trying to rally support for a government that he could lead.

Mr. Papandreou survived a crucial confidence vote in Parliament in the early hours of Saturday, a vote seen as an endorsement for the debt agreement with the European Union, but which was predicated on the expectation that he would immediately resign.

His failure to do so appeared to leave Greek politically deadlocked, with the opposition calling for early elections and the government insisting that holding elections now would be too destabilizing.

European leaders want the Greek Parliament to pass the new debt deal worked out in Brussels on Oct. 26. They have urged Greek leaders to forge a broader consensus, since the governing Socialist party did not seem to be able to unify and pass the law on its own.

The deal calls for banks that hold some Greek debt to write down 50 percent of its face value, to help reduce the country’s public indebtedness to 120 percent of its gross domestic product by 2020. But the deal also requires the Greek government to adopt a series of deeply unpopular austerity measures, and it imposes a permanent foreign monitoring presence, a development that many Greeks see as a loss of sovereignty.

In an effort to allow Greeks to have their say, and to strongarm Mr. Samaras into backing the debt deal, Mr. Papandreou proposed a popular referendum on the agreement last week. After the referendum idea drew the ire of European leaders and threw international markets into turmoil, Mr. Papandreou withdrew it.

Though the about-face may have appeared to be a defeat for Mr. Papandreou, he won support for the debt deal from the opposition.

Opinion polls published in Greek newspapers on Sunday drew different conclusions about whether Greeks preferred a national unity government or immediate elections.

A poll for the centrist weekly Proto Thema found that 52 percent of Greeks favored a unity government that would rule for several months and be chosen by Mr. Papandreou, while 36 percent preferred immediate elections to choose a new government, as proposed by the New Democracy party.

Another poll, for the center-left Ethnos newspaper, found less difference in support for the two scenarios, with 45 percent supporting a unity government and 42 percent backing snap elections.

A third survey, for the center-right Kathimerini, found that 66 percent of Greeks supported early elections, but in that poll the alternative choice offered was not a unity government, it was a referendum, which only 14 percent of respondents supported.

Article source: http://feeds.nytimes.com/click.phdo?i=356efc7e56412228c8f7a1fe7ed37e11

Europe’s Two Years of Denials Trapped Greece

THE warning was clear: Greece was spiraling out of control.

But the alarm, sounded in mid-2009, in a draft report from the International Monetary Fund, never reached the outside world.

Greek officials saw the draft and complained to the I.M.F. So the final report, while critical, played down the risks that Athens might one day default, with disastrous consequences for all of Europe.

What is so remarkable about this episode is that it wasn’t so remarkable at all. The reversal at the I.M.F. was just one small piece of a broad pattern of denial that helped push Greece to the brink and now threatens to pull apart the euro. Politicians, policy makers, bankers — all underestimated dangers that seem clear enough in hindsight. Time and again over the last two years, many of those in charge offered solutions that, rather than fix the problems in Greece, simply let them fester.

Indeed, five months after the I.M.F. made that initial prognosis, Prime Minister George Papandreou of Greece disclosed that, under the previous government, his nation had essentially lied about the size of its deficit. The gap, it turned out, amounted to an unsustainable 12 percent of the country’s annual economic output, not 6 percent, as the government had maintained.

Almost all of the endeavors to defuse this crisis have denied the overarching conclusion of that I.M.F. draft: that Greece could no longer pay its bills and needed to drastically cut its debt.

Until October, when European leaders conceded that point, the champion of the resistance was Jean-Claude Trichet, who stepped down this month as president of the European Central Bank. It was he who insisted that no European country could ever be allowed to go bankrupt.

“There is simply no excuse for Trichet and Europe getting this so wrong,” said Willem Buiter, chief economist at Citigroup. “It is fine to make default a moral issue, but you also have to accept that outside of Western Europe, defaults have been a dime a dozen, even in the past few decades.”

If leaders had agreed earlier to ease Greece’s debt burden and moved faster to protect the likes of Italy and Spain — as United States officials had been urging since early 2010 — the worst might be behind Europe today, experts say.

