Οι κατώτατοι μισθοί στην Ελλάδα της κρίσης

του Μάνου Ματσαγγάνη

Protagon.gr
8 Φεβρουαρίου 2012

Όπως θα θυμούνται οι αναγνώστες του protagon, η δημοσιοποίηση το φθινόπωρο του 2009 της ετήσιας έκθεσης του Παγκόσμιου Oικονομικού Φόρουμ – σύμφωνα με την οποία η Ελλάδα είχε υποχωρήσει στη διεθνή κατάταξη ανταγωνιστικότητας πίσω από την συμπαθή Μποτσουάνα – αντιμετωπίστηκε με το συνηθισμένο τρόπο με τον οποίο συζητώνται όλα τα σοβαρά προβλήματα στη χώρα μας: η είδηση σχολιάστηκε για λίγες μέρες, με απαξιωτικά (και δικαίως) σχόλια για τις επιδόσεις της κυβέρνησης Καραμανλή που παρέδιδε τότε την εξουσία, και μετά ξεχάστηκε.

«Ξεχάστηκε» τρόπος του λέγειν βέβαια. Από τότε μεσολάβησε η κρίση δανεισμού, η υπογραφή του Μνημονίου, η ύφεση της οικονομίας. Χιλιάδες ιδιωτικές επιχειρήσεις έκλεισαν, πολλές άλλες μετέφεραν τις παραγωγικές τους δραστηριότητες εκτός συνόρων. Εκατοντάδες χιλιάδες εργαζόμενοι έχασαν τη δουλειά τους, πολλοί (ίσως οι περισσότεροι) από τους υπόλοιπους είδαν τα εισοδήματά τους να μειώνονται.

Πόσο άσχετα μεταξύ τους είναι αυτά τα δύο; Καθόλου. Όσο και αν μερικοί ονειρεύονται «άλλες πολιτικές» και «διαφορετικά μείγματα» (κάποιο κόλπο τέλος πάντων που θα μας επιτρέψει να πορευόμαστε όπως είχαμε μάθει τόσα χρόνια), η απώλεια ανταγωνιστικότητας της ελληνικής οικονομίας είναι η βαθύτερη αιτία της ύφεσης. Το έλλειμμα του κρατικού προϋπολογισμού και το έλλειμμα εξωτερικών συναλλαγών συνδέονται και τροφοδοτούν το ένα το άλλο. Τώρα που η εποχή της υπερκατανάλωσης με δανεικά έχει τελειώσει, το συνολικό εισόδημα αναγκαστικά θα διαμορφώνεται στο ύψος λίγο-πολύ της αξίας των αγαθών και υπηρεσιών που πουλάμε (ο ένας στον άλλον, και κυρίως σε αγοραστές από άλλες χώρες). Μπορούμε να το μοιράσουμε μεταξύ μας όσο δίκαια θέλουμε, και μπορούμε να το αυξήσουμε φτιάχνοντας ελκυστικά προϊόντα σε καλές τιμές. Και, φυσικά, «να φτιάξουμε ελκυστικά προϊόντα σε καλές τιμές» είναι αυτό που σκέφτεται ένας οικονομολόγος όταν λέει «να βελτιώσουμε την ανταγωνιστικότητα της οικονομίας».

Περισσότερα

Europe Needs Democratic Rejuvenation

by Viviane Reding

Wall Street Journal
February 8, 2012

Twenty years ago, Europe's leaders met in a Dutch city tucked away near the borders with Germany and Belgium to sign the Maastricht Treaty. It represented the most significant leap in European integration: the creation of the single currency.

The decision to transfer monetary sovereignty to the European level resulted from seismic political events. The end of the Iron Curtain and Germany's reunification created the political will to bind Europe's nations together forever. The introduction of euro bank notes 10 years later crowned this process.

But before its ink was dry, the new treaty was criticized as incomplete. Maastricht provided for a single monetary policy but left economic, fiscal and social policies to national governments. The European Central Bank was put in charge of monetary policy, but the treaty didn't create a fiscal counterpart.

This asymmetric construction was deliberate. Many thought that it would allow for competition for the best national policies on taxation, social security or health insurance. Others regretted that Maastricht did not include a full-fledged political union, but they were confident that there would be spillover effects into other policy areas after common bank notes began circulating.

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Europe Bank Eases Way to Greek Deal

Wall Street Journal
February 7, 2012

The European Central Bank has made key concessions over its holdings of Greek government bonds, which will contribute to a reduction of the country's debt burden and smooth the path toward a new bailout for the country, said people briefed on Greece's debt-restructuring negotiations.

The decision by one of the Greek government's biggest creditors will go toward filling a gap in Greece's finances, helping pave the way for a debt-restructuring agreement with Greece's private-sector creditors and a new €130 billion ($170 billion) bailout from other euro-zone governments and the International Monetary Fund. But it is still unclear whether Greek politicians, facing public outrage, will accept the tough austerity policies pushed by European authorities and the IMF as the conditions to secure a deal.

The development came as thousands of Greeks on Tuesday protested against the threat of yet more spending cuts and tax increases, while talks in Athens on a new bailout deal have been pushed back for yet another day.

The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome.

The ECB won't take a loss on the transaction, but it isn't clear whether the bank will exchange the bonds at the below-par price at which it purchased them or whether it will make a profit, these people said.

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Monti Says Europe Growth Policy Crucial

Wall Street Journal
February 7, 2012

Italian Prime Minister Mario Monti, who is putting his country through tough spending cuts to escape Europe's debt crisis, warned that European leaders must take concrete steps to fuel the Continent's economic growth or risk threatening its long-term future.

"Europe will not be a nice place to be in five years from now if we haven't solved the problem of how to grow," Mr. Monti said in an interview before heading to the U.S. for talks with President Barack Obama.

"We have to say what growth will look like in a fiscally compacted union," said Mr. Monti, referring to the new "fiscal compact" Europe's leaders agreed to last month to ensure greater budget discipline in the euro zone.

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See also

Europe Can Learn a Lesson (or 3) From the U.S.

Wall Street Journal
February 7, 2012

MarketWatch.com columnist David Weidner stops by Mean Street to discuss the three key things that Europe can learn from Americans.

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Merkel makes case for painful reform

Financial Times
February 7, 2012

Angela Merkel last night swore eurozone partners to a long and painful process of structural reform to restore the economic growth the eurozone needed to overcome its debt crisis.

Germany’s chancellor also stressed that reforming Greece outside the eurozone was not an option.

“I will not participate in pushing Greece out of the eurozone,” she said. A eurozone exit was “not an issue”.

In a speech in Berlin about the future of Europe, Ms Merkel harked back to the labour-market reforms of her predecessor Gerhard Schröder, which cut German unemployment from more than 5m in 2003 to under 3m today.

While the reforms were unpopular at the time, this trend showed that “change can bring something good” and make things better even for those initially opposed.

With her emphasis on structural reform, the chancellor was trying to counter criticism of her handling of the eurozone crisis, which some eurozone partners think has focused too much on austerity rather than growth.

