Michael Mitsopoulos & Theodore Pelagidis, "Understanding the Crisis in Greece: From Boom to Bust" (revised edition)

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Draghi Takes Hard Line on Austerity

Wall Street Journal
February 23, 2012

European Central Bank President Mario Draghi delivered a stern message to countries in Europe's debt-saddled periphery, insisting that the region's worsening economic malaise wasn't an invitation to relax deficit targets.

"There is no feasible trade-off" between economic reforms and fiscal belt-tightening, Mr. Draghi said in an interview with The Wall Street Journal, his first since Greece sealed its second bailout. "Backtracking on fiscal targets would elicit an immediate reaction by the market," pushing interest-rate spreads higher, he said.

Mr. Draghi's comments come amid an intensifying debate in Europe over whether deeper austerity is the best prescription for countries facing substantial economic contraction and place him squarely in the hard-line camp, alongside Angela Merkel and other German officials.

In a wide-ranging discussion at his Frankfurt office, Mr. Draghi reflected on how the region's fiscal travails were pushing Europe toward a closer union. He said the crisis has shown that Europe's vaunted social model was all but dead. There are no quick fixes to Europe's problems, he said, adding that expectations cash-rich China will ride to the rescue were unrealistic. He argued instead that the ongoing economic shocks would force countries to undertake structural reforms to labor markets and other aspects of the economy, ensuring the region's long-term prosperity.

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The Future of the Euro

by Philipp Bagus

Mises Daily
February 23, 2012

The problems of the eurozone are ultimately malinvestments. In Greece these days the struggle continues about who will ultimately foot the bill for these investments. During the early 2000s an expansionary monetary policy lowered interest rates artificially. Entrepreneurs financed investment projects that only looked profitable due to the low interest rates but were not sustained by real savings. Housing bubbles and consumption booms developed in the periphery.

In 2007 the bubbles began to burst. Housing prices started to stagnate and even to fall. Homeowners and builders started to default on their loans. As banks had financed and invested into these malinvestments, they suffered losses. After the collapse of the investment bank Lehman Brothers interbank lending collapsed and governments intervened. They bailed out banks and, thereby, assumed the losses of the banking system resulting from the malinvestments.

As malinvestments were socialized, public debts soared in the eurozone. Furthermore, tax revenues collapsed due to the crisis. At the same time, governments started to subsidize industrial sectors and unemployment.

Moreover, even before the crisis, governments had accumulated malinvestments due to their excessive welfare spending. Two causes had incentivized social spending in the periphery. The first cause is low interest rates. These low interest rates were caused by an expansionary monetary policy by the European Central Bank (ECB) and the single currency in itself. The euro came with an implicit bailout guarantee. Market participants expected stronger governments to bail out weaker ones in order to save the political project of the euro if worse came to worst. The interest rates that the Italian, Spanish, Portuguese, and Greek governments had to pay came down drastically when these countries were admitted into the euro. The low interest rates gave these countries leeway for deficit spending.

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Τα ποσά της στήριξης

του Άγγελου Στάγκου

Καθημερινή
23 Φεβρουαρίου 2012

Αν αυτή η χώρα μπορούσε να ξεφύγει για λίγο από το κλίμα της γκρίνιας, της άρνησης και της ψευδαίσθησης, προκειμένου να αντικρίσει την πραγματικότητα, θα διαπίστωνε ότι οι κακορίζικοι και αντιπαθητικοί εταίροι δανειστές μας κυρίως, αλλά και το ΔΝΤ, που τολμούν να επιβάλλουν μέτρα και δεσμεύσεις στην Ελλάδα, που «το μεγαλείο της βασίλεμα δεν έχει», στα δύο χρόνια της περιπέτειας πάνω από την άβυσσο της χρεοκοπίας, της εξόδου από την Ευρωζώνη και της επιστροφής στη δραχμή με όλες τις συνέπειες, έχουν κάνει τα εξής:

Ενέκριναν ένα πακέτο στήριξης, ύψους 110 δισ. ευρώ, έχουμε πάρει περί τα 80, χαμήλωσαν στο μεταξύ το επιτόκιο και απομένει να πάρουμε άλλα 30. Ενέκριναν άλλο ένα πακέτο στήριξης, που περιλαμβάνει 130 δισ. ευρώ σε δανεισμό, 107 δισ. σε διαγραφή χρέους, μείωση του επιτοκίου του υπολοίπου (ιδιωτικού) και αποπληρωμή σε πολύ μεγαλύτερο βάθος χρόνου. Αφησαν επίσης να εννοηθεί ότι αν χρειαστούν περισσότερα, γύρω στα 50 δισ. υπολογίζεται, είναι πολύ πιθανό να βρεθούν αργότερα.

Ολα αυτά τα λεφτά που πήραμε ή έχουν ήδη εγκριθεί να πάρουμε, συμποσούνται στα 347 δισ., χωρίς να υπολογίσουμε τις μειώσεις των επιτοκίων και το πολύ μεγαλύτερο βάθος χρόνου στον οποίο θα αποπληρωθούν τα νέα «κουρεμένα» ομόλογα που θα αντικαταστήσουν τα παλιά. Πρόκειται για ασύλληπτα ποσά, εκτός και αν έχει χαθεί η αίσθηση τι σημαίνει δισεκατομμύριο (για όσους δεν θυμούνται, τρία δισεκατομμύρια ευρώ είναι κάτι παραπάνω από από ένα τρισ. δραχμές) που συνιστούν παγκόσμιο ρεκόρ στην Ιστορία.

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Η μεγάλη των συντεχνιών συμμαχία

του Πάσχου Μανδραβέλη

Καθημερινή
23 Φεβρουαρίου 2012

Δεν ήταν ένας ο παράγοντας που οδήγησε τη χώρα στη χρεοκοπία. Ούτε δέκα ούτε εκατό. Σε κάθε τομέα της οικονομίας υπάρχουν μικρά ή μεγαλύτερα βιλαέτια, συντηρούμενα διά νόμου από την τσέπη μας. Ολιγοπώλια, κλειστά επαγγέλματα, υποχρεωτικές εισφορές, φόροι υπέρ τρίτων και χιλιάδες άλλες νομοθετικές παρεμβάσεις που δεν επιτρέπουν στη χώρα να προκόψει.

Όσοι βέβαια σιτίζονται από αυτά τα προνόμια έχουν δύο επιχειρήματα. Το πρώτο είναι ότι σιτίζονται για το καλό του λαού. Ενδεικτική είναι η ρητορική του συντεχνιακού μετώπου που σύμπτυξαν γιατροί, δικηγόροι, μηχανικοί, οι οποίοι επιχειρηματολογούν ότι αν καταργηθούν τα προνόμιά τους κινδυνεύει η υγεία η δικαιοσύνη, η πατρίς και πιθανώς η υφήλιος ολόκληρη.

Το δεύτερο επιχείρημα είναι το γνωστό νεοελληνικό: «Αυτό είναι το πρόβλημα τώρα; Δεν κοιτάτε τι γίνεται παραδίπλα;» Είναι αστείο, αλλά στην κοινή ανακοίνωση των Δικηγορικών Συλλόγων, του Ιατρικού Συλλόγου Αθηνών και του Τεχνικού Επιμελητηρίου Ελλάδος, εκτός από το μποϊκοτάζ των γερμανικών προϊόντων, εξαγγέλθηκε και η «διενέργεια ελέγχων σε κτίρια πραγματικά κλειστών αγορών (τραπεζικά καταστήματα, σούπερ μάρκετ κ.λπ. για θέματα υγιεινής και ασφάλειας πολιτών και εργαζομένων και χωροταξικών και πολεοδομικών παραβάσεων)». Να μας συγχωρεί η μεγαλειότης των «κοινωνικών φορέων», αλλά μηχανικοί δεν σχεδίασαν και τα πιστοποίησαν αυτά τα κτίρια; Επρεπε να έρθει το Μνημόνιο και η κατάργηση των κατώτατων αμοιβών για να διενεργηθούν οι έλεγχοι; Αν και δεν καταλαβαίνουμε τι ακριβώς εννοούν με τον όρο «κτίρια πραγματικά κλειστών αγορών» (ακούγεται σαν τους εκβιασμούς της εφορίας: ή μου δίνεις τόσα ή ερχόμαστε για έλεγχο) αφού θα το κάνουν τσάμπα τότε πρέπει να ευχαριστήσουμε την κρίση που οι επαγγελματικοί φορείς αποκτούν κοινωνική ευθύνη και θα κάνουν τους ελέγχους που ήταν η δουλειά των μελών τους. Αν τους κάνουν...