The turning point came at a late-night meeting last month when Angela Merkel, the German chancellor, pushed private creditors to accept a 50 percent loss on their Greek bonds. Mr. Trichet had long opposed such a move, fearing that it could undermine European banks. Instead, at his urging, European leaders initially promoted painful austerity for Greece, prompting a public backlash that pushed Mr. Papendreou’s government to the brink of collapse and could force Athens to abandon the euro.

Many view the latest rescue plan as too little, too late.

“Because of all this denial and delay, Greece will need to write down as much as 85 percent of its debt — 50 percent is not enough,” Mr. Buiter said.

It was never going to be easy to turn things around in Greece, particularly given European politics. In countries like Germany and the Netherlands, many people oppose bailing out their southern neighbors. Policy makers and, indeed, many financiers believed that they could buy enough time for Greece to solve its problems on its own.

“It was quite obvious, by the spring of 2010, that Greek debt could not be paid off,” said Richard Portes, a European economics expert at the London Business School. “But in good faith, policy makers felt that Greece could grow out of its debt problem. They were wrong.”

BOB M. TRAA is no one’s idea of a radical. A Dutchman, he labors at the I.M.F., among the arcana of global debt statistics. He wrote the 2009 report.

Immediately after that bulletin, he produced another, more damning analysis, which concluded that if Greece were a company, it would be bankrupt. The country’s net worth, he concluded, was a negative 51 billion euros ($71 billion).

But because Greece had a high-enough credit rating at that time, it could keep borrowing money and skate by. Once again, the Greek government objected to the I.M.F. analysis, although this time, the report was not amended.

Attention has only recently been drawn to these early I.M.F. studies. The Brussels research group Bruegel, which conducted an analysis at the I.M.F.’s behest, concluded the fund should have done more to draw attention to Greece’s troubles.

By early 2010, banks and bond investors were growing reluctant to lend Greece money. The country’s finance minister, George Papaconstantinou, delivered a blistering message to his European partners.

Stephen Castle reported from Brussels.

Article source: http://www.nytimes.com/2011/11/06/business/global/europes-two-years-of-denials-trapped-greece.html?partner=rss&emc=rss

Looking Ahead: Economic Reports This Week

CORPORATE EARNINGS Companies reporting results include Walgreen (Tuesday); Darden Restaurants (Wednesday).

IN THE U.S. The United Automobile Workers will start negotiations with Ford Motor on a new contract; President Obama will participate in a town hall meeting on the economy in Mountain View, Calif. (Monday).

Solyndra will seek permission in bankruptcy court in Wilmington, Del., to auction its assets and hire lawyers to represent it in inquiries into its government-backed loan guarantee (Tuesday).

Ben S. Bernanke, the chairman of the Federal Reserve, will give a speech in Cleveland (Wednesday).

IN EUROPE Prime Minister George Papandreou of Greece will meet with Chancellor Angela Merkel of Germany in Berlin (Tuesday).

Article source: http://feeds.nytimes.com/click.phdo?i=b737e0bb94d89f82e76e458752185173

Stocks Slide in Europe Amid Uncertainty Over Greece

The market’s attention was focused on the results of a teleconference later Monday between Greek officials and the so-called troika of foreign creditors — the International Monetary Fund, the European Commission and the European Central Bank — as well as further meetings among senior officials in Athens struggling to close a gaping budget gap.

Meetings of European finance ministers at the end of last week and an emergency meeting of the Greek cabinet on Sunday failed to produce any specific commitments on whether the next tranche of €8 billion, or $11 billion, in financial aid would be released in time to help Athens meet obligations coming due in mid-October.

Amid the crisis atmosphere, Prime Minister George Papandreou of Greece canceled a visit to the United States, saying he needs to be at home to work on the rescue package.

Some analysts now fear that given the legal complications in some euro zone countries, and the apparent reluctance of Greece to push ahead on the kind of commitments on spending, wages and privatizations being sought by its partners, Greece might soon default, triggering a domino effect on other euro zone countries like Portugal, Italy or Spain.

