October 20, 2017

Contraction Shows Signs of Slowing for Greece

Gross domestic product shrank by 4.6 percent in the second quarter compared with the same three months a year earlier, the official Hellenic Statistical Authority said. That was an improvement from the first quarter of 2013, when the economy contracted 5.6 percent compared with a year earlier.

The economy has been shrinking since the third quarter of 2008, when the collapse of Lehman Brothers rocked the global financial system, drying up credit to Greek businesses and consumers, exposing years of errors in government record-keeping and driving the country to the brink of collapse.

The troika of international bodies that have been shoring up Greece’s finances and guiding its recovery — the International Monetary Fund, the European Central Bank and the European Commission — has approved more than 240 billion euros ($319 billion) in bailout loans since 2010, a sum larger than the country’s annual economic output. In July, Greece received a loan installment of 5.7 billion euros after Parliament agreed to further increases in taxes and cuts in the public payroll.

Ben May, an economist in London with Capital Economics, said the latest number was “encouraging, as it looks like the quarterly pace of decline is slowing.” An analysis of the second-quarter figure suggested that G.D.P. might have ticked up by about one-tenth of a percent from the first quarter, he said.

“The troika’s forecast for a 4.2 percent annual decline in 2013 looks achievable,” Mr. May said.

But it remains “plausible,” he said, that the Greek economy will continue shrinking into 2015. He forecast a 2 percent decline in G.D.P. for next year, followed by a 0.5 percent contraction in 2015.

Many economists argue that the austerity approach favored by the troika is itself part of the problem, pushing Greek unemployment to depression levels. The jobless rate reached a new peak of 27.6 percent in May, according to the statistical agency, with youth unemployment around 65 percent.

Austerity has in practice largely meant laying off civil servants and cutting social spending, because raising taxes generates little revenue in a collapsing economy. The policy is paying off in one respect: Christos Staikouras, the deputy finance minister, told reporters on Monday that the government had achieved a primary budget surplus of 2.6 billion euros, or 1.4 percent of G.D.P., in the first seven months of the year, significantly better than the expected primary deficit of 3.1 billion euros. A primary deficit or surplus excludes debt service and some other costs.

The International Monetary Fund said last month that Greece had made “important progress in rectifying precrisis imbalances” and that the economy was “rebalancing.” But the fund noted that the gains had come as a result of recession, which has suppressed imports, and not through “productivity-enhancing structural reform.”

Mr. May said that it was almost certain that some kind of government debt restructuring would be needed to achieve what the troika calls a sustainability target: a debt-to-G.D.P. ratio of 120 percent by 2020.

The Bundesbank, the German central bank, expects Greece to receive yet another bailout after German national elections on Sept. 22, according to a report Sunday in the newsmagazine Der Spiegel, which cited a central bank document.

According to the document, which Spiegel said had been prepared by the Bundesbank for the I.M.F. and the German Finance Ministry, the Bundesbank says that it was only “political pressures” that enabled Greece to obtain last month’s installment of financing, and that the bailout program remains “exceptionally” risky.

The German Finance Ministry dismissed the Spiegel report, saying it had no knowledge of the document Spiegel cited, Reuters said.

Article source: http://www.nytimes.com/2013/08/13/business/global/greek-economy-shrinks-for-20th-straight-quarter.html?partner=rss&emc=rss

Political Economy: Cyprus Goes After the Little Guy

Cyprus’s proposed deposit grab is a bad precedent. Money had to be found to prevent its financial system from collapsing. But imposing a 6.75 percent tax on insured deposits is a type of legalized robbery. Cyprus should instead impose a bigger tax of on uninsured deposits and not touch small savers.

Confiscating savers’ money will knock confidence in the banks. Trust in the government will also take a hit, since Nicosia had theoretically guaranteed all deposits to a level of €100,000, or about $130,000. Small savers should be encouraged, not penalized. Those who squirrel away their savings are the quiet heroes of the financial system, not those who drag it down by engaging in borrowing binges.

Nicosia has not technically broken its promise to guarantee small deposits. That is because it is not the banks that are failing to repay savers — something that would have set off the insurance program. Instead, it is the government itself grabbing a slice of deposits. The pill is also being sugared by giving savers shares in the banks as compensation. That said, the mechanism is still an effective breach of promise.

There is no denying that Cyprus needed a solution. The small Mediterranean island was on the brink. Its banking system — which had grown to eight times its gross domestic product on inflows of Russian money and aggressive expansion in Greece — was technically bust. Its exposure to the Greek economy, Greek government debt and Cyprus’s own burst property bubble had seen to that.