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Bond Myths Are Exposed by Greece

by Richard Barley

Wall Street Journal
February 23, 2012

It used to be so simple. Developed-country government bonds were risk-free, while corporate bonds carried credit risk to varying degrees. The euro-zone crisis has exposed that assumption to be false.

Not only do some government bonds contain credit risk. But the Greek debt restructuring is showing that in some ways, corporate-bond investors have more clout—and are less exposed to arbitrary actions—than their government peers.

Greece is hoping bondholders will write off over €100 billion ($132.4 billion) of debt in a voluntary bond swap. But in an attempt to ensure the swap is completed, it is also introducing collective-action clauses in its bonds. That will mean that if enough bondholders sign up, even those that don't will be swept up in the swap. Meanwhile, the European Central Bank has done a side deal with Greece that means its bonds are excluded from these clauses and thus won't take losses. Unlike the International Monetary Fund, which injects new money to help fund a distressed country on the understanding its debt is ranked above other bonds, the ECB simply bought in the secondary market and then declared it wouldn't take a loss. Its estimated holding of €45 billion of Greek bonds means that private-sector investors have to take deeper losses to make the numbers work.

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G-20 Will Ask Europe To Beef Up Rescue Funds

Wall Street Journal
February 22, 2012

Members of the Group of 20 advanced and developing economies plan to renew pressure on Europeans in the coming days to expand their Continent-wide bailout funds quickly, despite the latest rescue deal for Greece.

Finance ministers and central bankers from the world's leading economic powers convening in Mexico City this weekend are expected to discuss an effort by the International Monetary Fund, announced last month, to more than double its lending capacity to almost $1 trillion.

But officials from outside Europe will insist again that euro-zone nations put more of their own money on the table first, to build a larger financial firewall to guard against new trouble, including a spike in borrowing costs for struggling nations such as Italy and Spain.

"What is going to matter most for restoring market confidence, for establishing market credibility, is that signal of commitment by euro-area members to defend the euro area," U.S. Treasury Under Secretary for International Affairs Lael Brainard said Wednesday.

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G20 hopes for progress on EU debt crisis

Reuters
February 22, 2012

Group of 20 policymakers are hoping for a signal this weekend that Europe will boost crisis funding, smoothing the way for a deal to increase International Monetary Fund resources, the head of Mexico's central bank said on Wednesday.

G20 finance ministers and central bankers will meet in Mexico City on Saturday and Sunday, with all eyes on the euro zone and the bloc's response to its sovereign debt crisis.

Agustin Carstens, Mexico's central bank governor, told Reuters the agreement on a second bailout package for Greece reached this week was welcome but did not obviate the need for Greece to implement planned budget cuts.

The euro zone had to contain contagion from the crisis, he said, pointing to talks between European Union leaders next week about combining the lending abilities of two EU bailout funds, which together would add up to about 750 billion euros ($992 billion) of still-uncommitted funds.

"We know that this is on the agenda for discussion in March, so we will be hoping for some progress in this direction," he said when asked what kind of reassurances G20 countries would like to see from Europe at the meeting.

"Once this has happened, I hope that discussions about the IMF can proceed with more fluidity."

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When Greece Defaults

by Anthony Randazzo

Reason
February 22, 2012

The second round bailout of Greek debt is just delaying the inevitable—Greece is going to default.

As details have emerged on the European Central Bank, European Financial Stability Facility, and International Monetary Fund joint agreement with private creditors and the Greek government on providing money to make sure Greece pays a March debt bill, it is increasingly clear that this deal will not be enough.

In broad strokes, the agreement will provide a EU130 billion ($172 billion) loan to Greece from Eurozone nations so it has cash to pay its pending debt bill and money to complete a bond swap with private creditors that will help reduce Greece's overall debt by EU107 billion.

In exchange the Greeks will have to fire another 15,000 public employees (on top of the 30,000 they were forced to lay off with the first bailout), cut their budget by another EU3.3 billion, and reduce the nation's minimum wage of EU750 a month by 22 percent for those over 25 years old, and by 32 percent for those 25 and under.

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Greece pores over bailout laws amid protests

Reuters
February 22, 2012

Trade unionists, communists and pensioners angry at punishing spending cuts in Greece marched through central Athens on Wednesday as lawmakers set to work on legislation needed to secure payment of a second bailout for the debt-laden country.

Ringed by riot police, parliament debated a string of measures demanded by euro zone states in exchange for a 130 billion euro rescue, endorsed by finance ministers on Tuesday after hours of torturous negotiation in Brussels.

The bailout averts a chaotic default next month, but does little to allay doubts over Greece's long-term financial and social stability as the country faces spiraling unemployment and a recession in its fifth year.

"Those people in there are traitors," said construction engineer Antonis Malkos, 55, pointing at the parliament.

"Greece is an independent country, not a protectorate. When the program crashes, and it will crash, the lenders will take away our national wealth," he said.

The comments reflected unease among Greeks over the terms of the new rescue package -- the second in less than two years -- giving Greece's European partners unprecedented rights to inspect national finances and make sure it sticks to the deal.

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Fitch downgrades Greece on debt swap plan

Reuters
February 22, 2012

Fitch cut Greece's long-term ratings on Wednesday to its lowest rating above a default, becoming the first ratings agency to make the widely expected downgrade after the country announced a bond exchange plan to ease its massive debt burden.

It said Greece would be designated as having technically defaulted after the bond exchange is formalized, but the new bonds would be give and new rating.

All three big ratings agencies -- Fitch, Moody's and Standard & Poor's -- downgraded Greece in July when an initial debt swap plan was unveiled and have warned that losses for private creditors would trigger a temporary default.

As expected, Fitch said it was downgrading Greece to "C" from "CCC," and would follow up with further downgrade to a "restricted default" when the bond swap is completed.

It will then reassess the country's ratings when new bonds are issued as part of the debt exchange.

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Greece must seal debt swap by around March 10: PM

Reuters
February 22, 2012

Greece must complete a swap of private holdings of its debt as part of a 130-billion-euro EU/IMF bailout package by around March 10 at the latest, caretaker Prime Minister Lucas Papademos said Tuesday.

Papademos made the statement as his government introduced into parliament a draft law that could if needed force private investors to swap their bonds for lower-value debt as part of the rescue package agreed earlier with eurozone states.

"We believe the decisions that were taken and the deal that was clinched significantly reduce the uncertainty over our country's financial support for the next three years," he said.

"We have a lot of work to do from now until the end of March," he added.

Completion of the transaction by the deadline specified by Papademos would provide Greece with much needed new funds. On March 20 it must make a 14.5-billion-euro debt repayment.

The swap will entail investors losing 53.5 percent of the face value of their bonds. If parliament passes the law, so-called Collective Action Clauses (CACs) will force all investors to accept the swap once a threshold of two-thirds participation in the transaction is attained, a government minister said.

"It's 66 percent," the minister told Reuters of the threshold on condition of anonymity.

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Steve Bell on the Greek bailout

Guardian
February 22, 2012

Greek Parliament Debates Debt Deal Amid Protests

Wall Street Journal
February 22, 2012

The Greek government braced for further anti-austerity protests Wednesday while the country's parliament was debating legal changes that would clear the way for a massive debt restructuring to keep Greece from defaulting on its loans next month.

The legislation, which is to be put to the vote on Thursday, retrofits outstanding Greek bonds with so-called collective-action clauses, aimed at forcing losses on bond holders who may resist a voluntary debt restructuring that will see private-sector creditors who own some €200 billion ($264.7 billion) of Greek bonds take a 53.5% haircut.

