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Greece on Track for More Aid, Official Says

August 26, 2013 by

BERLIN — The highest-ranking German in the European Central Bank said Monday that Greece could be eligible for additional aid and debt relief next year if it continued to fulfill promises made for the assistance it was already receiving.

The German, Jörg Asmussen, a member of the central bank’s policy-making executive board, said in an interview here that he was not signaling a new attitude toward Greece by its euro zone benefactors, but simply reiterating decisions made last year.

“There is no change of policy,” Mr. Asmussen said, noting that euro zone leaders already decided in November they would re-examine Greece’s needs early in 2014.

Still, his comments came as Greece has become an issue ahead of Germany’s national elections on Sept. 22. Mr. Asmussen’s former boss, Wolfgang Schäuble, the German finance minister, put Greece back on the public agenda when he said last week that more aid was certain, rather than merely very likely. Mr. Asmussen was a top aide to Mr. Schäuble before joining the E.C.B. in 2011.

Mr. Asmussen′s comments on Monday referred to a decision last November by the euro zone finance ministers, or the Eurogroup. They agreed that Greece would be eligible for a fresh look at its needs as soon as it was able to finance current government spending on its own, not counting interest payments, and had undertaken steps to improve its economic performance and fulfilled other promises to its international lenders: the E.C.B., the International Monetary Fund and the European Commission.

If “the debt is still considered to be too high, the Eurogroup will consider to take additional measures,” Mr. Asmussen said. “That is the point of time when we will look at the debt question again. This is already decided and made public in November last year.”

The I.M.F. has estimated that Greece will have a financing shortage around 10.9 billion euros, or $14.6 billion, for 2014 and 2015. Greek Finance Ministry officials have suggested that the shortage will be smaller than the I.M.F. estimate, which is subject to revision, but they have been exploring ways to plug the gap. In an interview over the weekend with the Greek newspaper Proto Thema, Greece’s finance minister, Yannis Stournaras, cited a figure of 10 billion euros as the likely shortage.

Mr. Asmussen, who met in Athens last week with Prime Minister Antonis Samaras, said there were signs of stabilization in the country, which has suffered from soaring unemployment and plummeting economic outlet.

Referring to recent economic data, Mr. Asmussen said, “For the first time in years there were no negative surprises.”

Alison Smale contributed reporting from Berlin and Niki Kitsantonis from Athens.

Article source: http://www.nytimes.com/2013/08/27/business/global/greece-on-track-for-more-aid-official-says.html?partner=rss&emc=rss

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News Analysis: Germany a Hurdle to European Unity on Banks

July 10, 2013 by Leave a Comment

BRUSSELS — European Union officials presented long-awaited plans on Wednesday in hopes of ending the vicious circle in which bailouts of failing banks endanger government finances and the euro currency.

But first they must face down Germany.

Even as officials here laid out their blueprint, the uncompromising stance of German officials like Wolfgang Schäuble was ringing in their ears.

A day earlier, Mr. Schäuble, the German finance minister, warned the European Commission “to be very careful” with its proposal for a single authority to oversee the wind-down of troubled banks because “otherwise, we will risk major turbulence.”

It was in keeping with Germany’s longstanding resistance to sharing financial risk with other European countries. But it was at odds with the more unified approach to European problem-solving that Brussels wants.

“Germany’s intellectual starting point is national resources for national problems, and that is some way off the European Commission’s proposal, which is looking for a European solution,” said Mujtaba Rahman, the director for Europe at the Eurasia Group. If the proposal fails, he said, there is the danger that “the problematic link between banks and sovereigns will actually have been reinforced, not weakened.”

The plan presented on Wednesday by Michel Barnier, the European commissioner overseeing financial services, was conceived as part of a broader European banking union whose other provisions would include a single banking supervisor and an agreement to impose any losses mainly on a bank’s creditors and shareholders, rather than taxpayers.

The program, called the single resolution mechanism by Mr. Barnier, would rely on the European Central Bank to signal when a financial institution in the euro area was facing severe difficulties.

A resolution board, supported by a staff of around 300, and made up of representatives from the central bank, the European Commission and member states of the union, would then make a recommendation, as necessary, on how to shut down or shrink a bank. The board also could draw on a shared fund to help close or radically restructure failing lenders after creditors and shareholders have borne some losses.

European Union officials want the size of the fund to be about 70 billion euros, or $90 billion, by the time it is fully financed by 2025, with money coming from levies on banks.

There would be limits to the power of the new centralized system. It could not, for example, order the closing of a bank without permission of the host government if doing so would result in that country’s taxpayers being liable for some of the bill.

The process was aimed at “involving all relevant national players,” Mr. Barnier said at a news conference Wednesday. But, he said, central management is vital to “allow bank crisis to be managed more effectively in the banking union.”