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Greek shares rally as prime minister closes in on bailout deal

Guardian
February 7, 2012

Greece's prime minister, Lucas Papademos, was on the brink of a deal tonight to avoid a chaotic default by the debt-choked country, with officials saying an agreement would "almost certainly" be clinched when talks resumed on Wednesday.

After a drama-filled few days as discussions were repeatedly delayed, he had to persuade political leaders backing his interim administration to accept the tough conditions attached to further rescue funds from the European Union and the International Monetary Fund.

"There are outstanding technical issues but when they meet tomorrow we can expect the politicians to accept it," said one well-placed official after talks between Papademos and party chiefs were pushed back yet again.

"Part of the reason why the discussion is also taking longer is that the leaders have to come to terms with what they have to accept."

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Greece facing 'dramatic dilemma'

CNN Money
February 7, 2012

Officials in Greece are under pressure to reach agreement on more austerity measures, as the threat of a default hangs over the country and protestors take to the streets.

Prime Minister Lucas Papademos and the leaders of Greece's governing coalition need to hammer out the details of a package of job and salary cuts, as well as pension reforms and other measures to reduce public spending.

Papademos was set to meet with party leaders Tuesday evening, but talks have now been pushed back to Wednesday, according to the Prime Ministers office.

It was the second delay since the leaders agreed Sunday on the "main elements" of the program, including a plan to reduce public spending by 1.5% of gross domestic output this year.

Meanwhile, Greek labor unions held a daylong strike Tuesday to protest the reforms, which they see as being foisted on them by foreign creditors.

The reforms are needed for Greece to receive a second bailout worth €130 billion from the European Union, International Monetary Fund and European Central Bank.

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In Case You Forgot, This Greek Deal Is Probably Worthless

by Simone Foxman

Business Insider
February 7, 2012

Markets have appeared enchanted by reports coming out of Greece recently that Greek politicians are about to approve a new round of austerity measures and happily ignorant of the fact that negotiations about private sector involvement are still dragging on.

But even if the Greek government were suddenly to reach agreements with both the troika and its private creditors, it appears unlikely that both deals will actually be worth anything.

That's primarily based on the fact that the debt swap deal officials agree to with the private sector will likely never be implemented, particularly if the European Central Bank doesn't join in on sharing losses. As it stands participation in the plan will have to be "voluntary" in order not to provoke a credit event.

However, investors will fight tooth and nail not to bear the full brunt of the 70 to 75 percent losses they will likely take under the agreement if they can't collect on the insurance contracts (credit default swaps) they purchased to hedge against the possibility of a Greek default. Thus there are two probable outcomes:

• EU leaders forcibly prevent a credit event, potentially with a special account for Greece that would essentially would allow Greece to feign the appearance of paying off maturing debts without actually paying them off. In this scenario, the private sector would take a big hit and credit default swaps would not be paid out. This would ruin the CDS industry (at least in Europe) and foster deep distrust for EU leaders.
• EU leaders accept a credit event and let Greece default in a disorderly fashion. This essentially negates the deal that's happening right now. Theoretically, a disorderly default would result in a deeper cleansing of Greece's debt burden so the country would not necessarily need all the austerity measures the troika is forcing upon it. However, the consequences of CDS payouts are somewhat vague and its impact could be far-reaching, despite the industry's small size.

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Greece misses bail-out deadline

Financial Times
February 7, 2012

Greece missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night, after a meeting with political leaders was postponed until Wednesday because of last-minute haggling with international lenders over emergency spending cuts.

A government official said Lucas Papademos, the technocrat prime minister, would hold the talks on Wednesday morning and expected a deal to be presented for approval at a meeting of eurozone finance ministers later in the week.

But the delay over agreeing €3bn of extra spending cuts fuelled anxieties that Athens may be forced into a messy default next month. It also triggered concern over whether Greece remains committed to fiscal and structural reform after two years of failing to implement measures agreed in return for billions of euros in financial support.

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Surprise, Surprise: It Appears Greece Still Doesn't Have a Draft of a Deal

by Simone Foxman

Business Insider
February 7, 2012

Greek leaders just announced that they will push back a meeting to approve austerity cuts until tomorrow.

There's some confusion about where exactly they stand on those measures right now.

CNBC first reported that coalitions have a draft accord on the reforms, according to a Bloomberg blast. Markets began to move higher around the time that was announced.

Then Bloomberg followed that announcement with a blast citing a government spokeswoman who said that talks have actually been delayed until tomorrow. Reuters then reported that this postponement has happened because politicians have not yet drafted a final agreement. This would suggest that any agreement is still in the works.

CNBC finally conceded that Greek political leaders postponed a meeting on the bailout package until tomorrow.

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It's Time To End the Greek Rescue Farce

by Stefan Kaiser

Spiegel
February 7, 2012

Whether it be an escrow account or a budget commissioner, the latest demands by Germany show just how absurd negotiations over Greece's future have become. It is high time to bring an end to this tragicomedy.

For the past two years, Greece has wrangled with the euro-zone states and the International Monetary Fund (IMF) over its so-called "rescue." Austerity measures have been agreed to, aid has been paid and private creditors have been forced to accept "voluntary" debt haircuts. Despite all this, Greece is in even worse shape today than it was then. Its economy is shrinking, the debt ratio is rising and the country and its banks have been cut off from capital markets. There isn't even the slightest sign that the situation might improve. Something has gone very wrong with this rescue.

But none of the protagonists seem to have grasped this. They continue to negotiate as if things are business as usual, they let one "final ultimatum" after the other pass and they persistently fail to realize that their discussions have started to verge on the absurd. It would be a lot better to end this farce.

For weeks now, the Greek government has been negotiating with private creditors and the troika comprised of the IMF, European Union and European Central Bank (ECB) over a second bailout package. But it is already clear that this aid package will not save the country. It appears it will only delay a Greek insolvency -- and it will serve to create new hardships for the country's population.

It is time for politicians to admit that their carrot and stick strategy has failed. The idea that the country can be freed from its debt quagmire though austerity programs and aid pledges tied to conditions just isn't going to work. It won't even work if private creditors forgive part of the country's debt.

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Greek leaders to thrash out deal on second bailout

Guardian
February 7, 2012

Greece's political leaders are to meet on Tuesday night to consider a draft agreement that could finally pave the way to the country's second bailout, worth €130bn (£108bn).

Talks between Lucas Papademos, Greece's technocratic prime minister, and the heads of the three largest political parties are scheduled to begin at 9pm local time (7pm GMT). If agreement is reached, the full Greek cabinet could endorse the agreement on Wednesday.

News that a draft agreement was on the table sent the euro rallying to its highest level against the US dollar in eight weeks. On Monday, Greece disappointed the City by missing a deadline to tell the EU whether it accepted the austerity measures demanded by its international lenders in return for the €130bn package of aid.

Those austerity measures are deeply unpopular in Greece, where union leaders organised a general strike on Tuesday. Transport links, government offices and schools were all disrupted.