The Greek government is aiming for minimum participation of at least two-thirds of bond holders in a planned debt exchange, a finance ministry official said Tuesday, with a formal offer on the exchange expected to come by the end of this week.

The debt write-down plan aims to erase some €107 billion from Greece's sovereign debt burden. It is part of a related €130 billion loan deal agreed to by euro-zone finance ministers in the early hours of Tuesday.

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Which Latin lessons?

by Daniel Marx

Economist
February 22, 2012

The fiscal and balance-of-payments deficits of the Greek economy leave it heavily dependent on transfers from the euro zone and the other troika members—the European Central Bank and the International Monetary Fund. This lifeline makes Greece understandably hesitant to leave the euro area, but it also entails a significant burden that restrains recovery—considerable new debt in the form of loans to be reimbursed at par and with preferred status over other creditors. Since the unsustainability of the current debt level is no secret, there can be no expectation of voluntary lending to the Greek public sector. In an analysis published in The Economist of February 18, 2012, Mario Blejer and Guillermo Ortiz have not sufficiently emphasised this and certain other elements of the Greek situation, which, when taken into consideration, could well alter their conclusions.

Greece faces few good options concerning its currency regime and other relevant matters, like rules for nominal price and wage formation, and will soon have to take tough decisions. Outsiders may help provide information about these possibilities, but, in the end, it is the decision of the Greek people and their representatives that counts.

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Germany fights eurozone firewall moves

Financial Times
February 22, 2012

The German government is set to resist or delay increasing the size of the eurozone’s financial “firewall” against contagion from the Greek debt crisis, in the face of mounting pressure from its partners, the International Monetary Fund and the US administration.

Steffen Seibert, spokesman for Angela Merkel, the German chancellor, insisted on Wednesday that Berlin saw no need to increase the size of the permanent €500bn European Stability Mechanism. “The German government’s position has not changed,” he said. “That means no, it is not necessary.”

Ms Merkel and her finance minister, Wolfgang Schäuble, are looking isolated in the face of strong pressure from Christine Lagarde, managing director of the IMF, and the other 16 members of the European monetary union. Mr Schäuble is likely to face further pressure on the subject this weekend at a meeting of G20 finance ministers in Mexico City.

Financial markets have long seen boosting the size of the eurozone rescue fund as necessary in order to prevent the Greek crisis from spreading to healthier but still vulnerable economies like Italy and Spain. Since expectations of an imminent increase are running high, a failure to agree one next week could undercut hard-won confidence that Europe’s leaders have finally come to grips with the scale of the crisis and are willing to commit resources to contain it.

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Morgan Stanley's Fels on European Debt Crisis

Bloomberg
February 22, 2012

Joachim Fels, chief global economist at Morgan Stanley, talks about the new bailout plan for Greece and the outlook for the euro and European economy. Fels speaks with Tom Keene on Bloomberg Television's "Surveillance Midday."



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Greek Debt Deal: Winds of Change or Blowing Smoke?

Wall Street Journal
February 22, 2012

Many European observers sighed a breath of relief when the Eurozone approved a $172 billion debt relief package for Greece. Is it enough to reverse the ominous winds that have blown through the region for the past year? WSJ's Thorold Barker makes a stop on Mean Street to discuss.

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Greek debt swap pay-out prospect weighed

Financial Times
February 22, 2012

It is little more than $3bn. But the insurance pay-out on Greek bonds defaulting, regarded as a near certainty if the country’s politicians back forcing any unwilling creditors to accept losses on the Greek debt they hold, may have far-reaching repercussions.

Pay-outs on Greek sovereign credit default swaps are likely to be triggered because “collective action clauses”, or CACs as they are known, are to be inserted into Athens’ bonds.

These clauses will coerce those bondholders who resist the a debt swap deal agreed by European leaders this week into accepting the terms of a debt swap that will see the value of their securities plummet.

About 75 per cent of Greek bonds held by the private sector are likely to be exchanged voluntarily. A pay-out, or “credit event”, could be declared where the CACs force any “holdouts” to accept a deal.

The event itself may have little effect on eurozone equity and bond markets because the overall pay-out is relatively small and there has been a growing expectation in recent weeks that it is inevitable.

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Greek unions promise popular revolt over bailout

Guardian
February 22, 2012

In the end it was a bit of a damp squib: protesters, put off by the rain and perhaps fatigue, did not come in their thousands to oppose the emergency legislation that is likely to change the face of Greece. But trade union leaders said it mattered not.

The €130bn (£110bn) bailout deal secured in the early hours of Tuesday had not erased the anger or despair of Greeks. "Two years ago we were demonstrating about [wage and pension] cuts but now they want to take away everything," said Ilias Iliopoulos at the civil servants' union Adedy. "People are literally hungry and the number of homeless is growing every day … soon they won't take anymore. There'll be a popular revolt."

Barely a day after Athens agreed to the excoriating EU/European Central Bank/IMF terms to be saved from bankruptcy for a second time, popular fury at the terms of the rescue shows no signs of ebbing.

Demonstrators at an Athens rally on Wednesday night claimed the argument, articulated by the Greek finance minister Evangelos Venizelos, that the debt-choked country has escaped a "nightmare" meant little when so many had already been impoverished. "It would be bad but it's already bad, and it's going to get a lot worse," said Evangelia Fasilakaki, an umbrella in her hands as she evoked the deepening mood of resignation and defeat. "They are even closing down cancer wards here."

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Lessons from the hard streets of Athens

by Michael Skapinker

Financial Times
February 22, 2012

As the news came in on Tuesday that the European Union had agreed a second bail-out for Greece, I set out from the Athens seaside suburb of Vouliagmeni to continue my investigation into how people manage to do business when the world around them is collapsing.

For two days I had been speaking to managers who had paid off or dismissed their worst staff and imposed take-it-or-leave-it pay cuts of up to 30 per cent on the rest.

Economic crisis provides the starkest evidence of where power lies: with those who have the money. In companies, that is the managers. In rented properties, whether commercial or residential, it is often the tenants. An owner of shop premises told me that one tenant had demanded that she cut the rent by almost half. She complied. The alternative was to see the shop empty, as so many Athens stores already are.

Several owners of apartment blocks said that residents could not pay the communal fee to buy heating fuel. So, the landlords covered it themselves. Some apartment buildings went without heating, shivering through the coldest winter in memory.

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Merkel Signals She’ll Keep Pressure on Greece

Bloomberg
February 22, 2012

German Chancellor Angela Merkel indicated she will maintain pressure on Greece to meet debt- cutting pledges required for its second financial rescue, saying fiscal discipline is needed to hold the euro area together.

“If you have a single currency you naturally have to be able to trust each other,” she told members of her Christian Democratic Union party in Demmin, Germany, today. While “it is right” to bail out Greece, Portugal and Ireland, “we have to say again and again that everyone must do their homework because otherwise this Europe can’t hold together.”

Merkel’s renewed backing for European unity in the face of the debt crisis marked her first public comments since euro-area finance ministers signed off yesterday on a 130 billion-euro ($172 billion) rescue for Greece aimed at averting the first sovereign default in the currency union’s 13-year history.

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Triple-A eurozone group frays over firewall

Financial Times
February 22, 2012

Barely a day after Germany, Finland and the Netherlands together foisted tough terms on Athens and private Greek bondholders in a €130bn bail-out, their triple-A rated northern European alliance is fraying over whether to increase the size of the eurozone’s €500bn firewall against debt market contagion.

Jan Kees de Jager, the Dutch finance minister who joined his German counterpart Wolfgang Schäuble on Monday night to force new losses on Greek investors and demanded intrusive controls on Greek aid, has publicly called for the eurozone bail-out fund to be increased to €750bn.

The Dutch government has backed European Commission plans to either keep in place the current, temporary rescue fund – which has about €250bn remaining in it – when a new €500bn permanent fund is launched midyear, or to combine the two funds’ resources. Finland, the third of the triple As, has also signalled its support.

