Greece on ‘Razor’s Edge’ as Debt Talks Drag On

Greece on ‘Razor’s Edge’ as Debt Talks Drag On


Greece’s efforts to win a second bailout from international creditors teetered in the balance as negotiations in Athens failed to clinch an agreement.

“The distance between success and failure, which could come from misfortune or misunderstanding, is very small,” Greek Finance Minister Evangelos Venizelos told reporters in Athens yesterday after consultations with euro area finance ministers. “We are on razor’s edge.”

Venizelos said while agreement had been found on issues such as bank recapitalization and state asset sales, the government and the so-called troika of international creditors were still at odds over labor reforms and fiscal measures for this year. The talks with euro-area finance ministers were “very difficult,” he said.

With the country’s stability at stake, the government is racing to clinch agreement on a plan that’s been in the works since July, with talks between international monitors and Greek officials running in parallel with discussions among caretaker Prime Minister Lucas Papademos’s coalition members and Greece’s government and its private creditors.
Bond Payment

Open questions involve how much more aid Greece needs, how much more austerity is required, and how to involve the European Central Bank in the debt swap. Facing a 14.5 billion-euro ($19.1 billion) bond payment on March 20 and general elections as soon as April, Papademos must heed calls for tighter austerity to complete the talks on a second aid package in time. Venizelos said everything needed to be completed by tonight.

The discussions have led to tussles among European central bankers and political leaders. The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and loans that will probably exceed the 130 billion euros now on the table.

Deutsche Bank AG Chief Executive Officer Josef Ackermann said a collapse of Greece’s economy would open a “Pandora’s box” that would kill a euro-area recovery.

“We are in a make-or-break situation and Greece plays a very important role -- and if we find a solution in the next few days, I think we’re on the right track,” Ackermann told a panel yesterday in Munich. Ackermann was due fly to Athens last night as talks go on over the swap involving Greek debt with a face value of about 200 billion euros.
Next Rescue

The ECB is considering using its bond holdings to bolster Greece’s next rescue program and support efforts to contain the sovereign debt crisis, three euro-region officials said. The ECB has purchased 219 billion euros of debt-strapped nations’ bonds since 2010 and between 36 billion euros and 55 billion euros are invested in Greek sovereign debt, according to estimates by Barclays Capital and UBS AG.

The euro fell against the yen last week, dropping from a one-month high, as the unresolved Greek situation added to concern the region’s fiscal crisis is far from over. The yield on Germany’s benchmark 10-year bond rose 8 basis points to 1.93 percent, while the yield on Greek 10-year bonds fell 18 basis points to 34.19 percent.

Papademos met late yesterday with members of the so-called troika -- the European Commission, the ECB and the International Monetary Fund -- over what the country has to do to receive more funds. A government official said after the meeting the creditors were insisting on cuts to wages and bonuses.

The troika wants the country to detail over 4 billion euros of measures to meet targets for 2011 and 2012 because wage cuts will deepen the recession and cause a shortfall this year, the official told reporters in Athens.


Papademos will hold talks with the leaders of the three political parties backing him to discuss the plans today, an unidentified spokeswoman at the premier’s office said.

With Papademos’s term set to end when general elections are held, most likely in April, EU and IMF officials seek guarantees from political leaders in Greece that they will stick to pledges made to receive the financing.

Underlining the complexity of the task for Papademos, representatives of Greek employers and the biggest private sector union on Feb. 3 called on him to resist pressure to cut the minimum wage and holiday allowances.

The troika argues that cutting private-sector holiday allowances is among reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.


The troika demanded the minimum wage be cut to less than 600 euros a month and that at least one holiday allowance be abolished, Mega TV said, citing unidentified ministers who met with Venizelos yesterday. Supplementary pensions should be cut by 35 percent, the Athens-based channel said.

Greece must carefully examine the terms being demanded by international creditors before agreeing to them, said George Karatzaferis, leader of the Laos party, one of the three supporting Papademos.

“I will examine every detail and footnote,” Karatzaferis said in Thessaloniki yesterday, according to an e-mailed transcript of his speech. “If we don’t agree with something and the troika insists, we won’t take the package.”

Greece has lagged behind budget targets set when it won an initial, taxpayer-funded rescue of 110 billion euros in May 2010, prompting euro-area threats to cut off aid and hastening a German push to make bondholders contribute. The country’s economy shrank 6 percent last year, according to the latest IMF estimates, the budget deficit is still close to 10 percent of GDP and unemployment is around 18 percent.