Those fears were compounded after the party of Chancellor Angela Merkel of Germany lost ground in a regional election in Berlin on Sunday, amid voter anger over her handling of the debt crisis.

“The background noise of the Greek debt crisis resembles a continuous alarm tone,” Rainer Guntermann and Peggy Jäger, Commerzbank analysts said in a research note. “With few tangible results coming from the finance ministers’ meeting over the weekend and still little official indication that the Greek debt swap may go through, speculation remains high and Bunds remain in demand.”

The Euro Stoxx 50 Index retreated 2.3 percent and futures on the Standard Poor’s 500 Index sank 1.5 percent. The FTSE-100 shed 1.6 percent in London.

Banking stocks were once again hard hit. Barclays, the British bank shed around 7 percent, and BNP Paribas of France was down around 2.5 percent.

The euro weakened 1 percent to $1.3663 and also declined against the yen.

There was also pessimism about the economic outlook after the O.P.E.C. secretary-general Abdalla El-Badri said Monday that global demand for oil was rising less than expected, Bloomberg News reported.

The price of German government bonds rose. The yield on German 10-year bunds declined seven basis points to 1.80 percent. Spanish and Italian bond prices declined even as the European Central Bank was reported to be buying those securities by traders.

Article source: http://feeds.nytimes.com/click.phdo?i=bc5b0a1de9fb2eb3b00659d2e32f8e7e

Asian Stocks Rise on Hopes Greece Won’t Default

In a teleconference Wednesday night, German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou all reaffirmed the belief that Greece is an “integral part” of the eurozone.

Merkel and Sarkozy pledged to help Greece avoid a debt default and Papandreou renewed his commitment to debt-reduction targets.

The news soothed markets that have been rattled over the past few days by fears that debt-ridden Greece was heading rapidly toward a chaotic default as well as the idea that it could potentially leave the euro and return to its own currency.

In early European trading, the FTSE 100 index of leading British shares was up 0.5 percent at 5,252.98 while Germany’s DAX was up 1 percent at 5,395.15. The CAC-40 in France rose 0.5 percent to 2,965.10.

Japan’s Nikkei 225 index rose 1.7 percent to close at 8,668.86 while South Korea’s Kospi advanced 1.4 percent to finish at 1,774.08. Australia’s ASX 200 rose 1.6 percent to end at 4,071.70.

Benchmarks in Singapore, Taiwan and New Zealand also rose.

Hong Kong’s Hang Seng was less than 0.1 percent higher at 19,058.83, dragged down by clothing retailer Esprit Holdings Ltd., which plunged nearly 12 percent after it said full-year profit tumbled.

Mainland Chinese stocks dipped, with the Shanghai Composite Index down 0.2 percent at 2,479.65 after spending the day flip-flopping between positive and negative territory.

The rebound in Asian markets is characteristic of recent volatility in global financial markets and it’s unclear whether the optimism would give more than just a short-term boost, said Ben Collett, head of Japanese equities at Louis Capital Markets in Hong Kong.

“If you’re Greece, that is some positive news. A reaffirmation from two European leaders is certainly positive and it is the sort of things the market wants to hear (although) there’s not much behind it,” said Collett.

“There are ways to solve the European issue but they take time. While we’re waiting for that I think it’s reasonable for the market to get a boost from the politicians but that won’t last forever,” he added.

Collett said markets are still pricing in a Greek default and so-called “haircut” — in which bondholders agree to accept less money than expected for their investments.

However, U.S. stocks were poised to dip. Dow futures were down 0.2 percent at 11,152.00 while broader SP 500 futures were down 0.2 percent at 1,179.40.

In currencies, the dollar strengthened to 76.69 yen from 76.65 yen late in New York on Wednesday. The euro fell to $1.3725 from $1.3752.