But in two separate Brussels gatherings of European Union finance ministers this week intended to lay the groundwork for a deal at next week’s EU summit, diplomats said Mr Schäuble failed to support the move, despite overwhelming backing by other member states and the European Central Bank.

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Jim Rogers: Greece deal is a sham

Reuters
February 22, 2012

Jim Rogers argues that the €130 bln Greek bailout is an artificial feel-good factor ahead of the French, U.S. and German elections.

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Huge private debts pose bigger hurdle for euro zone

by Alan Wheatley

Reuters
February 22, 2012

Away from the markets' fixation with the debts of Greece and other governments, concern is growing at the painfully slow progress Europe is making in tackling a much bigger mountain of corporate and household debt.

With austerity pointing to weak growth if not outright recession, the risk is that the burden of servicing the debt can only increase, causing a rise in bad loans. The spotlight then would fall on the capacity of banks to take losses and whether they might have to turn to their governments for help.

And over indebtedness is not confined to the periphery of the bloc.

Denmark, Sweden and the Netherlands all have private-sector debt that far exceeds the safety threshold of 160 percent of GDP set by the European Commission as part of a new exercise to detect and correct risky macroeconomic imbalances.

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Greek bailout: Protests as MPs consider new laws

BBC News
February 22, 2012

Protests have taken place outside parliament in Greece, as MPs considered emergency laws after a 130bn-euro (£110bn; $170bn) bailout deal.

Rallies were called by the two main unions but the turnout was lower than expected because of the damp weather.

Parliament has a week to approve 3.3bn euros in spending cuts tied to the EU/IMF deal.

In a separate development, credit agency Fitch further downgraded Greece's rating from CCC to C.

Although no vote is expected in parliament until Thursday, key parts of the EU/IMF bailout will be discussed at committee level, including the debt writedown by holders of Greek bonds known as the private sector involvement (PSI).

Another measure being debated is a health bill that would further slash state spending, reports say.

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Τοξική υποκρισία

του Νίκου Γεωργιάδη

Athens Voice
22 Φεβρουαρίου 2012

Το «ραντεβού» με την Ιστορία αποκάλυψε το βάθος και το πλάτος της υποκρισίας. Θριαμβολόγησαν εκείνοι οι οποίοι ως μέλη της κυβέρνησης Παπανδρέου υπονόμευσαν συνειδητά ή όχι τις προηγούμενες συμφωνίες με τους δανειστές. Ανακουφίστηκαν εκείνοι της Δεξιάς Πολυκατοικίας οι οποίοι κραδαίνοντας τη μάχαιρα του αντιμνημονιακού αγώνα άλλαξαν στρατόπεδο εν μία νυκτί, έγιναν μνημονιακοί και στη συνέχεια καμιά τριανταριά από αυτούς επανήλθαν σε αντιμνημονιακή υστερία παρέα με τον πρόεδρο του ΛΑΟΣ. Ανακουφίστηκαν και στην Αριστερά. Ο πολιτικός λόγος που άρθρωναν έναντι των μνημονίων ήταν ευθέως αντίθετος με τη συστημική, συνειδησιακά, άποψή τους, ιδίως στον Περισσό αλλά και στην Κουμουνδούρου, η οποία άποψη βασίζεται ότι και τα δύο κόμματα δεν είναι τίποτε άλλο από τον αριστερό βραχίονα-πυλώνα του πολιτικού συστήματος της Μεταπολίτευσης. Ο ανατρεπτικός τάχα μου πολιτικός τους λόγος δεν ήταν παρά ένα ακόμη τέχνασμα στην προσπάθεια της πολιτικής επιβίωσής τους. Η Δημοκρατική Αριστερά όχι απλώς ανακουφίστηκε αλλά σχεδόν ντροπαλά έβγαλε και αναστεναγμό ευχαρίστησης. Δεν τόλμησε να το διακηρύξει λόγω εκλογικής τακτικής αλλά ήξερε και ξέρει πως αν στην ελληνική Αριστερά υπήρχε έστω και ένα κύτταρο πολιτικής εντιμότητας, τότε θα έπρεπε η ίδια να είχε εκφράσει την πολιτική στήριξη του σχεδίου μη χρεοκοπίας της χώρας. Δεν το έκανε και όπως μόνο η πολιτική ιστορία ξέρει, το τίμημα θα πληρωθεί στο ακέραιο.

Η υπέρτατη ωστόσο υποκρισία δεν ήταν των πολιτικών όσο εκείνη των «νταβατζήδων» της οικονομικής ζωής του τόπου. Με τις καταθέσεις τους διασφαλισμένες στο εξωτερικό, φρόντισαν και την πίτα αλλά και τους σκύλους τους. Επί μακρόν μέσω των εκδοτικών τους συγκροτημάτων «στήριξαν» τις επιλογές του Γ. Παπανδρέου. Όταν αντελήφθησαν το διαχειριστικό κενό του τότε πρωθυπουργού, εφάρμοσαν την τακτική του χαμαιλέοντα. Τα μεγάλα κανάλια «ευαισθητοποιήθηκαν» αιφνιδίως και αντιμνημονιακώς. Ο κήρυκας του Μνημονίου έγινε φανατικός αντίπαλος του τότε πρωθυπουργού και «ανακάλυψε», τάχα μου, την αποτρόπαια μορφή της Τρόικα, όταν προηγουμένως του ήταν απολύτως συμπαθής. Εθίχθη προσωπικά με την, αλίμονο, ετεροχρονισμένη πρωτοβουλία για τη διεξαγωγή δημοψηφίσματος ωσάν η πρωτοβουλία αυτή να ήταν η επαχθέστερη αντιδημοκρατική τοποθέτηση στην πολιτική ιστορία. Και, τέλος, όταν αυτά τα ίδια τα εκδοτικά συμφέροντα αποκάλυψαν την ηθική και πολιτική τους γύμνια, τότε ξαφνικά άρχισαν να διακοσμούν με πολιτικά άνθη τον νέο πρωθυπουργό Λουκά Παπαδήμο. Αντελήφθησαν πως αν δεν το κάνουν θα είναι εκτός εσοδείας την επόμενη περίοδο.

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Germans revive Greek Marshall Plan idea

Financial Times
February 22, 2012

Two leading Germans, including the head of the country’s manufacturers’ association, on Monday revived the call for a new Marshall Plan to be launched to reanimate the Greek economy, involving both private and public investment.

Hans-Peter Keitel, president of the Federation of German Industries, said the Greek population needed to have the prospect of a “new future”, on top of all the sacrifices they were being asked to make in exchange for debt relief.

German investors were ready to put money into practical projects to revive the economy, he said, but Greece first needed to create a reliable legal framework to protect their investments.

The same concept of a Marshall Plan – a reference to the US-financed programme that revived European economies after the second world war – was proposed by Werner Hoyer, former deputy German foreign minister, who has just taken over as president of the European Investment Bank.

“Greece needs a Marshall Plan alongside its unavoidable savings programme,” he said in an interview with Handelsblatt, a business newspaper. “Only that can succeed in renewing the structures of the country from the bottom up.”

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Choose-Your-Own Adventure: The Greek Default Edition!

by Matt Phillips

Wall Street Journal
February 22, 2012

Bond market geeks at BNP Paribas churned out this fantastic chart showing how the ever unfolding European choose-your-own-adventure could play out. It’s really helpful, but it needs a bit of translation for, as the ancient Greeks would say, the hoi polloi. So we’ll give you a quick translation below.

• Launch of tender offer = Greek government goes to investors and says we want you to trade in your old bonds for these new ones that yield less.
• PSI=Private sector involvement, the process of getting banks, hedge funds and other investors to agree to lower yields on their bonds than originally agreed to. This is kind of the soft, fuzzy version of default. A “hard default” is essentially Greece just saying it won’t pay, period.
• CACs= Collective action clauses, a piece of legal language in bond contracts that makes it easier for the debtor to change the terms of the bond payments. Under a collective-action clause, a group of bondholders (typically two-thirds or three-quarters) can agree to impose losses on everyone else. Greece has been talking about passing legislation introducing collective-action clauses and retroactively applying it to outstanding debt.
• CDS=Credit Default Swaps, essentially insurance contracts on government debt. In theory they would pay investors who bought them, if Greece defaults. But some suspect these contracts might not actually pay investors, if enough investors “voluntarily” agree to accept new repayment terms on their Greek bonds.