Giving such a central role to the European Commission, the European Union’s executive arm, could irk both Germany and France, according to some analysts.

That “clearly contradicts” a proposal signed jointly by France and Germany ahead of the last summit meeting of European leaders in June, Philippe Gudin, an economist at Barclays, wrote in a research note. Discussions, scheduled to begin in September among finance ministers, “will likely be long and lively” with the risk of delays because of a lack of agreement, he wrote.

Mr. Barnier said he wanted the system up and running by January 2015. That would require agreement over the course of next year.

For now, Germany is the country raising red flags.

The central sticking point is the call by German officials like Mr. Schäuble for a change in the European Union’s treaties before acceding to anything more than a network of national authorities to handle bank failures.

Treaty changes would be cumbersome and time-consuming process that could take years, if they succeeded at all.

Article source: http://www.nytimes.com/2013/07/11/business/global/european-union-proposes-plan-for-failing-banks.html?partner=rss&emc=rss

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E.U. Officials Quarrel Over the Pace of Bank Reform

May 15, 2013 by Leave a Comment

Wolfgang Schäuble, the German finance minister, repeating a theme he has been stressing lately, said a change to the E.U. treaty — a politically hazardous process that can take years — would be needed to carry out those banking plans in full.

“I need a solid basis in the treaty,” Mr. Schäuble, referring to the creation of a single authority for shutting down banks, told the monthly meeting of finance ministers. “A two-step approach,” one that would start with a network of national authorities, was more feasible, he suggested.

But Jörg Asmussen, an influential member of the executive board of the European Central Bank, countered the Schäuble position by calling for a much faster march toward a uniform system of fixing bad banks.

“We want a single European resolution regime, together with a single resolution agency and a single resolution fund that is financed by a levy from the banking industry,” Mr. Asmussen told reporters outside the meeting.

“This should come into place in parallel with the single supervisory mechanism hopefully by the summer of next year,” said Mr. Asmussen. Although himself a German, Mr. Asmussen is not in league with Mr. Schäuble, a member of Chancellor Angela Merkel’s administration. And as a central banker, he is more focused on ensuring the smooth functioning of the euro zone’s major lenders.

Meanwhile, ramping up their fight against tax evasion, the finance ministers also gave a green-light for the European Commission to hold tax negotiations with Switzerland, Liechtenstein and three other tiny non-European Union states whose largely opaque financial sectors have been used by E.U. residents to hide undeclared assets.

But Austria and Luxembourg, both of which are renowned for their culture of banking secrecy, blocked efforts to expand the scope of information that banks in the European Union are obligated to share with tax authorities.

Luxembourg last month agreed to share data about interest income earned by E.U. citizens holding accounts in the country, something that Austria still refuses to do. But the two countries stood together Tuesday in rejecting proposals that would also make life insurance and other “savings-like” instruments subject to information exchange.

Luc Frieden, Luxembourg’s finance minister, told a news conference that his country “is not against the fight against tax fraud” but wants a “level playing field” that does not allow banking centers outside the Union like Switzerland to gain a competitive advantage.

Like Austria, Luxembourg is wary of money havens that have not signed up to the Union’s transparency rules.

Algirdas Semeta, the E.U. tax commissioner, expressed “great disappointment,” and said the issue will now be taken up by a summit of European leaders next week.

The commission has estimated that member states together lose about €1 trillion each year from illegal tax evasion, along with aggressive, but legal, tax avoidance. They are losses that Europeans governments are increasingly determined to recoup at a time when a deep economic slump has sharply reduced revenues.

The banking bailout issues remain thorny. As the crisis in Europe has unfolded, states and ultimately taxpayers from Britain to Spain have shouldered the cost of bailing out lenders hobbled in many cases by property and credit booms gone sour.

The meltdown helped to drive up the cost of sovereign borrowing, damaged investor confidence and inhibited the ability of many banks to restart lending. E.U. leaders have agreed on the need to break the so-called doom loop, where states go deeply into debt to support failing banks.

Late last year, only after an exhausting series of all-night meetings, the finance ministers agreed to put some of the biggest banks in the European Union under the authority of the E.C.B.

But analysts say a key next step in giving European authorities more sway over the Continent’s banking — agreeing to the system for restructuring and shutting banks — may be even harder to achieve.

Article source: http://www.nytimes.com/2013/05/15/business/global/eu-officials-quarrel-over-the-pace-of-bank-reform.html?partner=rss&emc=rss

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German Finance Minister Urges Lawmakers to Approve Greek Debt Deal

November 30, 2012 by Leave a Comment

BERLIN — Germany’s finance minister urged lawmakers on Friday to support a deal to trim Greece’s debt load and keep the country afloat, but insisted that it would be irresponsible to hold out the prospect of more radical debt forgiveness now.

