July 2, 2020

Economist to Lead Greece, but Cabinet Squabbles Delay Move

By late afternoon, 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 Evangelos 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 even the selection of Mr. Papademos was not completely assured. 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.

Prime Minister George A. Papandreou, who will resign when the new government is formed, 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 has 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 is apparently insisting 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.

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Europe Looks for Ways to Prod 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 European Union funding to be used to help guarantee increased lending by the European Investment Bank to fill a vacuum caused by the inability of Greek banks to lend to businesses. Around 15 billion euros, or $20 billion, in European Union 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 should step up efforts aimed 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, as a protest against the austerity drive deemed essential by Greece’s creditors. General strikes have been called for Oct. 5 and Oct. 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 to avoid what happened to Argentina, which defaulted on its debt in 2001-2.

“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 euros, about $16,400, with that threshold increasing by 4,000 euros 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 a default.

“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 euros, or $10.9 billion, without which Greece probably will 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.”

Stephen Castle reported from Brussels and Niki Kitsantonis from Athens.

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Financial Crisis in Europe Is Flaring Again

In Greece, the epicenter of the Continent’s financial disarray, government officials announced new austerity measures on Sunday, even as the country’s finance minister, Evangelos Venizelos, warned that the Greek economy was expected to shrink much more sharply this year than previously anticipated. In a revision, a contraction of 5.3 percent in 2011 was predicted, rather than the 3.8 percent forecast in May.

Slower growth could make it harder for Greece to pay its debts, even as it tries to reduce them by cutting government spending and raising taxes.

While the Greek drama has been running for more than a year, only recently has it threatened French and German banks, unnerving investors around the world and sending stocks tumbling in Europe and the United States.

More than anything else, political and business leaders want to avoid the phenomenon of contagion, in which fears in one country spread to others, causing severe stress throughout the financial system, as happened in the fall of 2008. To be sure, Europe could still draw away from the precipice. That is especially true if policy makers come up with a plan to keep Greece afloat while also preventing anxiety from infecting other countries like Spain and Italy, whose huge debts and weak economies have fed worries that their borrowing has become unsustainable.

On Sunday, French government officials braced for possible ratings downgrades by Moody’s Investors Service of France’s three largest banks, BNP Paribas, Société Générale and Crédit Agricole, whose shares were among the biggest losers last week. The biggest banks in Europe, especially in France, hold billions of euros’ worth of Greek bonds, and investors fear even a partial default by Greece would sharply diminish the value of those assets, eroding already weak capital positions.

American financial institutions, typically heavy lenders to their French counterparts, have begun to pull back on these loans, but United States banks’ exposure to France remains substantial.

Still, if the French banks are indeed downgraded, it would underscore how European officials have been unable to contain the effect of the financial crisis in Greece, despite two bailout packages totaling more than 200 billion euros ($272 billion).

Frustration elsewhere in Europe has been mounting over whether Greece is sticking with the austerity goals it agreed to follow in order to qualify for the aid, and German voters in particular are wary of more handouts.

Despite repeated pledges by Chancellor Angela Merkel to keep Europe together, the cacophony of dissent within Germany has been rising. That is creating fresh doubt — justified or not — about the nation’s commitment to the euro.

“The German electorate is not in the mind-set to undertake actions it sees as subsidizing less worthy nations,” said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “As a result, the government is moving in a very isolationist way to try to establish a fortress Germany that’s economically secure despite the risks in its European Union partners.”

On Friday, a stalwart German member of the European Central Bank, Jürgen Stark, abruptly resigned — news that would have barely merited more than a few lines in the financial pages just a few years ago. Today, it is considered a sign of frustration within Germany about the extraordinary measures being pursued to maintain stability in the euro zone, adding to the volatility in global financial markets.

“Mr. Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” Julian Callow, chief European economist at Barclays, wrote in a note to clients.

Last week, Mrs. Merkel’s finance minister, Wolfgang Schäuble, warned that Greece’s European Union partners would withhold new financial aid that is needed to help Athens pay its bills through Christmas unless the Greek government fulfilled the conditions of its first bailout.