Any other questions on the chart? Toss ‘em in the comments section and I’ll try to dig up some answers.

EU beefs up powers over state budgets

Financial Times
February 22, 2012

European Union finance ministers on Tuesday agreed on rules that will give the EU more powers to scrutinise eurozone countries’ budgets, even before they are approved by national parliaments.

The European Commission will be able to deploy its experts unilaterally to countries in need of bail-outs to give technical assistance, along the lines of the “task force” assisting the Greek government by overseeing the implementation of its EU-imposed reforms.

The legislation comes on top of measures agreed last year that sought to enforce long-flouted debt and deficit rules put in place at the creation of the euro. They are intended to move the EU closer to a “fiscal union”.

Both systems apply only to the 17 countries that use the euro. In contrast, a “fiscal compact” being set up at Germany’s insistence will also impose budget restrictions on non-eurozone states in the EU that choose to sign up.

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Cyprus’s central bank and its Greek bonds

by Ralph Atkins

Financial Times
February 22, 2012

European Central Bank communication was not at its most brilliant ahead of this week’s deal on a second bail-out for Greece. Nothing has been said formally about the bond swaps, which will circumvent forced losses on Greek government bonds acquired as part of its eurozone crisis-fighting measures or by individual eurozone central banks for their investment portfolios. We still do not know, officially, the size of those holdings.

The result has been a lot of misinformation. One commonly held assumption is that some of the eurozone’s monetary institutions had worrying levels of exposure – for instance Cyprus’s central bank. In fact, the amount of Greek bonds it holds are much lower, I have been told by someone who has seen its figures.

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'EU Has Not Yet Faced the Whole Sad Truth About Greece'

Spiegel
February 22, 2012

At first glance, the euro-zone finance ministers' agreement on a new bailout for Greece seemed like a decisive step that would save the country from default. Politicians had no shortage of praise for the deal, reached in the early hours of Tuesday morning after marathon talks in Brussels.

The rescue package would "secure Greece's future in the euro area," said Luxembourg Prime Minister Jean-Claude Juncker, head of the Euro Group, while Greek Prime Minister Lucas Papademos described it as a "historic day for the Greek economy." The euro leapt in value in reaction to the news, climbing above $1.32.

But as analysis of the deal began, so did concerns over its effectiveness grow. Many observers see the rescue package's targets as overly optimistic. There are doubts that Greece will really be able to get back on track for growth and reduce its public debt from the current level of over 160 percent of gross domestic product (GDP) to the target of 120.5 percent by 2020. Similarly, many fear that the €130 billion ($172 billion) in aid that the package contains will not be enough.

There was more bad news about the Greek economy on Tuesday. According to a draft law posted on the parliament's website, the Greek government now expects the country's budget deficit to reach 6.7 percent of GDP in 2012, instead of the original target of 5.4 percent. The figure had been readjusted because of the "bigger than expected recession of the Greek economy," the draft law read, as quoted by Reuters. The news is likely to increase doubts as to whether Greece will be able to reach the long-term goals set down in the second bailout.

The size of the International Monetary Fund's contribution to the bailout also remains unclear. The fund has indicated that it wants to provide less than the one-third of the total it provided in previous euro-zone bailouts. IMF head Christine Lagarde said the board would decide in mid-March. It would, she said, take into consideration "additional matters such as the proper setting up of a decent firewall." The IMF wants the size of the euro backstop fund to be increased, something which Germany remains opposed to. EU leaders will discuss the issue at a summit in early March.

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Euro zone teetering on brink of recession

Reuters
February 22, 2012

The euro zone economy is in danger of tipping into recession, with the services sector shrinking this month along with manufacturing, tempering a wave of optimism after a new bailout deal for Greece struck this week.

Surveys of purchasing managers published on Wednesday showed unexpectedly weak activity in the region's most powerful economy, Germany, and in France.

This is as well as in the bloc's floundering debtor states, such as Spain, where unemployment is running at 23 percent, and Greece where the euro debt crisis began more than two years ago and continuous cuts have provoked riots.

The Markit Eurozone Composite Flash PMI, a good leading indicator of overall economic growth, fell to 49.7 in February from 50.4 last month, below expectations for a rise to 50.6 and under the 50 line that divides growth from contraction.

That weakness was echoed in China, whose PMI showed export orders falling in their worst performance in eight months. Europe is China's biggest export market.

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Greek pro-bailout parties to survive voter anger

Reuters
February 22, 2012

Support for Greece's two pro-bailout parties has sunk to an all-time low, but pollsters predict the squabbling rivals will still scrape through upcoming elections with enough seats in parliament to push through the reforms demanded by lenders.

With Greece finally clinching a 130-billion-euro rescue package to avert a messy default, attention is slowly shifting to elections due in April - with financial markets and European partners nervously waiting to see whether a new government will swallow the bitter austerity pill prescribed in return for aid.

Backing the austerity steps has cost Greece's two biggest political parties dearly. Their ratings have plunged as ordinary Greeks reeling from tax hikes and wage cuts blame them for the country's slide to the brink of bankruptcy.

"We want elections now, we want change. These guys have taken it all from us, it's time for new faces," said Panagiotis Arsenis, a 65-year old public sector pensioner. "They've ripped us off. Who will stand up for us now?"

But an election system that favors big parties and a likely rebound by the currently leaderless Socialists of PASOK suggest that the conservative New Democracy party and PASOK will ultimately find themselves with little alternative but to renew their current uneasy coalition.

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Factbox: ECB and euro zone c.banks role in Greek debt deal

Reuters
February 22, 2012

Below is a list of the various contributions the European Central Bank and the national euro zone central banks will make to the deal to cut Greek debt, reached in the early hours of Tuesday.

FORGOING BOND BUY PROFITS

The ECB will hand over the 12 to 15 billion euros it is set to make from the 50 billion euros ($66 billion) worth of Greek bonds it bought under a controversial emergency purchase program it set up in May 2010.

In the three years the Greek bailout package runs for, the amount will add up to roughly 5 billion euros. Of that, countries whose own borrowing costs are above the level of the Greek bailout loans (3-month Euribor plus 150 basis points) can use their cut of the ECB bond profits to ensure they don't make a loss on the rescue loans they give to Greece.

The ECB will use its normal practice of passing its annual profits to the 17 euro member central banks as a way of handing the money back. The money will come in yearly installments rather than one lump sum. The central banks will then pass it to governments who can in turn pass it to Athens.

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Η ισχύς των συντεχνιών

του Πάσχου Μανδραβέλη

Καθημερινή
22 Φεβρουαρίου 2012

Πολιτικά και λογιστικά το πιο εύκολο πράγμα είναι να περικόψεις μισθούς και συντάξεις. Ναι, θα εξεγερθούν οι συνήθεις ευαίσθητοι, θα καταραστούν τους παγκόσμιους συνωμότες οι συνήθεις ελληναράδες, θα κάψουν κάνα δυο κτίρια οι συνήθεις χουλιγκάνοι, θα αντεπιτεθούν με συμψηφισμούς οι συνήθεις αριστεροί «τα ντουβάρια σάς ενδιαφέρουν ή οι ζωές;» (την προηγούμενη φορά, βέβαια, χάθηκαν -πραγματικά- τρεις ζωές) και η ζωή θα συνεχιστεί κατά τα συνηθισμένα. Θα έχουμε αψιμαχίες στη Βουλή, μπορεί να πετάξει κανένα βιβλίο ο βουλευτής του ΚΚΕ κ. Μαυρίκος, η τρόικα θα χαρεί που μπαλώνονται τα νούμερα και η ζωή θα συνεχιστεί μέχρι τις επόμενες περικοπές.

