Bailout redux - Greek style

Consequences of Government Debt Default
Stuart Staniford, Early Warning
Well, it looks as though the EU has, at a minimum, kicked the can down the road a ways on Greece:

Euro-region ministers agreed to a 110 billion-euro ($146 billion) rescue package for Greece to prevent a default and stop the worst crisis in the currency’s 11-year history from spreading through the rest of the bloc.

The first payment will be made before Greece’s next bond redemption on May 19, said Jean-Claude Juncker after chairing a meeting of euro-region finance ministers in Brussels yesterday. The 16-nation bloc will pay 80 billion euros at a rate of around 5 percent and the International Monetary Fund contributes the rest. Greece agreed to budget measures worth 13 percent of gross domestic product.

“It’s an ambitious program, it’s austere but it’s absolutely necessary,” Juncker told reporters. European Central Bank President Jean-Claude Trichet, speaking at the same press conference, said Greece’s plan will “help to restore confidence and safeguard financial stability in the euro area.”

Policy makers agreed to the unprecedented bailout after investors’ concerns about a potential Greek default sparked a rout in Portuguese and Spanish bonds last week and sent stock markets tumbling. At stake is the future of the euro 11 years after its creators left control of fiscal policy in national capitals.

The question obviously will be the degree to which the Greek government can impose the austerity measures on its citizens without losing power...
(3 May 2010)

Many possible triggers for wider euro debt crisis
Brian Love, Reuters
Europe may be months, conceivably weeks away from an expanded debt crisis that cuts more countries off from access to the markets and forces fresh emergency action by rich governments or the European Central Bank.

DEALS

The many potential triggers for an expanded crisis include a failed bond auction, any signs that Athens or donor nations were backing away from a 110 billion euro ($141 billion) bailout of Greece, and a freezing up of Europe's interbank money market.

For now, Portugal, Ireland and Spain, widely seen as the next possible "dominos" after Greece, remain in significantly better shape. The interbank market is far from grinding to a halt as it did after Lehman Brothers collapsed in late 2008.

But the spread of investor jitters in the past 24 hours, affecting markets as distant as yen swaps in Tokyo, suggests market conditions could deteriorate as rapidly as they did during the global financial crisis of 2007 -2009.

"In my view there is a 10-20 percent chance that at least one more country will need rescuing as it finds itself shut out of the markets," said Marco Annunziata, chief economist at Italy's UniCredit bank.

"If it happens, it is most likely to happen in the coming six months."...
(5 May 2010)

Angry Greeks 'carrying the can' for politicians
Kate Forbes, BBCnews
Like the sting of police tear gas, popular anger hangs heavy in the air as protesters take to the streets of Athens, for the third time in less than a week.

Some Europeans have been surprised by the extent of Greeks' anger over government cuts in wages, pensions and increases in VAT - all measures needed to get the Greek economy back from the brink of default.

The measures are a condition for the huge bailout agreed by the IMF and EU, amounting to loans to Greece worth 110bn euros (ВЈ95bn; $146bn).

Why are Greek people so angry? From the outside, it looks like a spendthrift country getting what it deserves in painful cuts to public spending.

At street level, however, the anger stems from a sense of injustice. Many feel that the average citizen is now paying the price for corruption and government spending that they did not benefit from.

A civil servant in the finance ministry spoke on condition of anonymity. "Greek people are willing to contribute and make sacrifices. The vast majority of people do want to contribute to ease the economic problems of our country," he said.

"But first of all they want to stop political corruption. So if we see the people responsible for this being brought to justice, we are really willing to pay and make sacrifices."

"In the past I've seen government offices or committees being set up which don't actually do anything. They are designed only to give important political supporters a wage. In the ministry we've highlighted these and said 'Really, don't do this! We can't afford it!' But no one listens."

"Also we knew for years in the ministry about the wrong figures being shown to the world about our GDP and our debt. We protested to our seniors but again no one would listen. We are very unhappy about it - taking to the streets is really our only option."...
(5 May 2010)

Greece Takes Its Bailout, but Doubts for the Region Persist
Dan Bilefsky and Landon Thomas Jr., The New York Times
Greece announced on Sunday that it had reached agreement on a long-delayed financial rescue package that would require years of painful belt-tightening, but the deal might not be enough to stop the spread of economic contagion to other European countries with mounting debts and troubled economies.

The bailout, which was worked out over weeks of negotiations with the International Monetary Fund and Greece’s European partners, calls for 110 billion euros, or $146 billion, in loans over the next three years intended to avoid a debt default.

But analysts warned that Greece had not yet solved its fundamental problems and that other sovereign debt crises could arise as lenders and market speculators turned their attention to a handful of similarly vulnerable nations across southern Europe.

“The immediate impact may be soothing, but the inflammation will soon show up again,” said Edward Hugh, an economist in Barcelona who writes for the influential Fistful of Euros blog. “My feeling is the rot has now gone too far.”

In Greece, Prime Minister George Papandreou, the scion of a Socialist dynasty whose father helped erect the sprawling Greek welfare state when he was prime minister in the 1980s, sought to prepare Greeks for what was expected to be the greatest overhaul of the state in a generation.

“I want to tell Greeks very honestly,” he said, “that we have a big trial ahead of us.”

“I have done and will do everything not to let the country go bankrupt,” Mr. Papandreou said in a televised address that urged Greeks to accept “great sacrifices” to avoid “catastrophe.”

While the bailout provides a lifeline to the Greek government, similar challenges await other deficit-racked countries like Portugal, Spain and perhaps even Italy. Moreover, nations like Latvia, Hungary and Romania — which are outside the 16-member group that uses the euro as its common currency — are all struggling in their own efforts to meet economic and fiscal goals set in conjunction with the I.M.F...
(2X April 2010)

Peak oil notes - Apr 22Debt crisis fuels clash of cultures in Europe