Nicosia’s euro zone partners made it clear that there was no time to waste. They had chosen to hold their finance ministers’ meeting Friday night, knowing that Cyprus already had a bank holiday scheduled Monday. The country’s president said the European Central Bank was threatening to cut off liquidity Tuesday if there was no deal. The banking system would have collapsed.

In total, Cyprus requires €17 billion — almost 100 percent of G.D.P. — to rescue its banks and deal with the government’s own bills. If Nicosia had borrowed all that cash on top of its existing debt, it would have been carrying an unsustainable burden. It would have been only a matter of time before the debt needed restructuring.

Cyprus’ euro zone partners and the International Monetary Fund rightly decided not to lend it so much money, limiting the bailout to €10 billion. This means Nicosia should end up with debt equal to a manageable 100 percent of G.D.P. in 2020.

The problem was where to find the extra €7 billion. Because Germany and other northern European countries were not prepared to give a handout, there were two options: force the government’s own bondholders to take a loss, or hit bank creditors.

The option of a haircut on government debt — as Greece imposed last year — was rejected. Many of the bonds are held by Cypriot banks, so a haircut — a loss on investment — would just have increased the size of the holes in their balance sheets, meaning they would have needed an even bigger bailout. The Cypriot government’s credit would have been destroyed for little benefit.

So, pretty much by default, the banks’ creditors had to be tapped. Ideally, bank bondholders would have taken the strain. But Cypriot banks have hardly any bonds. So there was not much money that could be grabbed there.

This, incidentally, rams home the importance of requiring all banks to have fat capital cushions, consisting either of equity or bonds that can be bailed in during a crisis. The sooner international regulators come up with a minimum standard for so-called “bail-in” debt, the better.

Given that Cypriot banks did not have such a cushion, the remaining option was to hit depositors, for €5.8 billion in total. There was even some rough justice in the policy. After all, as much as half of the country’s €68 billion in deposits is held by Russians and Ukrainians, and some of this money is thought to be black money laundered through Cyprus.

What is more, the country’s banks have been paying high interest rates in recent months — in some cases of as much as 7 percent on euro deposits. That is clearly danger money. Depositors should have known there were risks attached to such high rewards.

If the deposit tax had been confined to uninsured deposits, which are facing a 9.9 percent levy, such arguments would have merit. But the insured savers have also been hit with a 6.75 percent tax. It would be better to get the money entirely from the €38 billion of uninsured depositors. That would require raising the tax to about 15 percent. It is still not too late for Cyprus’s Parliament to change course.

The Cypriot government did not want to do this, because uninsured deposits are disproportionately foreign and it was feared that such a high tax would undermine its status as an offshore financial center. Even if there is domestic political logic in cushioning Russian mafia at the expense of Cypriot widows, such a policy is bad for the rest of the euro zone.

There probably will not be any immediate contagion to other crisis countries from Cyprus. After all, banking systems in Greece, Spain, Portugal and Ireland have recently been recapitalized. Meanwhile, the combination of Cyprus’s relatively huge banking sector and the fact that it is perhaps small enough to experiment with make it a special case.

Even so, citizens in the rest of the euro zone now know that if push comes to shove, their insured deposits could be grabbed too.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/03/18/business/global/18iht-dixon18.html?partner=rss&emc=rss

Off the Charts: Seen From Greece, Great Depression Data Looks Good

The Greeks can only wish they had it so good.

The Greek government this week released its estimate of economic output in the fourth quarter of last year, and also published its unemployment report.

For the year as a whole, the Greek economy, measured in 2005 euros, fell to 168.5 billion euros, down 6.4 percent from the previous year. That was a little better than the 7.1 percent decline in 2011. The last time the Greek economy was smaller than in 2012 was in 2001. The cumulative decline since 2007 was 20.1 percent.

In December, the unemployment rate was 26.4 percent, and that figure actually looked a little encouraging because it was lower than the 26.6 percent reported for November. Not since May 2008, when the rate fell half a percentage point to 7.3 percent, had there been a single month when the unemployment rate was reported to have fallen.

The accompanying charts compare the changes in gross domestic product and unemployment in the United States during the five years after 1929 with the changes in Greece during the five years after 2007.

There is reason to take all the numbers with a grain of salt. The American figures were estimated after the fact, by the government for G.D.P. and by the National Bureau of Economic Research for unemployment. For G.D.P., only annual changes were estimated.

The Hellenic Statistics Authority, Greece’s compiler of official numbers, has a history of deception — the country lied to get into the euro zone — and it now cannot apply seasonal adjustments to its quarterly G.D.P. estimates. As a result, the figures shown in the charts are calculated by adding up the four quarters of each year. But European officials now vouch for the quality of Greek figures.