Oil prices fell amid signs of sluggish U.S. consumer demand. Benchmark oil for October delivery was down 36 cents $88.54 per barrel in electronic trading on the New York Mercantile Exchange. The contract lost $1.30 to finish Wednesday at $88.91 per barrel.

In London, Brent crude for October delivery was down 33 cents at $109.32 on the ICE Futures exchange.

Article source: http://www.nytimes.com/aponline/2011/09/14/business/AP-World-Markets.html?partner=rss&emc=rss

Germany and France Back Greece on Austerity Effort

In their call, French President Nicolas Sarkozy and German Chancellor Angela Merkel had been expected to tell the Greek prime minister, George Papandreou, that he must meet deficit-cutting promises to the European Union and the International Monetary Fund in return for subsidized loans and a second bailout.

Together, they are pushing all euro zone states to ratify as soon as possible decisions made on July 21, which expand the European Financial Stability Facility and allow it increased flexibility to protect Greece and other heavily indebted members as they work to cut deficits and stabilize their finances.

The facility would be expanded to 440 billion euros to allow it to cover Greece, Ireland and Portugal, buy bonds in the secondary markets, aid troubled banks and offer lines of credit.

Wall Street rallied on the European statement, with the Dow Jones industrial average up more than 2 percent by late afternoon.

Earlier Wednesday, France brushed off concerns about its biggest banks Wednesday, insisting that it had no plans to nationalize any of them despite a credit rating downgrade linked to their exposure to the limping Greek economy.

Moody’s Investors Service downgraded two of France’s biggest banks Wednesday, Société Générale and Crédit Agricole, citing the fragile state of bank financing markets and, in the case of Crédit Agricole, exposure to the Greek economy. It kept a third, BNP Paribas, under review.

The French government’s latest attempt at reassurance about the health of their banks came as the leaders of France and Germany prepared to speak with their Greek counterpart amid worries that Athens may default on its heavy debt load.

U.S. Treasury Secretary Timothy Geithner also sought to soothe nerves over a possible Greek default, saying in a CNBC interview that European leaders have the capacity “to hold this thing together.”

The head of the European Commission also said he would present options soon for the introduction of euro area bonds — the latest effort by European leaders to show they are trying to strengthen the foundations of their monetary union.

The credit ratings cuts had been widely anticipated by investors but nevertheless sparked knee-jerk drops in the euro and Asian stock markets, both of which had already been on the back foot earlier in the Asian trading day.

But the downgrades were less severe than many analysts had anticipated, and European markets rose.

The Bank of France governor, Christian Noyer, called the ratings cuts “good news” because they were less than expected. In a radio interview, he also said it would make “no sense” to nationalize any French bank, calling such talk “surreal.”

Mr. Geithner said in the CNBC interview that there was “no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.”

Still, underscoring concerns about the impact of Europe’s debt crisis and banking problems on the United States, Mr. Geithner plans to take the unusual step of attending a meeting of finance ministers from all 27 European Union nations in Poland on Friday.

In a stark warning, the Polish finance minister, Jacek Rostowski, who will host that meeting,  said at the European Parliament in Strasbourg, France, on Wednesday that the European Union itself “might not survive” a collapse of the euro zone.

Société Générale, BNP Paribas and Crédit Agricole all hold Greek debt. Crédit Agricole and Société Générale are more exposed to the Greek banking system through subsidiaries. But Moody’s said Société Générale’s risks from its Greek holdings were relatively modest and manageable.

Société Générale, BNP Paribas and Crédit Agricole are considered integral actors in the French economy, lending billions of euros to businesses and individuals, and the government has indicated it would never let them any of them fail.

Stephen Castle contributed reporting from Brussels and Bettina Wassener contributed from Hong Kong.

This article has been revised to reflect the following correction:

Correction: September 14, 2011

An earlier version of this article erroneously stated that the downgrade of Société Générale was related to its exposure to the Greek economy.

Article source: http://www.nytimes.com/2011/09/15/business/global/france-expresses-confidence-in-banks-after-downgrades.html?partner=rss&emc=rss

Markets Weigh Concerns Over Italy’s Debt

As investors fretted about a new wave of financial instability, the euro slumped to its lowest level since March and borrowing costs rose again for Europe’s weaker economies.