All this has generated severe discomfort in Washington, which has watched the fallout from the European debt crisis with growing alarm.

Treasury Secretary Timothy F. Geithner has been in regular contact with his European counterparts, repeatedly advising them to speak with a single voice to help reduce confusion in financial markets. After a series of discussions on Friday at a meeting of the Group of 8 finance ministers in Marseille, he declared that “European officials fully understand the gravity of the situation there.”

Athens is expecting to receive the next allotment of 8 billion euros of aid from the 110 billion euro rescue package that Greece was awarded last year. That aid is to be supplemented by a second bailout of 109 billion euros that European leaders agreed to in July. But the second package is threatened by demands from a handful of euro zone countries, including Finland and the Netherlands, that Greece provide collateral to secure further loans.

Mr. Venizelos said the government would do everything needed to close the budget shortfall. “If we can prove wrong those who are betting on Greece to fail, we will see the crisis recede,” he said.

Among the measures Mr. Venizelos announced on Sunday was a temporary property tax, ranging from 50 cents to 10 euros a square meter, depending on the value of the property, which would be collected for two years. The levy will be added to electricity bills to thwart tax evasion.

Mr. Venizelos also warned that the government would make further cuts to public spending. In a largely symbolic move, the government said it would withhold a month’s pay from all elected officials.

“This is a battle for the country’s survival,” Prime Minister George A. Papandreou told a news conference in the northern port city of Salonika on Sunday. “These measures are the supplies we need to fight.”

Niki Kitsantonis and Ben Protess contributed reporting.

Article source: http://www.nytimes.com/2011/09/12/business/global/german-dissent-magnifies-uncertainty.html?partner=rss&emc=rss

Off the Charts: For Banks, Unfortunate Echoes of 2008

Then Lehman Brothers failed, and prices fell much more.

As the anniversary of that date approached, investors seemed to fear it might all happen again. By the end of this week, those same indexes were down about as much this year as they were at this point in 2008, and many bank stocks did even worse than they did in early 2008.

There is a circular logic to this year’s decline. In 2008, banks in many countries were rescued by governments. Now it is feared that banks may be in danger because some of the same governments may not be able to meet their obligations. That is particularly true in Europe, where bonds from several countries trade well below face value.

On Friday, Greece’s finance minister, Evangelos Venizelos, blamed “organized rumors” for renewed speculation that Greece would default, and said the country intended to comply with all terms needed for the bailout that European countries agreed to in July. But the fact that the details of the deal have yet to be locked down has unnerved some investors.

In a speech this week, Josef Ackermann, the chief executive of Deutsche Bank, said it was not justifiable for politicians to demand that European banks raise more capital, as Christine Lagarde, the head of the International Monetary Fund, had done. “It’s obvious,” he said, “that many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels.”

But, he said, it would “risk undermining the credibility” of European bailout packages “if politicians were to now send out the signal that they do not believe in the success of those measures.” And, he argued, forcing banks to raise capital now would anger investors by forcing the dilution of current shareholders.

As can be seen in the accompanying charts, Deutsche Bank has lost more than two-fifths of its value this year, a performance that is better than that of some banks. Its shares are trading for about what they cost at the end of 2008, but they are less than half what they were worth just before the Lehman failure.

Of the 30 banks shown, only one — Standard Chartered of Britain — has a share price higher than it had on the eve of the Lehman collapse. Even so, its shares have lost nearly a quarter of their value this year.

Shares in Intesa Sanpaulo, an Italian bank, have lost half their value this year, and are trading for about one-quarter less than they did on March 9, 2009, when most financial stocks hit their credit crisis lows. UniCredit in Italy, Société Générale in France and Lloyds in Britain have also suffered badly this year, losing half or more of their value. Credit Suisse, in Switzerland, and Barclays, in Britain, have fallen almost as much.

Among the largest American banks, some of the worst performers have been those that were widely deemed to be too big to fail. Bank of America, troubled by its ill-fated acquisition of Countrywide Financial, is the worst performer so far in 2011, but Citigroup, Goldman Sachs and Morgan Stanley have done almost as poorly. Morgan Stanley’s share price is also a little below its March 9, 2009, level.

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

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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