“We can’t pay into a bottomless pit,” German Finance Minister Wolfgang Schaeuble said on Feb. 2. “Greece needs a new program, there’s no question about that, but Greece must create the conditions for it.”

More austerity risks triggering a “social explosion,” Hieronymos II, the head of Greece’s Orthodox Church, said in a statement on Feb. 3.

“We are being asked to take even larger doses of a medicine that has proven to be deadly and to undertake commitments that do not solve the problem, but only temporarily postpone the foretold death of our economy,” he said.

Papademos’s spokesman, Pantelis Kapsis, denied news reports on Feb. 3 that the leader would resign if leaders of the parties backing his interim government refused to agree to additional conditions for new financing.
Too Much Debt

Even after a second bailout, Greece may be saddled with too much debt, too little growth and too large a budget hole to do without even more money, which euro nations led by Germany are increasingly reluctant to offer.

The lead negotiators of the creditors’ steering committee working on a debt accord with Greece, Charles Dallara, managing director of the International Institute of Finance, and Jean Lemierre, a senior adviser to the chairman of BNP Paribas SA, returned to Athens this weekend to continue talks.

Deutsche Bank’s Ackerman is the chairman of the group, based in Washington, which has more than 450 financial firms as members and is representing private creditors in the talks.

Those talks are happening in parallel with those with the troika, Venizelos said yesterday “but that’s now the easiest part of the process.”

Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.

http://www.bloomberg.com/news/2012-02-04/greece-talks-enter-final-phase-on-2nd-bailout.html

It's fascinating to see that the cure for socialist debt is rolling back the socialist welfare state. Who would have thought that except for anti-socialists?


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Painful I think .
The comment about the debt and its cure being related directly and exclusively to Socialism is just ill informed nonsense .
It simply reflects a lazy culture where Greece tried to live like some of its richer fellow members , but failed woefully in terms of developing exports and productivity levels that are achieved elsewhere .
Spending money that you do not have is not a product of being a Socialist . It is from having eyes that are too big for your pocket and stomach
And I say that as a Conservative , though not in its diminished American definition .

 

What did they spend the money on?


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I think you have missed the point , but a great many appeared here , initially to capture the Fish and Chip trade and then later , to cook their Kebabs .
Greeks just hate hard work . Ghastly generalisation . But true .

 

In Portugal miminum wage is already less than 500€ and it isnt helping.

 

I think you ducked the question.

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Not deliberately . And , --- not nastily --- I don't know , and I could not care less .
But if you read this extract of a Global Research report you will find a summary of how things are now , and it is spot on .


In the case of Greece, discussions are talking in terms of defaulting on 70% of debt, which is absurd . Greece will have 50 years of austerity and poverty . And all of this chaos and misery just to remain in the euro zone where hopelessly they cannot compete. If they can’t compete why would they stay in the euro zone? It is all about Greek leadership and its connection to bureaucrats, bankers and others that demand their inclusion into world government.

As of late , interest rates have been falling from their lofty heights with the help of a $1 trillion loan from the Federal Reserve. We suppose that will continue over the next year. The rates will depend on internal events as well as external. Pushing against interest rates will be inflation, massive money creation, growing debt, stagnant economies, the threat of Greece, Ireland, Portugal, Belgium, Spain and Italy going into default and a possible lack of credit that will restrict world trade. Lenders already see European banks cutting back in the commercial loan area as the spectra of tariffs, particularly in Europe and England stalk our world. A reflection of the above is that European banks won’t even lend to each other, due to lack of trust. The EU and the euro zone were bad ideas from the very beginning. It has been one vast orgy of spending, debt, and trade imbalances, showcased in all the profligacy of banking. Germany is in a really difficult spot, austerity reins, losses from bond holdings face them, and the weak countries such as Greece need even more money to survive. If Germany lends and funds losses they can extend the game. If they do not , the system comes unglued. If you look at the numbers you will see that Portugal is where Greece was last year and that Italy is where Portugal was last year. Thus, if little changes , it could be that along with Spain they could fail one after another year by year and they probably will. That will allow the bankers to greatly string out their problems, which they are very adept at doing. A country like Greece even with a 70% debt write off, and staying in the euro, as we have said before, will live in poverty for the next 25 to 50 years. A full default and exit from the euro would leave them with a 5 to 10 year depression. At first the latter will be disastrous. The barter system and a rampant black market will flourish. Then austere normality will occur. The next Greek election is two months away and the opposition has been dragging their feet trying to get more bailout support and then put their own touch on to develop the future.