The deal made Tuesday by the finance ministers of the 17 European Union countries that use the euro paved the way for Greece to receive €44 billion, or $57 billion, in critical rescue loans, without which the country would face bankruptcy and a possible exit from the euro.

It also contains measures, including a debt buyback program and an interest rate cut on loans that are aimed at cutting back Greece’s debts and giving it more time to push through economic reforms and trim its budget deficit.

It stops short, however, of forgiving outright debt owed to Germany, the lead creditor, and other euro zone governments. Chancellor Angela Merkel’s government has strongly opposed a discount, or “haircut,” in advance of elections next year.

Finance Minister Wolfgang Schäuble told lawmakers on Friday that the latest deal would keep the pressure on Greece to fulfill its promises and that blocking loan payouts would have ramifications all around Europe.

“We have always pushed the principle of conditionality, and that goes here too,” Mr. Schäuble said. “Greece will only receive all this relief if it continues to implement its reform measures, one after another.”

The German Parliament has to approve euro zone rescue measures. The bailouts of Greece and others have not been popular in Germany, Europe’s biggest economy, and there has been growing unease about them within Ms. Merkel’s coalition.

A solid majority is anticipated in Friday’s vote as two opposition parties are expected to vote largely in favor.

Many economists say that Greece’s debt burden — forecast to reach some 190 percent of its gross domestic product next year — can only be managed by writing off more government loans. Germany’s opposition parties also argue that the move will be inevitable sooner or later.

Frank-Walter Steinmeier, a leading member of the main opposition Social Democrats, said the deal on the table was “not a sustainable solution for Greece” and argued that the government had merely “bought time” — above all to avoid addressing “unpleasant truths.”

“Everything points toward a haircut in the end, but you are avoiding this truth like the plague,” Mr. Steinmeier told Mr. Schäuble.

Mr. Steinmeier said his party would back the deal, however, because “we cannot leave the Greeks in the lurch.”

The government argues that full-scale debt relief is legally impossible at present and would send the wrong message.

“If you say debt will be forgiven, then people’s readiness to save in order to get further aid is weakened,” Mr. Schäuble said. “If we want to help Greece along this difficult road, we must advance step by step, and the wrong speculation at the wrong time doesn’t solve the problem.”

Article source: http://www.nytimes.com/2012/12/01/business/global/german-finance-minister-urges-lawmakers-to-approve-greek-debt-deal.html?partner=rss&emc=rss

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Germany Lowers Expectations for E.U. Summit

October 17, 2011 by Leave a Comment

The comments by German officials suggested that governments still face formidable obstacles in forming a plan to strengthen European banks, increase the firepower of the E.U. bailout fund and require private investors to take on more of the burden of Greece’s rescue.

Germany and France have yet to resolve their differences about how best to recapitalize the banks, and the banks have yet to agree to the idea of raising more capital — while at the same time contributing more toward the Greek bailout.

Germany and France are also at odds over proposals to leverage the €440 billion, or $605 billion, bailout fund, the European Financial Stability Facility, so it could deploy up to €2 trillion in support to ailing governments and banks.

During a news conference Monday, a spokesman for Chancellor Angela Merkel, Steffen Seibert, said Mrs. Merkel had pointed out that “the dreams that are once again cropping up, that by Monday this package will have solved everything and it will all be over, once again cannot be fulfilled. These are important working steps on a long path. This is a path that with certainty runs far into next year and also additional working steps will have to follow.”

The German finance minister, Wolfgang Schäuble, said the “definitive solution” would not be forthcoming at the meeting, but added, “We want to get rid of the market uncertainty with the five elements.”

The five-point plan is based loosely on proposals outlined by the European Commission president, José Manuel Barroso, that would see Greece’s debt put on a sustainable footing; increase the heft of the E.F.S.F.; add capital to the banks; develop measures to promote economic growth; and strengthen the economic management of the euro zone.

The financial markets are expecting a significant package of measures to emerge from this weekend’s summit meeting or, at the very latest, by Nov. 3-4, when leaders of the Group of 20 countries meet in Cannes.

The weekend of talks is to start Friday night, when euro zone finance ministers gather in Brussels. They should be able to agree on the release of €8 billion in aid to Greece from the country’s first bailout, and without which the government could default in November.

More problematic is how much more private investors should contribute toward a second Greek bailout, negotiated July 21. Because of changes in market conditions, officials say that the banks now need to increase their contribution to meet the losses they agreed to accept.

But pressure is mounting to bring the banks’ haircut to perhaps 50 percent.

If that is agreed to, policy makers need to ensure that E.U. banks can withstand the losses. While German banks have been divesting themselves of large amounts of debt from Greece and other southern European governments, French institutions have not been doing likewise, according to a European official speaking on condition of anonymity because of the sensitivity of the issue.