Perhaps the most telling difference between the course of the two economies comes in government consumption spending — basically spending that is not for investment, as in building roads or bombers. In the United States, that spending was growing even under President Herbert Hoover and helped to cushion the economy’s fall. In Greece, required by Europe to follow a course of harsh austerity, that spending has fallen rapidly, even if it has not declined as rapidly as some Europeans want.

By the fifth year of the Depression, personal consumption spending had begun to recover in the United States. In Greece last year, it fell 9.1 percent, more than in any other year of the downturn.

Greece publishes monthly overall unemployment figures, but provides details only on a quarterly basis. The charts show the trends of joblessness by sex and age group through the third quarter of last year, the most recent available. Women are more likely to be unemployed in every age group shown, and older workers are far less likely to be jobless than younger ones. Even the groups that look good by comparison are doing poorly. Among men age 45 to 64, nearly one in six is out of work. Among men 30 to 44, the figure is one in five.

Rates for teenagers and people over 65 are not shown, since few of them are in the labor force. The picture is glum for those teenagers who do want jobs. The male unemployment rate is 52 percent, and the rate for women is 81.5 percent. Most of those over 65 who say they want to work do have jobs, but the proportion of such people in the labor force has been falling in recent years.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/03/16/business/economy/seen-from-greece-great-depression-data-looks-good.html?partner=rss&emc=rss

Euro Zone Finance Ministers to Meet Again on Greek Bailout

Euro zone finance ministers are to gather in Brussels on Monday for their fourth meeting in four weeks. Last week, they hashed out a plan under which Greece can try to unlock a long-overdue bailout loan installment. The country needs the money desperately to avoid bankruptcy, to pay wages and pensions and to carry out economic overhauls demanded by its international creditors.

The finance ministers are expected to vet Greece’s planned response to a central provision of that plan: a buyback of some of the Greek bonds held by investors, at a discount, as a way to reduce its staggering debt load.

Greece has until Dec. 13 to make that happen, if it hopes to receive its next round of bailout money.

With the Greek economy continuing to fall, the meeting of finance ministers is coming against a backdrop of grim new data for the euro region as a whole. Despite an optimistic forecast Friday from the European Central Bank president that the euro zone would emerge from recession sometime in the second half of next year, the nearer-term data indicate that things may get worse before they possibly get better.

Figures released Friday showed euro zone unemployment rising to a new high in October, with nearly 19 million people — 11.7 percent of the 17-nation currency bloc’s work force — without jobs.

Greece’s international lenders froze aid in June because they perceived the government to be dragging its heels on fulfilling the terms of its bailout program. Since then, the country has accelerated the economic revamping and budget cuts that creditors have demanded.

But the economic outlook for Greece has worsened significantly in the interim — some critics blame the austerity program, in part — prompting the International Monetary Fund to put pressure on lenders, including Germany, to relieve some of the debt burden.

A centerpiece of those efforts, agreed upon last week, is the debt buyback. The plan is for the authorities in Athens to borrow European funds to purchase Greek bonds that are already trading at a deep discount from their face value.

The buyback plan may have allayed fears of an imminent Greek default, but how well it will work remains to be seen. Some in the financial sector have complained about the prospect of having to sell bonds at fire-sale prices.

The Market Monitoring Group of the Institute of International Finance, a global association of banks and other financial institutions, said last week that it was “critical that any buyback be conducted on a purely voluntary basis.” But Yannis Stournaras, the Greek finance minister, warned Greek banks holding many of the bonds that participation was a “patriotic duty.”

But unless Greece reduces its debt, the I.M.F. could still refuse to approve aid. That would probably mean another flurry of emergency meetings to draw up yet another plan.

In a sign that at least some investors are eager to sell back their Greek bonds, if the price is right, some big hedge funds have been accumulating the bonds on the open market.

Those funds, including Third Point and Brevan Howard, are betting that to make the buyback succeed — so Athens can get its next loan installment — the Greek government will have to meet their price demands. On the open market, the bonds in question are trading at about 30 cents on the euro — in other words, about 30 percent of their face value. The most aggressive hedge funds are insisting that they will not sell for less than 35 cents on the euro.

That raises a risk that investors will push the price up to a point at which it does not make economic sense for Greece to complete the buyback.

“There is a limited amount of money to do this,” Mr. Stournaras said in an interview Saturday. “But in the end, I do think it will be successful.”

To seal the debt overhaul deal last week, after three late-night, marathon meetings in three weeks, Christine Lagarde, managing director of the I.M.F., had to fight to persuade reluctant finance ministers like Wolfgang Schäuble of Germany. She argued that Greece was sinking so far that without immediate relief, it might never repay its loans.

Article source: http://www.nytimes.com/2012/12/03/business/global/03iht-ministers03.html?partner=rss&emc=rss

Dispute Over Interest Rates Holds Up Greek Debt Talks

While considerable progress has been made, Greece’s financial backers — Germany and the International Monetary Fund — have been unyielding in their insistence that the longer-term bonds that would replace the current securities must carry yields in the low 3 percent range, officials involved in the negotiations said on Sunday.