In midday trading, the Dow Jones industrial average was flat, with a gain of just 5.26 points, to 12,511.02 points. The Standard Poor’s 500-stock index was also largely unchanged, at 1,320.27, and the Nasdaq composite was down 9.91 points, or 0.35 percent, to 2,792.71.

European indexes, after declining sharply in morning trading, regained some ground in the afternoon. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 0.58 percent. The FTSE 100 index in London slid 1.02 percent.

In the day’s most dramatic action, the main Italian stock market index slid more than 4 percent in morning trading, before bouncing most of the way back, after Giulio Tremonti, the economy minister, returned to Rome early from a meeting of euro zone officials to take charge of discussions on new austerity measures and the government successfully sold one-year debt.

Mr. Tremonti is considered by many investors to be instrumental to Italy’s bid for market credibility. Silvio Berlusconi, the embattled prime minister, led investors to ditch Italian debt last week when he suggested Mr. Tremonti might be forced out of the government.

Italy has begun moving into the front of investors’ consciousness, but the question of how to aid Greece remains unsolved. In a letter to Jean-Claude Juncker, the president of the euro zone finance ministers’ group, the Greek Prime Minister George Papandreou complained that market turmoil was undermining his government’s efforts at economic reform, and called for “collective forceful decisions” from his European partners.

European finance officials met for six hours Monday in Brussels but failed to resolve a long-running dispute over private sector involvement in a second bailout for Greece.

“If Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union,” Mr. Papandreou wrote.

Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note that Greece was not the euro zone’s main problem. “Instead, the massive contagion from the small periphery to the big bond markets of Italy and Spain in the last four trading days has turned into the real problem,” he said.

Asian shares were down across the board. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent. The main Sydney market index, the S. P./ASX 200, fell 1.9 percent, In Hong Kong, the Hang Seng index fell 3.1, and in Shanghai the composite index fell 1.7 percent.

Data released Tuesday showed that bank lending in China had remained more buoyant than expected in June, fanning expectations that Beijing may tighten lending requirements or raise interest rates again in its battle to contain inflation.

The Bank of Japan governor, Masaaki Shirakawa, said that global economic growth was “slowing somewhat,” Reuters reported from Tokyo. “The U.S. economy faces severe balance sheet adjustments, and sovereign problems pose a risk to Europe,” he said.

Also on Tuesday, Moody’s issued a list of Chinese companies that raised “red flags” at the ratings agency because of possible governance or accounting risks, causing the shares of those companies to tumble.

New York crude oil futures fell 0.4 percent to $94.76 a barrel.

The euro slumped, falling to $1.3992 from $1.4029 late Monday. The dollar fell to 79.64 yen from 80.26 yen, signaling that Japanese investors were becoming more risk averse and repatriating overseas funds.

The worries about Italy have further shaken already fragile global market sentiment. Even though Italy retains solid debt ratings, a sound banking system and a relatively small budget deficit compared to the size of its economy, it is plagued with high debt, feeble growth and political paralysis.

The jitters prompted the Italian stock market regulator on Monday to impose emergency rules against short selling after shares in Italian banks slumped for a fifth straight session.

The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to 5.8 percent before falling back.

“The current escalation of the euro area periphery crisis is the third period in which the problems facing Greece, Ireland and Portugal have seriously threatened more serious contagion in the euro area,” Paul Robinson, an analyst at Barclays Capital, wrote in a note.

As grave as the situation is, however, he added, “the previous episodes during which Spain and Italy were significantly affected proved temporary, and the situation facing both economies is far less serious than in Greece’s case.”

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source: http://www.nytimes.com/2011/07/13/business/worries-about-italys-debt-drag-down-asian-markets.html?partner=rss&emc=rss

Deal on Lifeline to Avert Greek Bankruptcy Is Postponed

After nearly seven hours of talks in Luxembourg, ministers announced a holding action that reflected their struggle over how to avert a potentially disastrous default by Greece. Athens needs the next payout of 12 billion euros from its existing 110 billion euro bailout package by mid-July in order to remain solvent.