Equally worrying is the risk that a big write-down of Greek debt would unleash a fresh market assault on Italian or Spanish bonds. On Monday, European stocks fell and the euro slid from a one-month high against the dollar, down 0.8 percent to $1.3787.

After meeting with his counterparts in Germany, France and other countries last weekend at a meeting of G-20 finance officials in Paris, the U.S. Treasury secretary, Timothy F. Geithner, said the Europeans’ main goal was to make sure the plan to be presented Sunday would convince markets that the troubles in Greece would not spread to Spain and Italy.

“The stakes are high,” Mr. Geithner said. “They have come to recognize that if you underdo it, it can be expensive, and if you let the momentum build against you, it’s hard to arrest.”

Mr. Geithner and President Barack Obama have started to put more blame on Europe for America’s own economic woes, warning that a failure to contain the sovereign debt crisis could aggravate the U.S. downturn.

But Mrs. Merkel and a number other Europeans say the Americans are hardly in a position to lecture them, given that the global financial crisis started on Wall Street. Mrs. Merkel said last week that it was unacceptable for critics to press Europe for bolder action while refusing to endorse a plan designed to rein in market attacks on banks and troubled European countries through a new tax on financial transactions.

Liz Alderman reported from Paris. Nicholas Kulish contributed reporting from Berlin.

Article source: http://www.nytimes.com/2011/10/18/business/global/germany-lowers-expectations-for-eu-summit.html?partner=rss&emc=rss

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E.C.B. Signals Interest Rate Increase in July

June 9, 2011 by Leave a Comment

However, the euro fell against the dollar after Jean-Claude Trichet, the E.C.B. president, set up a conflict with the German government by rejecting any suggestion that creditors of Greece should be forced to share the burden of a rescue plan.

“We are not in favor of restructuring, haircuts and so forth,” Mr. Trichet said at a press conference following the E.C.B. governing council’s monthly meeting on monetary policy.

His statements were an implicit rebuke to Wolfgang Schäuble, the German finance minister, who said Wednesday that holders of Greek bonds should swap them for debt that the country would have longer to repay.

“President Trichet has gone on a collision course with the German government,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, said in a note following the press conference.

The Bank of England, meanwhile, kept its main interest rate at a record low amid concerns that the country’s economy was still too weak to cope with higher borrowing costs.

In the 17-country euro zone, the E.C.B. has been more fixated on inflation, which has been pushed up by rising food and energy prices.

“Strong vigilance is warranted,” Mr. Trichet said. That language would indicate that a rate increase in July is probable, though the bank always leaves its options open. At the same time, E.C.B. economists slightly lowered their forecast for inflation next year, suggesting that the bank may feel less pressure to raise rates quickly.

On Thursday, the E.C.B. left its benchmark rate at 1.25 percent, after raising it in April from 1 percent, the first increase in two years. Inflation in the euro area was 2.7 percent in May. “When I compare inflation today to interest rates I see a negative number,” Mr. Trichet said.

The benchmark rate in Britain was left at 0.5 percent and the central bank also kept the size of its asset purchase plan unchanged at £200 billion, or about $328 billion.

The E.C.B. said it would continue its emergency support of euro area banks by continuing to grant them unlimited low-interest loans at least through September.

With Germany, Europe’s largest economy, growing so quickly that some economists fear overheating, the E.C.B. has been trying to nudge interest rates back to levels that would be normal in an upturn. But the bank faces a dilemma because the Greek debt crisis still threatens growth in the euro zone as a whole. Economies in Spain, Ireland and other so-called peripheral countries remain sluggish. Higher rates could make it harder for those countries to recover.

Mr. Trichet argued that the best way to help the European economy was to make sure that prices were contained. “It is good for all countries,” he said.

Questions about Greece dominated the E.C.B. press conference, but Mr. Trichet showed no sign of being willing to consider a Greek restructuring, unless it was completely voluntary on the part of creditors — a scenario that is difficult to imagine.

On the contrary, he implied that any restructuring of Greek debt might prompt the bank to stop accepting the country’s bonds as collateral, a move that could be fatal for some Greek banks that depend on cheap E.C.B. loans.

“It is difficult to see how this debate will be resolved,” said Marie Diron, senior economic advisor to Ernst Young, the consulting firm. “Someone, either the E.C.B. or the German government, needs to make some concessions to reach a compromise,” she said in a note. “And this needs to happen soon as time is running out for Greece to refinance its debt.”

Though it does not belong to the euro area, Britain also remains fragile economically. Consumer confidence worsened in April as more people claimed unemployment benefits and as wage increases lagged behind inflation, weighing on living standards. Spending cuts and tax increases that are part of the government’s austerity program made households even more reluctant to spend.

“The story of weak growth is still going to continue for a while,” said James Knightley, a senior economist in London for ING Financial Markets.

Article source: http://feeds.nytimes.com/click.phdo?i=13163fb6d786339552afca7ab6483cfe

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