Bankers and government officials say they still expect a deal to be done; Greece and its private sector creditors on Friday appeared close to a deal that would bring the yield to below 4 percent. But the continuing disagreement over the interest rate is a reminder of just how complex and politically tricky it is to restructure the debt of a euro zone economy.

A debt restructuring agreement is a precondition for Greece to receive its next installment of aid from Europe and the monetary fund, 30 billion euros that the country needs to stave off bankruptcy.

European Union finance ministers were to resume talks Monday on solutions to the region’s debt crisis.

Greece’s private creditors, which hold about 206 billion euros, or $265 billion, in Greek bonds, are resisting accepting a lower rate. They argue that they are already faced with a 50 percent loss on their existing bonds and that the lower rate would increase the hit they would take.

It would also make it more difficult to describe the deal as voluntary. A coercive deal, bankers warned, could lead to a technical default and the initiation of credit-default swaps, or insurance, an outcome that all sides were trying to avoid.

The bonds’ rate “is the only issue,” said a senior official directly involved in the negotiations. “We have to accommodate the needs of the Greek economy.”

Talks broke off over the weekend when Charles H. Dallara, the managing director of the Institute of International Finance, a bankers group that is representing private sector bondholders, left Athens. In a statement, a spokesman for the group said that Mr. Dallara had a previously planned personal engagement in Paris and that progress was being made toward securing an agreement.

During an interview broadcast Sunday on the Greek television channel Antenna, Mr. Dallara emphasized that creditors were insisting on 3.8 percent to 4 percent. “This is certainly the maximum offer that is consistent with the voluntary debt exchange,” he said. “It is largely in the hands of the official sector to choose the path — a voluntary debt exchange or a default.”

With the Greek economy forecast to shrink by 6 percent this year and 3 percent next year, the ultimate goal of Greece’s lowering debt to 120 percent of gross domestic product by 2020 is seeming more and more unrealistic. With G.D.P. plummeting, the International Monetary Fund is insisting that Greece’s debt load — currently 160 percent of G.D.P. — be reduced more quickly and that the private sector pay its fair share.

Bankers say that the fund has been demanding a coupon rate of less than 3.5 percent for bonds maturing by 2014. Over subsequent years, the rate would rise to 4 percent and above as the economy improved.

A majority of the funds the monetary fund has disbursed so far has been paid out to Greece’s bondholders as opposed to helping Greece itself. Of the close to 20 billion euros that the fund has disbursed, two-thirds has gone to repay bondholders — an increasing number of which have been hedge funds betting that this trend will continue.

Persuading Greece and its bankers to agree on a deal to restructure 200 billion euros in debt was never going to be easy, given the many different constituencies involved. And bankers say a number of other important technical issues must also be settled, including what kind of collateral would back the new bonds and how long their maturities would be.

Also holding up discussions was the question of what to do about the European Central Bank’s 55 billion euros in Greek bonds. The bank’s refusal to take a loss has been regularly cited by investors as unfair, and many have said that they will sue Greece if they have to take a loss while the bank does not.

To get around this, officials are now discussing the possibility that Europe’s rescue fund might lend money to Greece to allow it to buy the bonds back from the European Central Bank at the price the bank paid for them — thought to be about 75 cents on the euro. The central bank would then not have to take a loss on these holdings. By selling them back to Greece, it would remove itself as an obstacle to a broad restructuring agreement.

“Both sides know that a deal has to get done,” said a banker who asked not to be identified because he was closely involved in the talks. “But they have to dance this dance to get there.”

Separately, the German magazine Der Spiegel reported that the Italian prime minister, Mario Monti, was pushing for an increase in the European bailout fund to 1 trillion euros, or $1.29 trillion. That would be more than double the amount that the European Financial Stability Facility is authorized to lend to troubled euro zone countries.

A German government official, who was not authorized to be quoted by name, said Sunday that Germany had received no formal request from Italy to increase the fund. In any case, he said, Germany would be opposed to an increase now.

Germany’s position remains that the way to reduce borrowing costs is for euro zone countries to take steps to reduce debt and remove impediments to economic growth. Recent declines in borrowing costs for Spain and Italy show this is the most effective policy, the German official said.

“We don’t see the need for additional funds,” he said. “It’s not the way to reduce financing costs. You need to do the reforms.”

A spokeswoman for the Italian government had no official comment on the Spiegel report. Mr. Monti has been on record in recent weeks calling on Europe to increase the “firewall” of bailout money available to lend to vulnerable economies.

Jack Ewing contributed reporting from Berlin. Niki Kitsantonis and Rachel Donadio contributed from Athens.