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Greece Scrambles on Final Loan Terms

Wall Street Journal
February 7, 2012

Talks between Greece and its international creditors appeared on the verge of concluding Tuesday as Greek government officials were putting together a detailed final document on a loan deal ahead of a party leaders meeting later in the day.

Greek Prime Minister Lucas Papademos and the political leaders backing his interim government will try again Tuesday at 7 p.m. GMT to agree on the cutbacks needed to win a new bailout deal and avoid defaulting on its debts next month.

At midafternoon Tuesday, finance ministry officials, as well as a technical level delegation from the international creditors, were huddled over a roughly 15-page document outlining the terms of the loan package.

"The Greek government is working on the final document of the agreement that will be discussed by political leaders later in the day," a government official said.

Overshadowing talks is growing pressure from international creditors and a nationwide strike by civil servants and private-sector workers to protest new cutbacks.

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Greek bail-out draft sent to political leaders

Financial Times
February 7, 2012

Greece’s political leaders are set to decide whether to approve further austerity measures at a meeting on Tuesday night, after a final draft detailing the terms of a second €130bn bailout was distributed to the heads of three political parties.

In a small sign of progress after days of missed deadlines, the office of prime minister Lucas Papademos said a draft document had been sent to the three parties who support the coalition government, allowing them a few hours to consider the measures with their economic advisors before meeting with Mr Papademos at 9pm (7pm GMT).

“We’re confident of getting an agreement within the day,” said a government official.

US stock markets inched upwards on hopes of a deal, with the S&P 500 adding 0.12 per cent, while the euro reversed an early decline to advance above $1.3250 for the first time this year.

Greece has already missed two deadlines this week because of political brinkmanship, further exasperating its European paymasters while raising fresh doubts about whether it will be able to stave off outright default.

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Greece drafts bailout text for parties as talks inch forward

Reuters
February 7, 2012

Greece's government is preparing a document with a list of painful reforms needed to clinch a new financing package, a government official said on Tuesday, moving Athens one step closer to a deal needed to avoid a chaotic debt default.

Officials worked on the draft of a text on the 130-billion-euro bailout plan that will be put to political leaders for approval as strikers protesting against more austerity tussled with police outside parliament.

"The Greek government is working on the final document that will be discussed at the political leaders' meeting later in the day," the official told reporters.

Safe haven German government bond futures reversed gains on news of progress in the talks, while the euro also rose against the dollar.

Prime Minister Lucas Papademos negotiated through most of the night with Greece's European Union and IMF lenders, ending at 4 a.m. (0200 GMT) when a 24-hour strike began against the reforms, closing tourist sites and disrupting public transport.

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Feuding Greek leaders united by desire to avoid blame

Reuters
February 7, 2012

With the eyes of an impatient Europe on them, Greece's feuding leaders are united by a desire to avoid blame for the harsh austerity required to save their country from a catastrophic default.

Analysts say that despite their posturing, the leaders of the conservative New Democracy party, the centre-left PASOK socialists and the far-right LAOS nationalists, which back Lucas Papademos' government, will ultimately accept the bailout terms demanded by the European Union and the International Monetary Fund to avert chaos.

But some want to dump the internationally respected Papademos and revert to politics as usual as soon as the money is in the bank, while others want to keep him in office for tactical reasons.

Antonis Samaras, 60, New Democracy's leader, is battling to distance himself from unpopular austerity measures and trying to force an early general election shortly after a planned March bailout while his party is ahead in the polls.

"A very important consideration in his movements and calculations is his great desire to become the next prime minister," said Theodore Couloumbis, professor of international relations at the University of Athens.

"The last thing he wants is to be blamed for an unruly default for Greece, whose consequence would be an exit from the euro zone and later from the EU."

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Greeks protest another bailout

Reuters
February 7, 2012

Thousands of Greeks go on strike to protest against austerity measures. Jessica Gray reports.

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Swiss central banker a euro crisis Nostradamus?

Reuters
February 7, 2012

Nearly two decades ago, the man now likely to become the head of Switzerland's central bank foresaw the neighboring euro zone's troubles in a doctoral thesis, saying the likes of Ireland, Italy and Greece would not be able to control their debt.

Vice Chairman Thomas Jordan, who has served on the Swiss National Bank's governing board since 2007 and is currently interim chairman, also said a currency union gave some states the incentive to load up on debt and could lead to a banking crisis.

Jordan was thrust into the limelight last month when SNB chairman Phillip Hildebrand stepped down amid an uproar over a currency trade made by his wife.

In his dissertation for the University of Berne, published in 1994, roughly eight years before Europeans handled their first euro notes and coins, Jordan prophetically warned of strained public finances in exactly those countries that have actually needed a bailout or where debt levels seem particularly precarious.

"Achieving the 60 percent debt limit is hardly possible for Belgium, Ireland, Italy and Greece," he wrote. "Italy and Greece need to undertake major steps even to stabilize their debts."

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Greece exit would not end euro, says EU commissioner

BBC News
February 7, 2012

Pressure is rising on Greece's national unity government to agree tough reforms demanded by the country's lenders.

The EU, IMF and European Central Bank have made further spending cuts, labour market reforms and bank rescues a condition of extending a new bailout.

European Commission Vice President Neelie Kroes told a Dutch newspaper that there would be "absolutely no man overboard" if Greece left the euro.

Greek party leaders are meeting on Tuesday amid a general strike.

A previous meeting on Sunday night proved inconclusive, leading to further last-minute talks between Prime Minister Lukas Papademos and the troika of official lenders on Monday.

The leader of the left-wing Syriza party coalition, Alexis Tsipras, repeated a call on Tuesday either for Greece's debts to be written off, or else for the country to pause its debt repayments for three years.

Meanwhile, public transport and the country's ports ground to a halt as two of the largest Greek public-sector unions began a strike on Tuesday in protest at continuing austerity.

Police had to use tear gas to prevent some protesters on Syntagma Square from breaking a cordon around the parliament building.

The Greek economy is expected to suffer a fifth consecutive year of recession this year, and has already shrunk 12% since 2008.

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Greek rescue inches closer, still riddled with uncertainty

Reuters
February 7, 2012

For two years, European officials have wrestled with Greece to try to save the country from financial ruin. Yet the closer talks get to a definitive deal, the greater the risk seems to get that negotiations might collapse once and for all.

Deadlines have come and gone, as have rescue packages, but now there is a firm one. Greece will be unable to meet massive bond payments on March 20 without more aid.

A first, 110-billion-euro plan was put together in May 2010, only to prove insufficient as Greece's situation worsened. A second, 130-billion-euro deal was agreed last October, but is yet to be finalized despite drawn-out, high-pressure negotiations that have left nerves and tempers frayed.

So many moving parts now need to come together at a single moment to clinch the deal that the danger of one piece being out of place and scuppering the whole enterprise has never been greater.

"They are dancing on a razor's edge," said Janis Emmanouilidis, a senior analyst at the European Policy Centre in Brussels who has written extensively on the debt crisis.

