Monday, February 13, 2012

Greek Bailout

Greek Bailout

European finance chiefs get the second chance in a week to pull Greece back from the brink of collapse after lawmakers in Athens approved the austerity measures demanded for a financial lifeline.

Bloomberg | 02/12/2012

Greece “will be saved in one way or another,” German Finance Minister Wolfgang told newspaper Welt am Sonntag yesterday, though the country must “do its homework.”

Euro-area finance ministers will convene in Brussels on Feb. 15 for an extraordinary meeting called after they declined to ratify the 130 billion-euro ($172 billion) package in a special session on Feb. 9. Frustrated after two years of missed budget targets, the European authorities demanded Greek officials put their verbal commitments into law.

The Greek parliament passed the legislation in the early morning hours today as rioters battled police and set fire to buildings in downtown Athens. Still, Schaeuble told German lawmakers on Feb. 10 that Greece was set to miss deficit goals, suggesting that the measures may fall short.

“I’m really wondering now whether so much damage has been done that this marriage no longer can be rescued,” Erik Nielsen, chief global economist at UniCredit SpA (UCG) in London, wrote in a note to clients. He predicted that the measures would be approved and that Greece will be able to make a 14.5 billion- euro bond payment on March 20.

Euro Gains

Global stocks and the euro rose after the vote in Athens. The euro gained 0.5 percent to $1.3262 at 10:21 a.m. in Berlin, edging back up toward a two-month high against the U.S. dollar that it lost on Feb. 10 after the finance ministers’ decision.

European finance ministers ended their meeting last week with Luxembourg’s Jean-Claude Juncker saying Greece must turn budget cuts into law, flesh out 325 million euros in reductions and have major party leaders sign up to the program so they don’t retreat after elections as soon as April.

Chancellor Angela Merkel plans to ask German lawmakers to vote on the next bailout on Feb. 27, pending the terms for securing aid being met by Greece. Other euro governments including the Netherlands and Finland have yet to schedule a date for parliamentary votes.

Schaeuble told legislators that current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout, down from about 160 percent last year. Schaeuble was briefing on estimates from the so-called troika of international creditor assessing Greece’s program.

Awaiting Troika

Germany, as the largest contributor to euro-area bailouts, wants to see the latest report on Greece’s record of implementing measures compiled by the troika of the European Commission, European Central Bank and International Monetary Fund before a majority can be mustered in parliament, Economy Minister Philipp Roesler said today on ARD television.

The Greek vote “was a necessary condition but implementation of these measures is what counts,” Roesler said. “We’re waiting for the troika report on what progress Greece has made.”

More than two years after the debt crisis emerged in Greece, European leaders face international pressure to do more to tackle the source of contagion that threatens to drag down the global economy. Group of 20 nations have signaled they won’t reach a consensus on crisis aid for Europe via the International Monetary Fund at a Feb. 24-26 meeting of G-20 finance chiefs until Europe increases the size of its firewall.

‘Critical Juncture’

The sovereign debt crisis is at a “critical juncture,” Chinese Foreign Ministry spokesperson Liu Weimin said at a briefing in Beijing today, urging Europe to move beyond contingency measures. The European Union needs to “take active measures to respond to the European debt issue,” Liu said.

In Athens yesterday, Greek Finance Minister Evangelos Venizelos yesterday urged lawmakers to “choose the bad to avoid the worst” after Greek party leaders over the weekend backed the measures to secure the 130 billion-euro package and avoid a disorderly default.

Before the final debate started, Prime Minister Lucas Papademos appealed to Greeks to support new measures, including a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.

“We are looking the Greek people straight in the eye with full knowledge of our historical responsibility,” he said in a televised address. “The social costs that come with these measures are contained in comparison to the economic and social catastrophe that will follow if we don’t adopt them.”

Debt-Swap Deadline

Part of the rescue included a bond swap intended to slice Greece’s debt load. The swap for new 30-year bonds with an average coupon of as low as 3.6 percent would cut 100 billion euros off more than 200 billion euros of privately held debt. Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.

The ECB also came under pressure to extend relief. President Mario Draghi last week left open the possibility of passing up profit on Greek debt held by the central bank, though he rejected selling it to the European bailout fund at a loss.

Greece has stumbled over the last two years in meeting reform targets in return for aid, citing a deepening recession now set to worsen. Unemployment climbed to 20.9 percent in November, as industrial production falls.

Joachim Fels, chief economist at Morgan Stanley, in a note to clients repeated his assessment that policy makers shouldn’t rule out the “really, really bad scenario” of Greece leaving the monetary union.

“I’m more than unhappy with the political cliffhanger taking place in Greece over the past few weeks,” German Foreign Minister Guido Westerwelle told this week’s edition of Der Spiegel magazine.

To contact the reporter on this story: Patrick Donahue in Berlin at

To contact the editor responsible for this story: James Hertling at