Article source: http://www.nytimes.com/2012/01/23/business/global/greek-talks-stumble-over-interest-rates.html?partner=rss&emc=rss

Greek Talks Stumble Over Interest Rates

LONDON — Talks between Greece and its private-sector creditors over restructuring its debt hit a snag over the weekend over how much of an interest rate the new bonds would pay.

While considerable progress has been made, Greece’s financial backers — Germany and the International Monetary Fund — have been unyielding in their insistence that the longer term bonds that would replace the current securities must carry yields in the low 3 percent range, officials involved in the negotiations said on Sunday.

Bankers and government officials say they still expect a deal to get done; Greece and its private-sector creditors on Friday appeared close to a deal that would bring the yield to below 4 percent. But the continuing disagreement over the interest rate is a reminder of just how complex and politically sensitive it is to restructure the debt of a euro zone economy.

Greece’s private creditors, who hold about 206 billion euros in Greek bonds, are resisting accepting a lower rate. They argue that they are already faced with a 50 percent loss on their existing bonds and that the lower rate would increase the hit they would take.

It would also make it more difficult to describe the deal as voluntary. A coercive deal, bankers warned, could lead to a technical default and the triggering of credit-default swaps, or insurance, an outcome that all sides were trying to avoid.

The bonds’ rate “is the only issue,” said a senior official directly involved in the negotiations. “We have to accommodate the needs of the Greek economy.”

Talks broke off over the weekend when Charles H. Dallara, the managing director of the Institute of International Finance, a bankers group that is representing private-sector bondholders, left Athens. In a statement, a spokesman for the I.I.F. said that Mr. Dallara had a previously planned personal engagement in Paris and that progress was being made with regard to securing an agreement.

During an interview broadcast Sunday on the Greek television Antenna, Mr. Dallara emphasized that creditors were insisting on 3.8 percent to 4 percent. “This is certainly the maximum offer that is consistent with the voluntary debt exchange,” he said. “It is largely in the hands of the official sector to choose the path — a voluntary debt exchange or a default.”

With the Greek economy forecast to shrink by 6 percent this year and 3 percent next year, the ultimate goal of Greece lowering debt to 120 percent of gross domestic product by 2020 is seeming more and more unrealistic. With G.D.P. plummeting, the I.M.F. is insisting that Greece’s debt load — currently 160 percent of GDP — be reduced more quickly and that the private sector pay its fair share.

Bankers say that the fund has been demanding a coupon rate of below 3.5 percent for bonds maturing by 2014. Over subsequent years, the rate would escalate to 4 percent and above as the economy improved.

A majority of the funds the I.M.F. has disbursed so far has been paid out to Greece’s bondholders as opposed to helping Greece itself. Of the close to 20 billion euros that the fund has so far disbursed, two-thirds has gone to pay back bondholders — an increasing number of whom have been hedge funds betting that this trend will continue.

A debt restructuring agreement is a precondition for Greece to receive its next installment of aid from Europe and the I.M.F., 30 billion euros that the country needs to stave off bankruptcy. European Union finance ministers were to resume talks Monday on solutions to the region’s debt crisis.

To be sure, getting Greece and its bankers to agree on a deal to restructure 200 billion euros in debt was never going to be easy, given the many different constituencies involved. And bankers say there are a number of other important technical issues that also must be ironed out, from what kind of collateral would be used to back the new bonds to how long their maturities would be.

Also holding up discussions was the question of what to do about the European Central Bank’s 55 billion euros in Greek bonds. The E.C.B.’s refusal to take a loss has been regularly cited by investors as unfair, and many have said that they will sue Greece if they have to take a loss while the E.C.B. does not.

To get around this, official are now discussing the possibility that Europe’s rescue fund might lend money to Greece to allow it to buy the bonds back from the E.C.B. at the price the central bank paid for them — thought to be about 75 cents on the euro.

The E.C.B. would then not have to take a loss on these holdings. By selling them back to Greece, it would remove itself as an obstacle to a broad restructuring agreement.

“Both sides know that a deal has to get done,” said a banker who asked not to be identified because he was closely involved in the talks. “But they have to dance this dance to get there.”

Separately, the German magazine Der Spiegel reported that Italian Prime Minister Mario Monti was pushing for an increase in the European bailout fund to 1 trillion euros. That would be more than double the amount that the European Financial Stability Facility is authorized to lend to troubled euro zone countries.

A German government official, who was not authorized to be quoted by name, said Sunday that Germany had received no formal request from Italy to increase the fund. In any case, he said, Germany would be opposed to an increase now.

Germany’s position remains that the way to reduce borrowing costs is for euro zone countries to take steps to reduce debt and remove impediments to economic growth. Recent declines in borrowing costs for Spain and Italy show this is the most effective policy, the German official said.