"Time is now really, really short. The further the crisis develops, the more intense these moments become. If something goes wrong, and that's becoming increasingly possible, at some point it could all not work out, with whatever consequences."

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After Greek Deal Comes the Political Reckoning

by Costas Paris and Terence Roth

Wall Street Journal
February 7, 2012

The political leaders backing interim Greek Prime Minister Lucas Papademos are right now only €600 million away from having the cuts they need to meet the deficit-reduction demands that will secure Athens a new bailout.

The road leading here was built with higher taxes, pay cuts and lower pensions that have crippled households and have seven out of 10 Greeks saying enough is enough.

In most other countries, that would spell certain death for political parties supporting so much concentrated pain. With new Greek general elections as early as only two months away, the political landscape could become as dysfunctional as an austerity-trapped economy now in its fifth year of recession.

Of the three parties now backing Mr. Papademos’ deeply unpopular cutbacks, the Socialist, or Pasok, Party that ruled the country for most of the past 30 years has sunk to 11.1% in the polls according to the latest poll by the Star television channel in late January.

The center-right New Democracy party claims 21.7%. What is left is LAOS, a right-wing nationalist party, which at 5% is seeing its supporters melt away because of its compliance with decisions that have handed away Greek sovereignty to its creditors.

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Why Germany Isn't Benefiting from Euro's Woes

Spiegel
February 7, 2012

There is a widespread belief that Germany is the big winner of the euro crisis, as investors stash their money in the euro zone's last safe haven, driving interest rates on German bonds down to record lows. But the idea is just a myth. Indeed, the crisis could end up costing Berlin dearly.

Italian Prime Minister Mario Monti is a thoroughly levelheaded man who feels a close affinity to Germany's famous stability culture when it comes to economic policies. Nevertheless, he has had nothing good to say about Berlin in the last few weeks. That's partly because he sees German Finance Minister Wolfgang Schäuble as a secret beneficiary of the euro crisis. Germany, says Monti, benefits more from the euro than others.

Even German experts are convinced that Germany is profiting as a result of the currency crisis, while others are the losers. Because the country is seen as a safe haven on the crisis-plagued continent, investors are currently pouring billions into Germany. This is pushing down interest rates on government bonds to historic lows. "Germany is currently living at the expense of the other euro-zone countries," says Theodor Weimer, head of the board of the HypoVereinsbank bank. According to calculations performed by the Cologne Institute for Economic Research (IW), which is closely aligned with employers, the low bond rates will translate into savings of €45 billion ($59 billion) in the medium term for the German Finance Ministry.

As a result, the German government is under growing pressure to contribute even more money to efforts to rescue the euro. Germany, critics argue, cannot benefit from the crisis and be miserly at the same time.

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Focus Turns to ECB Greece Policy

Wall Street Journal
February 7, 2012

The European Central Bank is widely expected to keep its interest rates on hold Thursday, but clues as to how it will deal with the intensifying crisis in Greece are likely to steal the show.

While negotiations between Greece and its private creditors on a €100 billion (€131.31 billion) debt write-down seem close to completion, all Greek political parties still must pledge their commitment to new austerity measures in order to secure a €130 billion loan from its European partners and the International Monetary Fund. Pressure has also grown in recent weeks to include the public, or official, sector in the debt write-down. The Greek situation, if unresolved, threatens to undercut encouraging signs of recovery both inside and outside the euro zone.

Involvement of the official sector would help close a €15 billion gap between the €130 billion second bailout package that Greece is due to receive and the €145 billion in aid that it seems to need.

Thus far, voices from the central bank clearly reject the notion that the ECB should also take a hit on its holdings of Greek government bonds. ECB Governing Council member Ewald Nowotny said last week "that the current negotiation has to do with an involvement of the private sector," which does not include the central bank.

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Merkel Pressures Greece on Austerity to Unlock Aid

Bloomberg
February 7, 2012

Greek Prime Minister Lucas Papademos plans today to discuss with the nation's political leaders the implementation of additional fiscal measures needed to secure a second European Union-led bailout. German Chancellor Angela Merkel said in a joint interview last night with French President Nicolas Sarkozy that Greek aid hinges on the government adhering to the terms set down by international creditors. David Tweed reports on Bloomberg Television's "Countdown" with Linzie Janis.



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Greek unions strike before crunch leaders' talks

Reuters
February 7, 2012

Greek party leaders face crunch talks on Tuesday to secure a new international bailout and avoid a chaotic debt default, caught between EU demands that they accept painful reforms now and a national strike against more austerity.

Prime Minister Lucas Papademos negotiated through most of the night with Greece's European Union and IMF lenders, ending at 4 a.m. (0200 GMT) when the 24-hour strike was about to begin, closing ports and tourist sites and disrupting public transport.

Papademos, a technocrat parachuted in to lead the Greek government late last year, must persuade leaders of the three parties in his coalition government to accept the EU/IMF conditions for the 130-billion-euro ($170-billion) rescue.

"We must find a solution today," said a government official before the leaders' talks, which will start later in the day.

Another official said the government was preparing a text to put to the leaders for their approval, suggesting some movement in the process.

With Greece's future in the euro zone in question, German Chancellor Angela Merkel said time was of the essence and there are growing signs that euro zone officials have lost patience.

They say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15.

This is to allow time for complex legal procedures involved in a bond swap deal - under which the value of private investors' holdings of Greek debt will be cut radically in value - so Athens can get rescue funds before March 20 when it has to meet heavy debt repayments or suffer a chaotic default.

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Greece Works on Final Draft for Leaders Meeting

Bloomberg
February 7, 2012

Greek officials are working on the final draft of the document listing the budget and structural measures required to receive international funding, a government official said.

The official, who declined to be named, said the document would be discussed by political party leaders supporting the government of interim Prime Minister Lucas Papademos at a meeting later in the day. The official spoke to reporters in Athens.

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EU’s Barroso Says This Is the ‘Decisive Moment’ for Greece

Bloomberg
February 7, 2012

European Commission President Jose Barroso said this is the “decisive moment” for Greece and an agreement on a debt swap and second rescue package is close.

“We want Greece to remain in the euro,” Barroso said in Brussels today, after EU Digital Affairs Commissioner Neelie Kroes told Dutch newspaper De Volkskrant that there would be “absolutely no man overboard” if a country exited the euro.

“Maybe my wording isn’t entirely felicitous,” Kroes told De Volkskrant. “What is a man overboard? It’s being said that if you allow one country to exit or ask it to exit, then the whole structure collapses. But that just isn’t true.”

When asked about Kroes’s comments, commission spokesman Olivier Bailly said the EU’s position on Greece “has not changed and is very clear: we want Greece to remain in the euro area.”

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Get the Hellas out of here

Economist
February 7, 2012

CITI economists Willem Buiter and Ebrahim Rahbari write:

First, we raise our estimate of the likelihood of Greek exit from the eurozone (or ‘Grexit’) to 50% over the next 18 months from earlier estimates of ours which put it at 25-30%. Second, we argue that the implications of Grexit for the rest of the EA and the world would be negative, but moderate, as exit fear contagion would likely be contained by policy action, notably from the ECB.