Βεβαίως, όταν χτυπούν τα πρώτα κύματα των αγορών ορθώνεις φράγματα με ό,τι μπορείς να βρεις γύρω σου. Οι μισθοί και οι συντάξεις που χρηματοδοτεί ο ανοικονόμητος κρατικός κορβανάς είναι η πιο πρόχειρη λύση στην οποία κατέφυγαν όλοι· Ιρλανδοί, Πορτογάλοι, Ιταλοί, Ισπανοί και λοιποί. Το θέμα είναι ότι σαν χτυπήσει το τσουνάμι και τα πρόχειρα φράγματα των περικοπών δεν αντέξουν, το να επιμένεις σε περικοπές είναι τσάμπα κόπος, τσάμπα κτίρια και τσάμπα συμψηφισμοί για ντουβάρια και ζωές. Χρειάζονται άλλου τύπου πολιτικές για να πάρει μπρος η οικονομία. Αυτές που δύο χρόνια τώρα τις κλωθογυρνάμε και δεν θέλουμε να τις εφαρμόσουμε. Κι αυτό γιατί τέτοιες πολιτικές έχουν άμεσο εκλογικό κόστος σε όσους υπουργεύουν. Οι οριζόντιες περικοπές πλήττουν εκτός από δικαίους και άδικους τη χώρα, την κυβέρνηση, το κόμμα. Αλλά μέσα στον κακό χαμό οι υπουργεύοντες μπορεί να τη σκαπουλάρουν. Μετράνε τα κουκιά των συντεχνιών που δεν θίγουν και ασχέτως με την πορεία του κόμματός τους αυτοί θα είναι πάλι στη Βουλή. Μια περίπτωση τέτοιου υπουργεύοντος είναι ο κ. Μάκης Βορίδης. Ρητορεύει (οικονομικώς) ως φιλελεύθερος, αλλά δεν μένει ασυγκίνητος από τις 25.000 οικογένειες των ψηφοφόρων ταξιτζήδων της Αττικής. Γι’ αυτό σύμφωνα με το νέο νομοσχέδιο -όπως τουλάχιστον το πρωτοπαρουσίασε ο πρόεδρος των ταξιτζήδων κ. Θύμιος Λυμοπερόπουλος- εφηύρε τα περιβαλλοντικά κριτήρια, τα οποία -τι έκπληξη!- ταιριάζουν απόλυτα με τον αριθμό των ταξί που έχει σήμερα η Αθήνα.

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Promote Greek entrepreneurship to turn this crisis into an opportunity

by Elena Panaritis

Guardian
February 22, 2012

Greece is safe from a disorderly default, but not out of the woods yet. The European Union and the International Monetary Fund approved Greece's second rescue package – worth €130bn – after 13 hours of difficult deliberations. This is the good news.

The bad news is that Greece is still wading neck-deep in murky waters. Worse still, the country's economic crisis (the worst since the second world war) can be transformed into a crisis of confidence between its people and the state – regardless of which party is in government.

Greeks are starting to question whether their economy can ever be revived. They are losing faith and growing increasingly pessimistic about whether the sacrifices they are making will be enough to end the crisis.

How possible is this? The real economic situation in Greece is worsening. The unemployment rate has hit a record high, currently 17.7% and close to 50% for young people. Pensions and salaries are being cut. Businesses are shutting down every day. New taxes are being levied. The "informal" labour market is swelling – it's pushing 50% of the country's potential workforce.

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Merkel Bets Austerity Will Result in Re-Election

Spiegel
February 22, 2012

German voters value austerity. That, at least, is what Chancellor Angela Merkel is betting on as she embarks on a new package of savings measures aimed at balancing the budget in two years. She wants to show the rest of Europe how it's done -- and get re-elected in the process.

Angela Merkel and her fellow conservative Finance Minister Wolfgang Schäuble like to play the role of teachers when dealing with their partners from the euro zone. There is hardly a European Council session in which the German chancellor doesn't preach the benefits of austerity ("solid budgets and growth are not mutually exclusive"), and hardly a meeting of finance ministers goes by without Schäuble pointing out that some countries still have homework to do when it comes to their national finances.

The admonitions, coupled with the subtle message that Germany's budget looks exemplary by comparison, have earned the two politicians a reputation for being patronizing.

Just how healthy German finances are was revealed at the beginning of last week, in the form of an early-warning report by the European Commission. Germany was the only large country to be given an almost perfect grade.

And yet, if Merkel and Schäuble have their way, the country many in Europe already see as a model of sound budget management will become even more exemplary. "We cannot expect Greece and the other crisis-stricken countries to accept more and more austerity measures, while nothing changes in Germany," says a close associate of the chancellor.

As such, Merkel and Schäuble want to significantly ratchet up consolidation efforts. The 2013 budget, currently being prepared at the Finance Ministry, will include many billions in savings. In addition, the last stage of the so-called debt brake -- Germany's constitutionally anchored law regulating state borrowing -- will be brought forward by two years instead of going into effect as planned in 2016. Measures under discussion include cuts in social benefits and a reduction in government services. Merkel and Schäuble believe that Germany can only remain credible in the euro crisis by demonstrating that it is not simply reaping the benefits of past efforts. Germany wants to lead by example.

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Τελευταία ευκαιρία για την ανάκαμψη

του Γιώργου Παπαϊωάννου

Το Βήμα
22 Φεβρουαρίου 2012

Η χθεσινή απόφαση του Eurogroup είναι ένα σημαντικό βήμα προς τη σωστή κατεύθυνση. Όμως, υπάρχουν ακόμα πάρα πολλά βήματα για να βγούμε από το τούνελ.

Με την συμφωνία εξασφαλίσαμε χρηματοδότηση και το ενδεχόμενο χρεοκοπίας απομακρύνθηκε. Θα επανέλθει όμως αν η χώρα δεν αξιοποιήσει το δώρο χρόνου που της προσφέρει η απόφαση του Eurorgoup πετυχαίνοντας την επανεκκίνηση της οικονομίας.

Διότι καλό το δάνειο των 130 δισ. ευρώ, όμως η σωτηρία της χώρας θα κριθεί τελικά από τα αν η οικονομία θα καταφέρει να ξεφύγει από την υφεσιακή περιδίνηση στην οποία έχει περιπέσει.

Και η προχθεσινή συμφωνία αποτελεί την τελευταία ίσως ευκαιρία για να ανακάμψει η οικονομία.

Εκτός του ό,τι απομακρύνει το ενδεχόμενο εξόδου από το ευρώ εξασφαλίζει την επανακεφαλαιοποίηση των τραπεζών, η οποία θα επιτρέψει στο εγχώριο τραπεζικό σύστημα να παίξει το ρόλο του στη χρηματοδότηση της οικονομίας.

Τόσο ο γερμανός υπουργός Οικονομικών Βόλφγκανγκ Σόιμπλε όσο και ο έλληνας ομόλογός του κ. Ευάγγελος Βενιζέλος από τα πρώτα πράγματα που επισήμαναν μετά την επίτευξη της συμφωνίας, τα ξημερώματα της Τρίτης, ήταν ότι συμβάλει στο να δημιουργηθούν συνθήκες ρευστότητας στην ελληνική οικονομία.

Προς την κατεύθυνση αυτή λειτουργεί τόσο η επανεκεφαλαιοποίηση των τραπεζών στο πλαίσιο της βοήθειας των 130 δισ. ευρώ όσο και το γεγονός ότι διευκολύνεται η επιστροφή των καταθέσεων.

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€130bn plaster leaves Greece independent in name only

by Larry Elliott

Guardian
February 22, 2012

A stay of execution. The most expensive sticking plaster in the world. A rescue deal with shallow foundations. That was the snap assessment of the markets on Tuesday about the 4am deal struck in Brussels to spare Greece the indignity of going bust and to keep alive the myth that the euro is working.

The pundits could be wrong. It is possible that the €130bn (£110bn) bailout will mark a turning point and in a decade's time Greeks will be looking back on the dark days of 2012 in the way that the newly prosperous Germans looked back in the 1960s to their war-ravaged economy in 1945.