“We don’t see the need for additional funds,” he said. “It’s not the way to reduce financing costs. You need to do the reforms.”

A spokeswoman for the Italian government had no official comment on the Spiegel report. Mr. Monti has been on record in recent weeks calling on Europe to increase the “firewall” of bailout money available to lend to vulnerable economies.

Jack Ewing contributed reporting from Berlin. Niki Kitsantonis and Rachel Donadio contributed from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=366a3627970a4dccb0462c9ea0ae664e

Greek Squabbles Prolong Selection of New Leader

The list of candidates mentioned in media reports included an array of senior figures, including Finance Minister Evangelos Venizelos after Vassilis Skouris, president of the European Court of Justice, was mentioned as the most likely contender.

But analysts said they did not rule out a surprise challenger emerging to succeed Prime Minister George A. Papandreou. After months of protest and building pressure from the European Union, Mr. Papandreou agreed two days ago to step down once political negotiators had established a new unity government. But from the start those negotiations seemed dogged with reverses.

By late afternoon Tuesday, Greece seemed to face yet a new set of troubles as Antonis Samaras, the leader of the main opposition party, New Democracy, balked at a demand by Eurogroup, the European Union’s group of finance ministers, that several top Greek leaders give a written commitment to the terms of an expanded bailout hammered out with Europe’s leaders last month.

“There is such a thing as national dignity,” Mr. Samaras said in a statement. “I have repeatedly explained that in order to protect the Greek economy and the euro, the implementation of the Oct. 26 agreement is inevitable.”

He added, “I won’t allow anyone to question the statements I have made.”

His statement came just a few hours after Finance Minister Venizelos told a cabinet meeting that five top Greek officials were being asked to sign the letter — a demand made on Monday by the chief of Eurogroup, Jean-Claude Juncker — reaffirming their commitment to Greece’s bailouts deals and economic reforms before the next tranche of aid to Greece would be released.

The demand landed in the middle of byzantine negotiations that dragged on through yet another day. The apparent choice of Mr. Papademos, a former vice president of the European Central Bank, came after more than two days of intense wrangling here and growing fear that Greece’s political class would be unable to stop feuding — and positioning themselves for the next elections — long enough to agree on a unity government.

But early Wednesday morning, several local media outlets reported that there had been discussions about other possible candidates for prime minister, including the Parliament speaker, Filippos Petsalnikos, and a former speaker, Apostolos Kaklamanis.

In the through-the-looking-glass world of Greek politics, the argument was not over who could claim the cabinet positions, but who could avoid taking them, particularly the Finance Ministry.

Mr. Papandreou was repeatedly rebuffed when he offered positions in the new government, reports said, because nobody wanted to be associated with the unpopular measures Greece will be forced to impose to qualify for new loans from Europe.

In particular, Mr. Samaras, who has his eye on the next elections, did not see any reason for his party to participate. But other smaller parties also refused.

Mr. Papademos had also played a role in the delays by demanding the right to appoint some ministers, including the finance minister.

In one of the stranger twists, Mr. Papademos apparently insisted that the current finance minister, Mr. Venizelos, who will most likely run for prime minister in the next elections, step down. But Mr. Samaras, who would like to run against him, is demanding that he stay, some local news outlets have reported.

Greece’s new administration has a difficult road ahead. Its first job will be to secure the next tranche of aid, which is needed by December, Greek officials say, or the country will be unable to pay its bills.

But it must also secure approval of the loan deal, which requires that Parliament pass a new round of austerity measures, including layoffs of government workers. It also calls for permanent foreign monitoring to ensure that Greece delivers on promised structural changes, a move that many Greeks see as an affront to national sovereignty.

Article source: http://feeds.nytimes.com/click.phdo?i=4987f974f3342d56818d35f5176c6b8f

Europe to Redouble Efforts to Stimulate Growth in Greece

Horst Reichenbach, who heads a task force set up by the European Commission to give technical aid to Greece, said it was important to “give some hope to the Greek population which, as we all know, is at the brink of not accepting any further pain.”

Mr. Reichenbach said that the commission, the Union’s executive branch, was examining ways of allowing E.U. funding to be used to help guarantee increased lending by the European Investment Bank in order to fill a vacuum caused by the inability of Greek banks to lend to businesses. Around €15 billion, or $20 billion, in E.U. structural funds have been allocated to Greece through 2013.

His comments come amid increasing concern that, in addition to pressing for essential changes to the Greek economy, international lenders need to step up their efforts at reversing economic stagnation.

As if to underline the point, Greek transport workers staged a 24-hour strike Thursday, bringing the transit system to a standstill to protest the austerity drive deemed essential by Greece’s creditors. General strikes have been called for Oct. 5 and 19.