Not "Grout"? Exposure to Greece among European financial institutions was always relatively small given the relatively small size of the country. Banks have been working furiously to reduce even that, and with the European Central Bank now directing a flood of money toward euro-area banks it looks, to these fellows at least, as if the economic and financial risks of a Greek departure are mostly contained. As this paper acknowledged recently, the cost of a Greek exit to the broader euro zone is falling:

For the rest of Europe, a Greek exit would also be dangerous: it could cause bank runs, capital flight and soaring bond yields in Portugal, Italy and beyond. But over time the balance of risks will change. Once a tough debt restructuring has been imposed on Greece’s private creditors, the country’s fate will have less impact on other bond markets. As reforms in Italy and Spain gain momentum, the distinctions between Greece and others will become clearer. And over the coming months European leaders, with luck, will agree on a permanent way to boost their rescue funds. All this would make the spectre of a Greek exit much less frightening for the rest of the euro zone.

For Greece, on the other hand, departure is unlikely to work out well. A devaluation would make Greek exports more competitive, but in the short term the chaos of a departure would likely reduce or eliminate entirely the benefit of a cheaper currency to Greece's top export industry—tourism. The new Greek currency would likely overshoot on the way down, and given the country's fiscal difficulties rapid inflation, and perhaps hyperinflation, would loom as a threat. In all likelihood, Greek money and labour would flee the country in droves, potentially forcing the country to adopt tight capital and border controls. The country might well wind up a failed state, a political and economic wreck.

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Political Roadblocks Litter Path to Greek Deal

Wall Street Journal
February 7, 2012

With a Greek general election expected in early 2012, the political obstacles towards a debt deal could be insurmountable. Dow Jones's Gren Manuel and Terry Roth discuss whether a path can be cleared in time.

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CITI's Buiter: There's a 50% Chance of a Greek Exit from the Eurozone and Here's How It Would Happen

by Simone Foxman

Business Insider
February 7, 2012

Citigroup economists Willem Buiter and Ebrahim Rabhari revised their predictions of a Greek exit from the eurozone—or "Grexit"—in the next 18 months up to 50 percent from 25-30 percent in November.

That's not only because Greece's failure to meet spending and austerity goals has angered the rest of the euro area and made other countries less willing to extend aid, but because the risks to the rest of the eurozone have been moderated as investors priced in this possibility.

However, halting tail risk is dependent on a few criteria, the most important being swift and strong action from EU leaders:

Clearly, the Grexit scenario that we describe here is subject to major downside risk, namely that exit fear contagion following Grexit could be much stronger than anticipated, leading to a sequence of sudden stops in the external financing of periphery sovereigns, banks and other private entities. Unless an official ECB/EFSF/ESM/IMF firewall/ big bazooka can deter or negate such a withdrawal of market funding, there could be a sequence of forced exits from the EA, reducing the euro area to a greater DM zone.

There is also some circumstantial evidence in historical bond yields and GDP growth which suggests that investors do consider Greece to be a distinct case from Portugal, Ireland, Spain, and Italy.

Still, Grexit is not Citigroup's baseline scenario—Buiter and Rabhari expect that a Greek default will indeed provoke a credit event, and that future debt restructuring will have to happen, but that it will stay in the eurozone.

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New Greek bail-out to prioritise debt holders

Financial Times
February 7, 2012

European officials are insisting that any new bail-out programme for Greece earmark funds specifically to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets.

Under a new Franco-German plan that senior European officials said was likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens, as in the past.

The new fund would then ensure bondholders were paid off while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands.

In Athens, leaders of the three political parties in the national unity government were to meet on Tuesday afternoon to agree on reforms, the prime minister’s office said.

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Papademos Seeks Greek Consensus on Cuts

Bloomberg
February 7, 2012

Greek Prime Minister Lucas Papademos plans to convene the nation’s political leaders to seek consensus on the cuts required for a bailout as unions called a strike to protest and European leaders pressed for answers.

While Papademos and the party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for a 130 billion-euro ($171 billion) rescue. German Chancellor Angela Merkel said “time is running out,” while unions derided the conditions as “blackmail.”

“It is clear we are going into another drama for Greece with many questions unanswered,” Patrick Legland, head of research at Societe Generale SA, told Bloomberg Television today. “It’s kind of a catch-22 where they have to reduce their deficit but there is no growth. It’s very tricky.”

At stake is whether Greece wins the bailout, secures a debt writeoff with private creditors and remains in the euro region. Finance Minister Evangelos Venizelos told reporters late yesterday that “failure of these talks, failure of the plan, the country’s bankruptcy, means even greater sacrifice.”

The euro fell 0.1 percent to $1.3123 as of 1:05 p.m. in Athens as investors await the outcome of the Greek talks. The Stoxx Europe 600 Index slipped 0.5 percent and the Euro Stoxx 50 also dropped 0.5 percent.

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Greek Workers Strike Against New Round of Austerity

New York Times
February 7, 2012

Greek workers walked off the job on Tuesday to protest a new barrage of austerity measures being demanded by the country’s foreign creditors in exchange for a second bailout of $170 billion without which Greece faces a potentially catastrophic default within weeks.

The general strike, the second this year, comes as government officials continued tense talks with representatives of the so-called troika of foreign lenders — the European Commission, the European Central Bank and the International Monetary Fund — on the terms of a new loan program. Negotiations on a crucial writedown on Greek debt, expected to wipe $130 billion off the country’s debt, were continuing in parallel but depend on the success of the bailout deal.

Although airports operated as normal, other transport services were disrupted. Ferries remained moored in the country’s ports and train services were suspended. Public transport workers ran a limited service in Athens to allow protesters to join rallies in the city center. The police said about 10,000 people marched peacefully to Parliament. There was also a separate demonstration by about 10,000 Communist unionists. No arrests or injuries were reported.

The walkout also closes government offices, schools and courts and left hospitals operating on emergency staff. Many shopkeepers, exasperated at the impact of higher taxes and reduced consumer spending, closed down for the day.

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Greek impasse raise fears of 'Grexit'

by Katie Allen

Guardian
February 7, 2012

Word of the day is Grexit. It has been coined by Willem Buiter, chief economist at Citigroup, which now sees a greater chance of a Grexit – or Greek exit from the eurozone.

Against the backdrop of still to be concluded Greek talks over the latest bailout for the debt-choked country, Citigroup has raised its estimate of such an unravelling of Greece's situation to one in two.

It now sees a 50% chance of a Grexit over the next 18 months, up from its previous estimate of just 25-30%.

Explaining the move, former Bank of England policymaker Buiter and his Citigroup colleague Ebrahim Rahbari comment:

"This is mostly because we consider the willingness of euro area creditors to continue providing further support to Greece despite Greek non-compliance with programme conditionality to have fallen substantially."

On the upside they argue that the costs of Grexit to the rest of the euro area would be "moderate", as they "expect post-Grexit fear contagion would be contained by policy action, if needed."