If Greece does a partial default they will be on life support for years within the euro zone. Their partners won’t like it, but their thought process is aid in perpetuity in exchange for economic and financial existence, as a part of the euro zone – EU units. EU members know that if Greece leaves, Portugal and Ireland will follow, perhaps followed by Belgium, Spain and Italy. If that happens the EU could fail and the Illuminists’ dream of world government could end. Yes, there is no doubt in our minds that the Greeks are stalling until their April election. In the meantime they want Germany to financially carry them. We do not see any option for Germany but to carry them. Otherwise, the euro and EU may blow-up as a result of that default. All these noises that Germany is making are for show. They know what we know. The euro zone position is weak and they know it. Greece fails and the avalanche follows, as Portugal and Ireland follow the same path.

Making things more difficult are the French elections. Can France’s Sarkozy and Merkel’s Germany take the political risk of saving Greece at this late date? Yes, we think they have too. The loss of Greece, Ireland and Portugal would cause chaos and they know it. Thus, there will be a stopgap financing before the end of March. Waiting in the wings are the debt of Spain and Italy of some $4 trillion. Italy has to roll $455 billion in current debt this year. Does one think that is possible? We think Italy and Spain will use ECB loans to roll their bonds and fund their governments. That means that debt is really being transferred from respective governments to the ECB, which is to the people. The next year, 2013, the same could happen – it’s either the Fed supplies more money or the banks fractionalize. There is no question the sovereigns would choose the ECB because of 1% interest rates and the reluctance of the ECB to call default on the loans. Needless to say, such actions would cause the euro to decline versus all currencies and particularly versus gold and silver. You can see again why you do not want to be in currencies.

 

Greece took more than 500 billion euro from german and french banks since it became an eu member 30 years ago.When you dont have any industry except tourism and you consumpt 2-3 times more than what you produce,thats what happens sooner or later.Not to mention the Turkish paranoia of greeks and their endless spendings on weaponary.Their german and french friends were still selling them weapons that cost millions of euro while they were trying to find ways of saving greece when greek bankruptcy became a matter of concern.Still greek economy only equals to 2% of whole eu economy so after this point germans and french will focus on the future of euro and saving their own investments and stability of their banks.They dont care about greece anymore.Thats european unity and friendship for you.Now greeks can enjoy it.

 

I just dread to think of how many Greeks have already become economic migrants and how many will .
Even at current austerity levels the future for ordinary working and " want to be working " Greeks is dire , and almost non existent .
The trouble is that Germany and the UK will be the majority preferred destinations , and selfishly that would be a disaster for us .
It will surely further promote the need for tighter immigration controls and the move toward ultra right political thinking .

 

Would not call it paranoia after a genocide, century's of occupation and the occupation of a greek island.

 

Exactly how does cutting the minimum wage in private employment by 22% reduce Greek national debt?

 

By increasing employment.

If a mans labor is more expensive than what its actually worth then an employer will not hire. You can scream class warfare all you want but they're not going to hire someone if it just costs them money.

 

That is a completely theoretical concept, dubious at best in any economy let alone one where the private sector economy is tanking like in Greece.

In fact reducing the minimum wage will reduce government payroll tax revenues immediately while any theoretical gain in low wage employment that leads to increased tax revenues is likely to be years away, if ever. Reduced wages will also reduce consumer demand, GDP will fall further and government revenues from consumption will fall with it. Reduced wages also increases government spending on social programs.

It is an insane idea for a nation trying to fix its fiscal problems since it will immediately reduce tax revenues and increase demand for government social spending over the long term.

 

We pay Greece so they can pay the banks back their money??

So the banks avoid losing money and the taxpayer picks up the tab. And the losers are the Greek people who see none of it, and the people of Europe who pay for it.

 

Exactly. Greece exemplifies the concept of modern finance, private profit at public risk. As soon as private profits are threatened all risk is transferred to the public. International sovereign debt finance has become nothing but a sophisticated extortion racket. One way or another it has to stop.

The private sector argument that it must charge interest for its public loans because of "the risk" becomes entirely false when they get bailed out at public expense. Lenders to Greece have been improvident for decades, they should be allowed to realize "the risk" and justify their argument.