Speaking in Parliament on Thursday, the Greek finance minister, Evangelos Venizelos, said that Greece’s situation was “critical” and that the government’s priority was to keep its commitments to foreign creditors so as to avoid what happened to Argentina, which defaulted on its debt in 2001-02.

“The crisis is not what we are living today, namely cuts to wages, pensions and income,” Mr. Venizelos said. “That is our effort to avert against the crisis. The real crisis will be like that of Argentina’s in 2000 — a total collapse of the economy, of institutions, of the social fabric and productive forces of the country.”

He added that a new property tax, part of the additional austerity measures, would apply beyond 2012 and not just for the next two years as stated when the levy was announced this month. But the long-term unemployed would be exempt from the tax as long as their gross annual income was less than €12,000, with that threshold increasing by €4,000 for each child.

Mr. Venizelos appealed for greater honesty in the debate over the economy, saying that the country’s political class must be clearer about the situation and what is required.

“The lies to the Greek people must stop,” he said, adding that now it was time for “work, work and more work” to meet fiscal targets and revive the economy.

The European commissioner for economic and monetary affairs, Olli Rehn, said Thursday that Greece would remain within the euro zone but did not explicitly rule out the possibility of it defaulting.

“An uncontrolled default or exit of Greece from the euro zone would cause enormous economic and social damage, not only to Greece but to the European Union as a whole, and have serious spillovers to the world economy,” Mr. Rehn said during a speech to the Peterson Institute for International Economics in Washington. “We will not let this happen.”

International lenders have to decide shortly whether to release the next installment of aid, worth around €8 billion, without which Greece probably would default in October. Experts from the three international institutions known as the troika — the European Commission, the European Central Bank and the International Monetary Fund — are likely to return to Athens early next week to pave the way for a decision on the next loan.

In the meantime, longer-term work is going on to try to help the Greek government undertake crucial changes, including an overhaul of a tax collection system widely seen as ineffectual. European experts believe that the key to changing the system is the installation of more information technology equipment and the creation of clear rules that reduce the amount of discretion tax inspectors have.

Substantial changes will probably take around a year, said an E.U. official not authorized to speak publicly on the issue, who likened the problem to an iceberg: “The tip looks O.K., but what’s below, everyone tells me, is quite different.”

Niki Kitsantonis reported from Athens.

Article source: http://www.nytimes.com/2011/09/23/business/global/europe-to-redouble-efforts-to-stimulate-growth-in-greece.html?partner=rss&emc=rss

Economic View: Choices for Greece, All of Them Daunting

The answers are to be found not only in statistics — like the debt-to-G.D.P. ratio, now running at more than 140 percent for Greece, and headed higher — but also in human sentiments and solidarities. A considerable amount of Greek patience and German flexibility and sacrifice are minimum prerequisites for turning back a major disaster in the making.

To put matters in perspective, the Greek economy is less than 2 percent of the overall economy of the European Union. That seems a manageable size for an aid-based solution; estimates in the neighborhood of 200 billion euros in aid (close to $300 billion) are common. The real difficulty is in maintaining global financial confidence while the losses are distributed in an orderly manner.

That isn’t as easy as it may sound. About 30 percent of the Greek debt is held by Greek sources, including the banks and the Greek government, in its social security funds. A default on the latter assets would mean that the Greek government was defaulting on itself. It would still have to come up with much of that money or face a total political and economic meltdown.

The private sector can be persuaded to realize some losses on Greek debt, but there is a risk of setting off a Lehman Brothers-like financial panic, especially if there is a judgment of complete or selective default from the credit agencies. Standard Poor’s warned of such a judgment last week. Big penalties for private creditors may also have weighty implications, because of the potential for a chain reaction — in which credit dries up for Ireland and for Portugal, which ran into fresh trouble when Moody’s downgraded its debt last week. Furthermore, the private sector holds only about a third of the Greek debt total — and that involvement is falling rapidly — so bondholders cannot be the only fall guys.

Then there is the European Central Bank, which holds about 18 percent of the debt. The wealthier European Union nations could transfer funds to Greece and the central bank as permanent debt relief, rather than continuing with debt rollovers that may look similar to Ponzi schemes. As it stands, vulnerable countries are being pushed into ever-higher debt levels. Yet the central bank has strict rules, including a no-bailout clause and price stability as the sole goal of monetary policy, while the European Union often requires member unanimity for major changes.

In other words, these rules were written to prevent what is now the only coherent response to Greece’s troubles — namely, a timely recognition of the losses and an agreement that they will be shared jointly in some way.

And don’t forget that more than 40 percent of the European Union’s budget is taken up by subsidies to farmers, leaving little room for subsidies required in an emergency like this. The union was not designed to turn on the proverbial dime.