It is all so simple: for a new wonder economy to arise in the Aegean what has to happen is for Greece's recession to end immediately, for the economy to have six consecutive years of strong growth from 2014 onwards; for the Greeks to submit to their eurozone partners' humiliating terms; for the bailout to be given the thumbs-up by the sceptical parliaments in Germany, Finland and the Netherlands, and for the assorted hedge funds, banks and insurers that make up Greece's private-sector creditors to accept a 53% "haircut" on their investments.

This is theoretically possible, although it does suggest that whatever eurozone finance ministers were smoking in their all-night marathon talks it must have been something strong.

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Despite Pact, Unease Lingers for Greece

Wall Street Journal
February 22, 2012

No triumphalism accompanied Greece's bailout and debt-restructuring deal hammered out early Tuesday; the euro zone's two-year debt crisis has seen too many false dawns.

Financial markets were somewhat cheered that months of negotiations aimed at cutting Greece's heavy debt had reached a resolution, largely putting to rest fears of a chaotic debt default next month. It also removed—at least for the immediate future—the gnawing anxiety that some policy makers in Germany and elsewhere are trying to oust Greece from the euro.

But the overriding reaction was of unease that this tough deal, which has already generated huge opposition among Greeks, is bound to fail. Many observers ask not if the program will fall apart, but when.

Euro-zone finance ministers on Tuesday forged a €130 billion ($171.9 billion) rescue deal that will see Greece's private creditors cut the face value of their bonds by 53.5% in a swap that will reduce the country's outstanding debt by €107 billion.

The deal will still leave Greece, in the best case, with a huge debt burden and enormous challenges to implement. "We've seen Greece derailing several times in the last two years," Dutch Finance Minister Jan Kees de Jager said Tuesday. "Implementation risks are very high in the case of Greece."

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Markets Avoid Strong Reaction as Deal Is Sealed

Wall Street Journal
February 22, 2012

It took half a year of negotiation and a final, 13-hour push to seal a Greek debt deal in the early hours of Tuesday morning. But the financial markets that had long been captivated by the Greek drama barely shrugged—and certainly didn't register any bouts of relief.

Major European bourses were all lower Tuesday; the German DAX fell 0.58% to 6908.18, and the CAC-40 in Paris shed 0.21% to 3465.24. The euro, after a quick overnight bounce, had returned by late evening in London to its level of a day earlier, at $1.3241. Yields on Spanish and Italian bonds declined slightly.

The deal, which pairs €130 billion ($171.9 billion) in new aid funds with a debt restructuring that slices off just over half of the face value of bonds held by private investors, had been largely telegraphed during the final weeks of bargaining between austerity-weary Greek politicians and the frustrated euro-zone countries putting up the rescue money.

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Debt Deal May Leave Greece on Short End

Wall Street Journal
February 22, 2012

The European Central Bank appears to be doing its part to help Greece reduce its crushing debt burden by transferring profits from its Greek bond holdings to euro-zone governments. There is just one problem: It remains far from clear that all this money will wind up in Athens.

By handing over its profits to national governments, the ECB is simply adhering to its long-standing rules. But it has no control over how Spain, Italy and others use their share of the billions they stand to gain from the ECB's €50 billion ($66 billion) in Greek bond holdings.

The ECB is expected to make a substantial profit on the bonds because it purchased them at a steep discount on the open market, and now it appears these bonds will be repaid in full.

The ECB was spared from taking any losses as part of a €130 billion rescue deal for Athens despite mounting pressure in recent weeks for the central bank to take a bigger role in writing down Greece's crushing debt load.

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Bailout Talks Reopen Wounds In One Greek Village

by Joanna Kakissis

National Public Radio
February 21, 2012

Europe is still a continent that looks over its shoulder at a long and sometimes dark past. That extends even to the protracted Greek bailout negotiations, where Germany's dominant role has scratched at some historical wounds.

Germany occupied Greece during World War II, committing atrocities that some older Greeks can't forget. This history defines the pretty village of Distomo in central Greece, where Nazi soldiers killed 218 men, women and children in June 1944.

Panagiotis Sfountouris, 74, says he'll never forget that day. He was just 6 years old when he and his younger sister escaped death by hiding in a relative's basement. When they returned home, they found their parents shot dead and their 2-year-old brother gutted by a bayonet.

"I ran to the balcony and screamed, 'They've killed my father and my mother and our little Niko!' " Sfountouris recalls. "Nothing moved in Distomo, nothing at all. We saw dead people everywhere. When it started getting dark, we got scared all over again. My uncle came to get us, and we spent the night hiding in the mountains."

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The ‘unprecedented’ Greek bailout: Will it work?

Washington Post
February 21, 2012

Europeanleaders called the massive new bailout for Greece announced Tuesday “unprecedented,” but anxiety lingered over whether the rescue plan would work.

Officials were mindful of a recent report by the International Monetary Fund, the European Commission and the European Central Bank that gave a gloomy assessment of the rescue plan and predicted a strong likelihood that Greece would not be able to avoid future bankruptcy, even with the second bailout. On Tuesday, they announced that they were taking strict measures to try to ensure that Greece lives up to the deal.

To protect the $172 billion that international lenders will be channeling to Greece, European leaders said they would help the country only if it puts language in its constitution that requires it to make paying its debts a “priority.” The package directs the bailout money to be rolled into a special account and then passed out to Greece’s creditors, the cash shielded from the Greek government’s other financial needs. European officials also said they would station a permanent team of inspectors in Athens to make sure Greece was implementing far-reaching austerity measures.

“We have seen Greece has been derailing several times in the past years now. Without these special measures, we could not be sure whether or not Greece would implement” the rules, Dutch Finance Minister Jan Kees de Jager told reporters in Brussels on Tuesday. “Implementation risks are high in the case of Greece, higher than anywhere else.”

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Mix of Relief, Foreboding for Rank and File

Wall Street Journal
February 22, 2012

After months of fraught negotiations, Greeks greeted news of a fresh bailout for their country with a sense of relief Tuesday, but also a feeling of foreboding that many years of tough austerity measures and reforms still lay ahead.

The leaders of Greece's two main parties backing the country's interim government were quick to welcome the long-awaited €130 billion ($171.9 billion) loan—that was agreed to by Europe's finance ministers during marathon negotiations in Brussels—saying the new lifeline had saved the country from imminent default and a wrenching exit from the euro zone.

And Greece's government spokesman, Pantelis Kapsis, immediately tried to assuage popular concerns that the stepped up oversight the country will now have to endure by its creditors in exchange for that loan will infringe on the country's sovereignty.

But on the streets, the feeling was subdued. "I feel relieved today after the new loan deal, but I know it's just temporary," said Olga Tsatsara, a 64-year-old retired teacher who has already seen her annual benefits shrink by €2,500 euros and her tax bill jump more than 30% after almost two years of austerity measures.

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Euro Zone Votes to Stick Together

by Simon Nixon

Wall Street Journal
February 22, 2012

After months of brinkmanship played out in public, it took a further 13 hours of negotiation to finalize details of Greece's €130 billion ($172.1 billion) bailout, its second in two years. The intensity of the debate reflects the enormity of the stakes: this is the largest sovereign bailout in history and it involves the largest-ever sovereign debt restructuring, with private-sector bondholders being required to accept a 53.5% write-down in the value of their bonds worth €107 billion. Failure would have led to a Greek bankruptcy, almost certain to be followed by its exit from the single currency. By taking this catastrophic risk off the table, at least for now, the euro zone will have given another boost to market confidence.

Even now, a bad outcome can't be ruled out. The bailout depends on Greece completing the bond swap with private bondholders, setting up an escrow account to ring-fence cash needed for interest payments and fulfilling outstanding reform commitments, including a reduction in the minimum wage. The bailout must also be approved in a number of parliaments, including those of Germany, Finland and the Netherlands, three countries where political opposition to the bailout is running highest.