They added: "In September, we viewed the likelihood and scale of exit fear contagion as much higher and the willingness of the euro area authorities to respond as lower."

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Between Lots of Rocks and Hard Places: Greece's Bad Options

by Joanna Kakissis

Time
February 7, 2012

The leaders of the three parties in Greece's coalition government are expected to sign off on new tough new austerity measures on Tuesday, including a controversial reduction in the minimum wage, in exchange for about $171 billion in new bailout loans. If the leaders sign, then a separate bond-swap deal with private creditors to cut Greek by at least 50% will also come through.

But Greek politicians, already hated by the public for agreeing to earlier austerity measures, are actually faced with two disastrous choices: Sign the deal and face the wrath of anti-austerity voters in spring elections; don't sign and send the country into a chaotic default, which could lead to a exit from the eurozone.

International lenders — who include the European Union, the European Central Bank and the International Monetary Fund — are just as despondent. Eurozone leaders say they've lost patience with the Greek delays, but they're also trying to process the likelihood that austerity may be backfiring on everyone. Austerity was supposed to bring down debt levels in Greece, as well as Portugal and Ireland, to sustainable levels but instead it's increased in all three countries. Greece's debt level is especially troubling: it rose to 159.1% of gross domestic product, according to Eurostat, the EU's statistical agency. That makes the IMF's goal of reducing Athens' debt to 120% of GDP by 2020 seem out of reach, analysts say. It is almost like Herakles and the hydra: lop one problem off and more grow in its place.

"There is now broad agreement among eurozone donors and the IMF that Greece will not be able to squeeze more revenue out of an economy that is in its fourth year of recession," wrote Katinka Barysch, deputy director of the London-based Centre for European Reform in a recent assessment. Added Paul McNamara, investment director at GAM, an asset management firm in London: "Greece is in a horrible position because it was already a terribly uncompetitive economy."

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Merkel Pressures Greece on Austerity to Unlock Aid

Bloomberg
February 7, 2012

Patrick Legland, head of research at Societe Generale SA, discusses Greece's efforts to secure a second bailout. He speaks from Paris with Owen Thomas and David Tweed on Bloomberg Television's "Countdown."



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Central banks: A long way from decoupling

by Stephanie Flanders

BBC
February 7, 2012

When the financial markets started to perk up in the last few weeks of 2011 it was easy to see what was driving the turnaround: good economic news out of the US, and a shedload of cheap medium-term loans for banks from the European Central Bank.

Since then there has been more good news from the real economy - especially in the US but also the core Eurozone economies and the UK.

The impact on stock prices is plain for all to see - and, possibly temporary. The implications for central bankers are more complicated, but they will be hanging over them for some time to come.

First, those soaraway stock markets. There have been some market wobbles this week, thanks to Greece, but the FTSE 100 is still more than 5% up on the end of 2011, and nearly 17% on its low point in mid-August.

The key American index - the S&P 500- has gained 6.5% so far this year, and more than 20% since October.

As you know, bond prices (and the implied cost of borrowing for governments) have also reflected the better mood - at least if the government in question is not Portugal.

Italy's cost of borrowing is now around 5.6%, the lowest it has been since October.

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Amid Debt Crisis, A Trail Of Broken 'Promises'

National Public Radio
February 7, 2012

Financial writer Philip Coggan traces the current global financial crisis to the 1970s, when the U.S. went off the gold standard.

"Up till then, every form of money had some link to precious metal: gold or silver," Coggan, author of a new book, Paper Promises: Debt, Money and the New World Order, tells Morning Edition's Renee Montagne.

Coggan, who writes about finance for the Economist magazine, explains that before that time, the U.S. used gold to back the dollar; other countries could exchange their currency for American gold. But when President Nixon went off the gold standard, "essentially you had no limit on the amount of money that could be created and no limit on the amount of debt that could be created."

The result, he says: asset bubbles.

Debt was used to buy assets, which rose in price and then burst. He points to Black Monday in 1987, when global financial markets crashed and the Dow Jones industrial average fell more than 20 percent. Those same factors, he says, led to the dot-com bubble of the 1990s and the more recent housing bubble. When bubbles burst, central banks stepped in and cut interest rates to keep the system afloat.

"The result of all that was that it was kind of a one-way bet for speculators: Keep borrowing money to keep buying assets; central banks will always bail you out," Coggan says. "And that's why we ended up in this mess that we are in ... with lots of debts and central banks creating money to try and prop the whole system up."

Today, governments are trying different approaches to get themselves out of debt.

Greece, for example, is negotiating with the European Union and the International Monetary Fund on a $170 billion bailout to avoid a default in March on its bond repayments. The Associated Press reported Monday that the bailout also depends on talks with private bondholders to forgive more than $131 billion in Greek debt, along with new bonds worth 50 percent less than their original face value.

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Listen to the Interview

Read an excerpt of Paper Promises

“Grexit”

Financial Times
February 7, 2012

Grexit being, of course, a Greek exit from the eurozone. (Also, an app for archiving and sharing Gmail threads. Bummer for them.)

The term comes from Willem Buiter and Ebrahim Rahbari at Citi, who are now leaning towards the “let them leave” argument:

First, we raise our estimate of the likelihood of Greek exit from the eurozone (or ‘Grexit’) to 50% over the next 18 months from earlier estimates of ours which put it at 25-30%. Second, we argue that the implications of Grexit for the rest of the EA and the world would be negative, but moderate, as exit fear contagion would likely be contained by policy action, notably from the ECB.

Citi had warned of ‘very high’ costs from a Greek exit only in September 2011. Notwithstanding support from the ECB – Buiter and Rahbari also reckon that European banks have now mostly insulated themselves from Greece and have offloaded exposure in the last 18 months. Some of the Citi comment on Greece’s economic fate post-exit is pretty chilling in its clinical tone: “For most other countries in the euro area, a Greek import collapse would seem to be a manageable inconvenience,” etc.

Buiter and Rahbari even argue that leaving the euro — which, let’s remember, isn’t provided for in any treaty and would have to be disorderly by definition – would be a “cathartic experience” for reforming the Greek state. We’re not too sure many Greeks would see it the same way.

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Greece to Eliminate 15,000 Government Jobs

New York Times
February 6, 2012

Despite new evidence of a deteriorating economy, Greece said on Monday that it would cut 15,000 state jobs this year as part of new austerity measures it intends to adopt to secure new debt agreements from international lenders.

Athens is racing to push through economic changes that it hopes will persuade its private sector creditors to grant easier debt repayment terms and will prompt Europe to release 130 billion euros, or $171 billion, in the next round of bailout money it needs to avoid defaulting on bond payments due in March.

Negotiations with its creditors were continuing Monday, even as the austerity measures already in place were making it increasingly difficult for the Greek economy to outrun the country’s mounting debt burden.

Greece’s debt rose to 159.1 percent of gross domestic product in the third quarter of 2011, from 138.8 percent a year earlier, according to data released Monday by Eurostat, the European Union’s statistical agency.

That rising debt ratio, if it continues, will make it hard for Greece to meet the 120 percent level for the year 2020 that is one of the targets for Greece’s European bailout program.