The closer you look, the worse it gets. German politicians promised their voters that the euro would never lead to fiscal union or tax increases, yet aid to Greece would put those issues on the table. Political support for costly transfers also seems weak in the Netherlands, Finland and other northern European nations.

Furthermore, for Greece, such a bailout would not count as a long-term solution. Paying back one’s creditors is not the same as resuming economic growth, and the country would still face the fallout not only from its spending cuts and tax increases, but also from sharing a monetary policy and exchange rate that for it is deflationary. Relative to the size of its economy, the total Greek spending cuts now being contemplated are proportional to the United States government cutting $1.75 trillion. (Even if you believe government needs to shrink, it would be hard to pull off such a big change on short notice.) Right, now Greece’s gross domestic product is falling at a rate of more than 3 percent a year.

Even if a Greek default didn’t wreck broader markets, it wouldn’t cure Greece’s problems. The Greeks are still borrowing, so a default would dry up some of their funds and force the government to make even bigger spending cuts.

If it left the euro zone, Greece could reap the substantial benefits of a currency depreciation, but doing so would also set off huge runs on banks. And the country has no alternative paper currency ready for use.

If you are a euro optimist, you might believe that the day of reckoning for Greece will be stalled long enough for Portugal, Ireland, Spain and possibly Italy and Belgium to recapitalize their banks and trim their government budgets. You might believe that of the Greeks will eventually default, but that by the time the contagion effects are checked, the Greeks will have pulled in some aid, and the global impact will be a mere hiccup instead of a new financial crisis. But that still will leave Greece with no clear economic path forward. For a best-case scenario, that’s not very good.

If you are a pessimist, you might see such a response as an unworkable plan of naïve technocrats. Here’s your line of reasoning: At some point along the way, democracy is likely to intervene: either Greek voters will refuse further austerity and foreign domination, or voters from northern Europe will send a clear electoral message that they don’t support bailouts. And there’s a good chance one or both of those events will happen before a broader European bank recapitalization can be achieved. In the meantime, who wants to put extra capital into those ailing Irish, Portuguese, and Spanish banks anyway?

In an even bleaker scenario, bank recapitalization won’t be realized anytime soon and those same economies will show few signs of growing out of their debts. A broader financial crash will result, and it won’t be contained by an easily affordable bailout.

Those are the choices playing out now, in the streets of Athens and in the halls of power centers like Washington, Brussels, Paris, Frankfurt and Berlin. Stay tuned. There’s a lot of news on the way, but probably very little of it will be good.

Tyler Cowen is a professor of economics at George Mason University.

Article source: http://feeds.nytimes.com/click.phdo?i=fb043fb26a4668093a1235f08182312b

German Banks Agree to Roll Over Greek Debt

The banks and insurance companies will commit to providing financing for a Greek aid package, Mr. Schäuble told a news conference in Berlin, according to Reuters.

The agency quoted him saying that as a minimum, the Greek debt held by German groups that matures by 2014 would be rolled over, or extended. He also said that 55 percent of Greek bonds held by German institutions would mature after 2020.

At the same event, the Deutsche Bank chief executive, Josef Ackermann, said a French proposal was being used as a basis for the German agreement, although modifications would be built into that plan.

German and French lenders are the biggest foreign holders of Greek debt. And the involvement of private creditors is seen as crucial in international agreement on a second bailout for the crippled Greek economy.

A separate hurdle was passed Wednesday after Prime Minister George A. Papandreou of Greece won the passage of a bill setting new government spending cuts and revenue-raising steps.

Mr. Schäuble said that he was confident that an agreement on the terms of a new aid deal could be fleshed among euro-area finance ministers at a meeting July 3.

Under the complex French plan, banks agreed to roll over 70 percent of their Greek bonds falling due from July 2011 to June 2014, while pocketing the remaining 30 percent for themselves. Of the amount to be rolled over, just over two-thirds would be reinvested in new Greek securities with a maturity of 30 years that paid a coupon close to the current official interest rate on the loans to Greece.

The remaining securities, just under one-third, would be invested in a separate “guarantee fund,” consisting of zero-coupon bonds with triple-A ratings.

The Deutsche Bank chief, Mr. Ackermann, was quoted as saying Wednesday by Bloomberg News that financial companies would contribute to the bailout to help avert a “meltdown.” Banks would “offer our hand in a solution,” Mr. Ackermann said.

Commerzbank’s chief executive Martin Blessing, speaking in Berlin Wednesday, said German financial institutions had reached a draft agreement on participation in a Greek rescue, although there are still “a few hitches.”

Article source: http://www.nytimes.com/2011/07/01/business/global/01iht-euro01.html?partner=rss&emc=rss