The decision adds to pressure on the Greek government and its prime minister, George Papandreou, who on Sunday began urging Parliament to support his reform plans in a confidence vote scheduled for Tuesday night.

The ministers’ action fell short of expectations raised Thursday when Olli Rehn, the European commissioner for economic and monetary affairs, said in a statement that he was confident the leaders would reach agreement in Luxembourg to provide Greece the next installment of aid in early July.

Jean-Claude Juncker of Luxembourg, who leads the group of 17 euro zone finance ministers, said he expected the disbursal to be approved if deep spending cuts and new reform measures were enacted. “I cannot imagine for one second that we would commit to finance Greece without knowing that the Greek Parliament has given a vote of confidence to the Greek government,” he said.

Mr. Papandreou’s Socialist Party has been working to shore up its tenuous political position in the face of widespread anger in Greece over strict austerity measures that have produced job losses and cuts to wages and pensions. Late last week Mr. Papandreou shuffled his cabinet and appointed a Socialist stalwart, Evangelos Venizelos, as the new finance minister.

The ministers did fall into line with an agreement made on Friday between the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, over the extent to which private investors would be involved in a second bailout package, which Greece needs on top of its existing rescue package in order to meet its debt obligations through next year.

The ministers did agree that a second bailout would involve the private sector “in the form of informal and voluntary rollovers of existing Greek debt” — a solution deemed acceptable by the European Central Bank. Before backing down on Friday, Mrs. Merkel had initially pressed for debt swaps instead.

Asked about the mood of the talks, the Belgian finance minister, Didier Reynders, said “the atmosphere was good.”

“The problem was that we have to make progress on the role of the private sector, and we have made progress,” he said.

The discussion proved more complex than expected because the International Monetary Fund was insisting that the European Union effectively underwrite the Greek government if its financing plan did not add up over the next year, said one European official not authorized to speak publicly. Many governments resisted that effort because of the uncertainty in knowing how much of a financing gap there could be next year. It is also unclear what proportion of it could be covered by the private sector.

Devising a new bailout that would include voluntary private sector involvement, so it would not be classified as a default, will be complex, said one official not authorized to speak publicly, because the amount that the private sector agrees to contribute will largely determine how big a gap reluctant European governments will have to fill. Another big source will be Greece’s privatization program, intended to raise as much as 50 billion euros.

After a week of intense turmoil that ended with an overhaul of the ruling Socialist Party’s cabinet on Friday, Mr. Papandreou signaled on Sunday that he was prepared to make radical changes to the indebted Greek state system, and proposed an overhaul of the Constitution.

Declaring that the bloated government sector was largely to blame for the state of the Greek economy, Mr. Papandreou called for a referendum in the fall on a proposal to “change the political system” and revise the Constitution, which protects some 800,000 government workers.

Mr. Papandreou confirmed that talks were progressing between Greece and its foreign creditors for a second bailout package “approximately equal” to last year’s emergency loan package of 110 billion euros.

The stakes still remain high, with politicians aware of the risk of contagion.

“Nobody’s lending to the Greeks at the moment and that’s why we need to find a solution,” said Maria Fekter, Austria’s finance minister. “A default would be an ever bigger damage.”

All this comes a little more than a year after the international community offered the government in Athens its first package of 110 billion euros in loans to prevent it from having to borrow at crippling rates on the financial markets.

But Greece has since then failed to meet its economic goals because of a worse-than-expected recession, which has depressed revenues, as well as its own failure to install reforms.

Greece’s creditors have demanded that Mr. Papandreou secure a broad political consensus on a number of austerity measures — chiefly tax increases, cuts in public spending and privatization of state assets — that are to be voted on in Parliament by the end of this month.

Article source: http://www.nytimes.com/2011/06/20/business/20euro.html?partner=rss&emc=rss