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See also

Calling Greece’s bluff

by James Mackintosh

Financial Times
February 7, 2012

The best scene in spoof western Blazing Saddles has Cleavon Little’s smart sheriff escaping death at the hands of an angry mob by taking himself hostage.

Lucas Papademos, the Greek prime minister, is in effect holding a gun to his own head. “Next man makes a move, the bonds get it!” Greece’s bluff is to threaten default, which would be awful for Greece – but could lead to disaster for other eurozone states, too.

Europe is wise to the trick, unlike the townsfolk in the movie. European leaders have responded by calling Greece’s bluff, not once but twice.

At the start of November France and Germany rejected the call by Mr Papademos’s predecessor for a referendum on yet more austerity measures, saying that Greece had to decide if it was in or out of the euro. Now eurozone leaders simply accept the Greek threat: if more austerity is not accepted Greece will have to “declare bankruptcy”.

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Europe turns up the pressure on Greece over debt plan

Washington Post
February 6, 2012

European leaders pressed Greece on Monday to quickly resolve deadlocked talks over a new international bailout and are threatening to let the country default if Athens does not agree to new economic reforms.

In recent weeks, negotiators have been struggling to produce an agreement between Greece and private investors over how to reduce the country’s debts. At the same time, other European nations and the International Monetary Fund have been trying to negotiate $170 billion in additional international loans.

But progress stalled in recent days over what amounts to a European and IMF ultimatum to the country: Either move forward with a politically painful restructuring that Greek officials have long promised but failed to deliver, or international lending will stop and the country will be forced to default on its bond payments as early as next month.

A default by Greece could disrupt European and world financial markets and raise fears that other highly indebted nations in the euro zone would follow suit and that Greece would drop the common currency. But after two years of failed efforts to fix Greece, European and IMF officials see few options for dealing with a Greek political establishment that has slashed government spending to try to control its runaway debt but has not made more fundamental changes considered necessary to revive the economy.

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Greeks delay bailout talks as Merkel demands action

Reuters
February 6, 2012

German Chancellor Angela Merkel told Greece Monday to make up its mind fast on accepting the painful terms for a new EU/IMF bailout, but the country's political leaders responded by delaying their decision for yet another day.

Failure to strike a deal to secure the 130 billion euro ($170 billion) rescue - much of which Germany will fund - risks pushing Athens into a chaotic debt default which could threaten its future in the euro zone.

EU officials say the full package must be agreed with Greece and approved by the euro zone, ECB and IMF before February 15 to allow time for complex legal procedures involved in the bond swap to be completed in time for a March 20 bond redemption. In some euro zone countries, including Germany and Finland, parliamentary approval is required to raise the bailout money.

Greek Finance Minister Evangelos Venizelos, who met the lenders for another round of talks to reach compromise on wage, pension and job cuts, warned the stakes were rising as time ran out.

"A failure of the negotiations, a failure of the program or a default by the country means even greater sacrifices," he said. "Unfortunately, the negotiations are so tough that as soon as one chapter ends another one opens."

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Euro zone strugglers lack innovative knack

by Alan Wheatley

Reuters
February 6, 2012

To get an idea of the economic mountain euro zone strugglers Greece and Portugal have to climb, consider this: per million inhabitants, they each filed fewer than eight applications with the European Patent Office in 2010.

Germany, with the advantages of scale that go with a population eight times bigger, lodged 335 patent applications per million residents. But the Czech Republic, of a similar size to Greece and Portugal, managed 16. Much-smaller Ireland boasted 112, according to calculations based on data on the EPO website.

Figures on research and development are a little better.

Greece spends just 0.6 percent of GDP on R&D, the same as in 1999. Portugal's R&D rose to 1.66 percent of GDP in 2009 from 0.69 percent a decade earlier but still lags the OECD average, which rose over the same period to 2.33 percent from 2.16.

Innovation matters because it is a key driver of competitiveness, allowing firms to win greater market share and feeding through into greater productivity.

Patent filings and R&D expenditure are only a rough proxy for a country's innovative capacity, but Peter Droell, head of policy development and industrial innovation at the European Commission, said there was a strikingly strong correlation between R&D spending in the European Union in the period 2004-2009 and economic growth in 2011.

"Member states which invested in research and innovation have been stronger in the crisis and are exiting faster," Droell said in London last week at the launch of the conclusions of an EU project on financing innovation and growth.

As such, the figures illustrate the longer-term growth challenges confronting Greece and Portugal: whether they succeed in boosting productivity, now just 65 percent and 77 percent respectively of the European Union average, according to Rabobank, will largely determine whether they close the competitiveness gap with Germany and other stronger euro zone members.

That is the root cause of markets' skepticism about the ability of peripheral euro zone countries to grow quickly enough to sustain their huge debt loads.

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Greece Agrees to Cut Public-Sector Jobs

Wall Street Journal
February 6, 2012

Greece has agreed to lay off 15,000 public-sector workers by the end of 2012, a government minister said Monday, as international pressure mounts on Athens to agree to austerity measures needed to secure major new debt agreements.

The cuts will come by abolishing or cutting back a number of public-sector entities, Administrative Reform Minister Dimitris Reppas said in a statement.

The announcement late Monday signaled a concession after meetings between Greek Prime Minister Lucas Papademos and the country's political leaders over a reform program demanded by the country's creditors had been delayed for another day. Party leaders remain at odds over broad wage cuts, one of the most politically sensitive demands issued by Greece's creditors.

The country is scrambling to negotiate last-minute details with officials from the European Commission, International Monetary Fund and the European Central Bank—known as the troika—on the new loan program.

Mr. Papademos was expected to meet with the troika officials later Monday.

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Greece in 'tough' talks with international lenders

BBC News
February 6, 2012

Greece has held further talks with its international lenders, as discussions continue on more austerity measures.

Finance Minister Evangelos Venizelos said the negotiations in Athens were "so tough that as soon as one chapter closes another opens".

He was speaking after meetings with EU, International Monetary Fund and European Central Bank delegates.

Negotiations between Greece's coalition parties on new austerity measures have been delayed until Tuesday.

Mr Venizelos went on to criticise the political parties for not reaching a deal with the nation's benefactors.

"Instead of looking at this tragic dilemma... there are many who spend their effort on a conventional, outdated, party confrontation as if nothing has happened.

"Sadly, we are distracted and we are not telling the Greek people the truth," he said in a statement.

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Disbelief as Greek politicians delay deal on €130bn rescue package

Guardian
February 6, 2012

Greece appeared intent on taking make-or-break talks over a €130bn (£108bn) rescue programme for the debt-choked country down to the wire tonight as officials announced that the discussions would be delayed.

Confounding market expectation and European hopes, the government said agreement over the conditions attached to further aid could not be reached as a meeting between political chiefs and the prime minister, Lucas Papademos, had been deferred until today.

"All parties have basically accepted the deal," said a well-briefed source, referring to the three elements in Papademos's national unity coalition. "But it is felt that the details have to be fine-tuned. The leaders want to know what they are signing up to."

With Greece staring at the spectre of bankruptcy – barely six weeks before it has to make bond repayments worth €14.5bn – EU officials expressed disbelief that politicians could not finally put their name to an accord.

Unable to conceal her own exasperation, the German chancellor, Angela Merkel, said: "I honestly can't understand how additional days will help.

"Time is of the essence. A lot is at stake for the entire eurozone," she said after holding debt crisis talks in Paris with the French president, Nicolas Sarkozy.

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IMF's Blanchard sees "very large" Greek haircut

Reuters
February 6, 2012

The IMF's chief economist, Olivier Blanchard, said on Monday it looks like the 'haircut' on Greek private debt will be "very large" as negotiations between bondholders and the government drag on to cut Greece's debt burden.

"With respect to private creditors at this stage it looks like the haircut will be very large," Blanchard told an event at the Carnegie Endowment for International Peace, adding: "But that is only half of what it needs, and it may be in a way it's the easier half, the other half is (improving) competitiveness."

Blanchard said Greece needs a "dramatic" reduction in its public debt. The IMF has said Greece needs to cut its debt to 120 percent of gross domestic product by 2020 - from nearly 160 percent now - to put its economy on a sustainable path.

Blanchard said the only way for Greece to eventually emerge from its economic doldrums was for the government to cut public debt and reduce labor costs and for a commitment by Europeans to support Greece "as long as it's needed."

"Under these conditions it is still terribly ugly and an unpleasant path but it is at least one that can be tried," Blanchard said.

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Citigroup: Risk of Greek Exit From Euro Has Risen to 50%

by Matina Stevis

Wall Street Journal
February 6, 2012

Citigroup on Monday raised its estimate of the likelihood of a Greek exit from the euro area over the next 18 months to 50% from a prior range of 25% to 30%, according to the bank’s latest “Global Economics View” analysis by economists Willem Buiter and Ebrahim Rahbari.

“This is mostly because we consider the willingness of [euro area] creditors to continue providing further support to Greece despite Greek non-compliance with programme conditionality to have fallen substantially,” the report writes.

Buiter and Rahbari believe the cost of Greece leaving the 17-nation currency bloc would be “moderate” because policy makers would act to protect other weak euro-zone economies from further contagion following the unprecedented exit.

They also expect that Greece’s long-negotiated private-debt restructuring will be done in an orderly, albeit coerced, manner. They also believe the European Central Bank will end up restructuring its holdings of Greek bonds, a proposal that has proved very controversial over the last few weeks.

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Balestra's Luckett on Europe Debt Crisis

Bloomberg
February 6, 2012

Matthew Luckett, portfolio manager at Balestra Capital Ltd., talks about Europe's sovereign-debt crisis and the possibility that Greece will default on its obligations. Luckett also discusses China's economy and his investment strategy. He speaks with Deirdre Bolton on Bloomberg Television's "Money Moves."



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Barclays's Callow on Greece Debt

Bloomberg
February 6, 2012

Julian Callow, head of international economics at Barclays Capital, talks about the prospects for a solution to the Greek debt crisis. Callow speaks with Tom Keene on Bloomberg Television's "Surveillance Midday."



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Greek debt talks grind on

by Kipper Williams

Guardian
February 6, 2012

Greece on the brink

CNN Money
February 6, 2012

Officials in Greece are under pressure to reach an agreement on a new bailout package, as the threat of a default hangs over the country.

Prime Minister Lucas Papademos met with officials from the European Union, International Monetary Fund and European Central Bank Monday to try and hammer out the details of a €130 billion bailout deal.

Greece needs the money to avoid an all-but-certain default on a €14.5 billion bond redemption in March. The concern is that a so-called disorderly default could force Greece out of the euro currency union and shock the global financial system.

Papademos must also convince the leaders of Greece's three main political parties to back a package of fiscal and economic reforms that are a condition of the bailout.

The party leaders agreed over the weekend on the "main elements" of the program, including a plan to reduce public spending by 1.5% of gross domestic output this year, according to Papademos.

But talks scheduled for Monday were pushed back to Tuesday amid apparent disagreements over additional job and salary cuts, as well as pension reforms and tougher tax enforcement.

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Some European Banks Shun ECB Loans

Wall Street Journal
February 6, 2012

A group of top European banks is disclosing that they didn't borrow money under the European Central Bank's bank-lending program, fearful of being perceived as bailout recipients.

The ECB in late December doled out a total of €489 billion ($643 billion) in three-year loans at a 1% interest rate to 523 banks. The primary goal was to avert problems at banks that faced waves of maturing debt but didn't have access to borrow money via traditional funding markets.

The broad participation in the program, known as the Long-Term Refinancing Operation, fueled a sense of euphoria among many bank executives and investors that the worst of the Continent's two-year banking crisis was over. In a second batch of loans in late February, analysts expect the ECB to distribute as much as €1 trillion in additional funds, partly because the central bank is making it easier for banks to borrow.

But some bankers and observers are starting to warn about unexpected fallout from the ECB's loan program. A top concern among banks is that the receipt of central-bank lifelines could subject them to potential political or regulatory interference and sully their ability to declare themselves free of any outside help. That sentiment has the potential to damp demand for future ECB loans, at least among the Continent's strongest banks.

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Time is Not on Greece's Side

Wall Street Journal
February 6, 2012

The Eurozone dominoes are teetering. WSJ's Matina Stevis checks in on Mean Street to point out that the probability of Portugal following Greece down an economically chaotic path has grown substantially.

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See also

Sarkozy, Merkel demand Greek action

Reuters
February 6, 2012

The French and German leaders told Greece time was running out as it attempts to get a deal on a debt restructuring plan, and warned Athens it would only get its second bailout if it delivers on its promise of more economic reforms. Joanna Partridge reports.

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Time Is Running Out for Greece to Accept Bailout Conditions, Merkel Says

Bloomberg
February 6, 2012

European leaders stepped up pressure on Greek politicians to meet the conditions of a 130 billion- euro ($171 billion) bailout, saying time was running out.

French President Nicolas Sarkozy met German Chancellor Angela Merkel in Paris today as Greece’s interim prime minister, Lucas Papademos, prepared to negotiate with the so-called troika of international lenders in Athens for a second day. A gathering of Greek political leaders was delayed until tomorrow as they struggled for a unified response.

“I can’t quite understand why we need a few more days,” Merkel said today in a joint briefing with Sarkozy. “Time is running out.”

With Greece’s stability at stake, a tentative consensus yesterday among party leaders on an accord framework marked a step forward as Athens played host to parallel domestic and international negotiations while persuading Greece’s private creditors to accept bigger writedowns on their debt holdings.

“An agreement has never been so close, neither for private nor public creditors,” Sarkozy said. “We have to conclude it.”

The leaders of Europe’s two biggest economies proposed setting up an account for Greece’s interest payments to guarantee lenders are paid. Sarkozy said in a later joint interview that he and Merkel are working “hand-in-hand” to prevent a Greek default.

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