It is easy to find fault with what has been agreed to. If all goes to plan, the deal will only cut Greece's debt load to 120.5% of GDP by 2020, a level many fear will prove unsustainable. The growth assumptions underpinning the deal will strike many as optimistic, with the economy forecast to grow 1% in 2013, having shrank 7% last year. That forecast depends on Greece delivering structural reforms to boost competitiveness. The International Monetary Fund acknowledges that in its worst-case scenario debt is still 160% of GDP by 2020. That will fuel concerns that this won't be the last bailout and that the burden of any future debt relief will fall on euro-zone taxpayers, a politically toxic prospect. So far, official-sector contributions are limited to the European Central Bank forgoing profits on its Greek bonds and euro-zone governments cutting rates on their loans to Greece.

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For Greece, a Bailout; for Europe, Perhaps Just an Illusion

by Peter Eavis

New York Times
February 21, 2012

Even after European leaders appeared to have averted a chaotic default by Greece with an eleventh-hour deal for aid, worries persist that a debt disaster on the Continent has merely been delayed.

The tortured process that culminated in that latest bailout has exposed the severe limitations of Europe’s approach to the crisis. Many fear that policy makers simply don’t have the right tools to deal with other troubled countries like Italy, Spain, Ireland and Portugal, a situation that could weigh on the markets and the broader economy.

“I don’t want to be a Cassandra, but the idea that it’s over is an illusion,” said Kenneth S. Rogoff, a professor of economics at Harvard and co-author of “This Time Is Different: Eight Centuries of Financial Folly.” “I am amazed by the short-term psychology in the market.”

Throughout the crisis, the European Union’s favored strategy has been to provide tightly controlled financial support to highly indebted countries, in the hope of buying them enough time to put in place policies aimed at cutting budget deficits. While such moves can deepen recessions, the goal is to eventually lower debt levels and win back the confidence of the bond markets.

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Greek Crisis Raises New Fears Over Credit-Default Swaps

by Peter Eavis

New York Times
February 21, 2012

Greece’s debt restructuring is dragging credit-default swaps back into the spotlight.

The last time this financial instrument was on the global stage was in 2008, when the American International Group’s credit-default swaps brought the insurer, as well as the wider financial system, to the brink of collapse. A.I.G. had unique weaknesses, and regulators have started to overhaul the credit-default swap market since 2008.

European policy makers have nonetheless looked warily at credit-default swaps, at least until recently, while they structured the Greek rescue over the last six months.

They aimed for a voluntary debt exchange that would not initiate the default swaps, fearing that payments on the swaps might set off destabilizing chain reactions through Europe’s financial system.

But now, with Europe’s $172 billion aid package for Greece, it appears that the nation is going to take a step that substantially increases the likelihood that its swaps take effect.

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New Bailout Is a Reprieve for Greece, but Doubts Persist

New York Times
February 21, 2012

Greece may have dodged a default with its last-minute bailout deal, but longer-term doubts over its ability to repay its staggering debts remain, raising questions about whether even more rescue money will eventually be needed.

European leaders were to sign off on Greece’s second bailout of about 130 billion euros ($172 billion) at their summit meeting in Brussels next week — subject to Greece’s taking immediate steps to put into effect the deep structural changes that they agreed to.

Greece must also persuade, if not actually force, its private sector bondholders to accept a higher-than-expected loss of more than 70 percent on their holdings to reduce Greece’s debt stock by the targeted amount of 100 billion euros.

It is uncertain, however, if another round of austerity can bring Greece to a point whereby it generates enough revenue to pay off its obligations — even if the private sector debt deal goes through — and return to the market on its own.

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A Better Grecian Bailout

by John B. Taylor

Wall Street Journal
February 22, 2012

With Tuesday's vote, the finance ministers of the European Union have agreed to a second giant Greek bailout, just two years after the May 2010 bailout that was supposed to be all that was needed. While the day-to-day machinations of this long saga seem monotonous from afar, a closer look reveals several changes that bode well for the future of economic policy in Europe.

First, the new bailout involves a substantial write-down of Greek bonds—close to 75% of their economic value. At the time of the first bailout and until very recently, all parties to the funding agreements denied the possibility of a write-down, claiming that the problem was illiquidity not insolvency. Many of us with experience from emerging market crises of a decade or more ago recommended admitting the insolvency problem at the start, restructuring the debt, and moving on with economic reforms. Alas, we also knew it is not unusual for international officials to be slow to realize and admit the obvious.

Second, the fears of contagion—that a write-down on Greek debt would cause a run on the debt of other European countries—are far less than they were two years ago. Investors have adjusted their portfolios, foreign bank exposure to Greece is way down, and the correlation between spreads on risk-sensitive Greek credit default swaps and spreads on default swaps on sovereign debt elsewhere in Europe has declined.

Moreover, the anticipated orderly write-down will be far less damaging than a sudden default. Even if it triggers default-swap payments, those should be manageable, since the outstanding credit default swaps on Greek debt total only about $3 billion.

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Eurozone's Greece deal: debt and delusions at dawn

Guardian
Editorial
February 21, 2012

"Is this the way they say the future's meant to feel?" asked Pulp. "Or just 20,000 people standing in a field?" As dawn broke in Brussels, it was not E-fuelled but €-fuelled delusions which slowly gave way to an €-fuelled comedown. The eurozone's financial leaders emerged bleary-eyed to hail "a comprehensive blueprint" that would put Greece on the straight and narrow. Having stayed up late enough, with enough frenzied friends, they no doubt believed they were doing something amazing. But a nagging awareness of the outside world soon made itself felt.

In the harsh morning light, the deal looked like a pact to keep going by necking more of the drugs already swallowed in vast doses. There will be a fresh bailout loan of €130bn, new "voluntary" reductions in payouts to private holders of Greek debt, with parallel losses on bonds held by public institutions, which are weirdly structured to conceal the hit foreign taxpayers are taking. Oh, and in return for all this, the Hellenic Republic must endure further cuts, now and into the future. Greece, lest we forget, is already in the depths of a true Great Depression, with a fifth consecutive year of contraction now predicted, even by the EU. The eurozone is relying on the remedies of Hoover and Brüning to pull it out of the mire.

It won't work, which is the first reason why the small-hours sense of a resolution on Tuesday was a hallucination. Even before the announcement, a secret report prepared for the ministers warned that Athens could require yet another bailout before long. The official claim that Greek public debt will now fall to a high but supposedly stable 120% of GDP is pure assertion. How could it be otherwise? The GDP half of that equation is a known unknown, but seeing as any would-be investor will look at the heightening social chaos and think twice, there is reason to be fearful. All the risks are, in the jargon, on the downside.

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Harsher terms leave a ‘bitter taste in mouth’ for bondholders

Financial Times
February 21, 2012

After months of negotiations, the public and private sector finally came together in the early hours of Tuesday morning to announce a comprehensive refinancing package for Greece.

But the private sector element of the deal – involving a voluntary writedown of 53.5 per cent of the €206bn of Greek sovereign bonds held by banks and other financial institutions, and a slashing of future interest rates payable on replacement bonds – is still far from secure.

The terms are tougher than the earlier blueprint drawn up in October, which involved a 50 per cent “haircut” and a less severe reduction of interest rates. The new deal, which would see the creation of €96bn of new bonds, cuts coupons to 2 per cent up to 2015, 3 per cent up to 2021, and 4.3 per cent thereafter. Overall, the restructuring represents a 75 per cent decrease in the “net present value” of Greek sovereign bond holdings. The question now is whether bondholders will volunteer to take part.

The deal has the support of the Institute of International Finance, which has fronted negotiations. But the banks and other financial services groups that the IIF represents have shrunk in number substantially over the months that the talks have dragged on. “The banking community has probably sold down its holdings by 30 or 40 per cent,” said one senior banker.

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Greek bailout: 5 key conditions set by EU

Christian Science Monitor
February 22, 2012

European Union leaders agreed to a €130 billion ($172 billion) bailout deal for Greece early this morning after a long night of negotiations among international lenders, European finance ministers, and Greek leaders. Little of the relief is likely to trickle down to Greek citizens, who face an unemployment rate topping 20 percent after five years of recession. By the time private investors have been compensated and Greek banks have been recapitalized, there will be little left to directly help the Greek economy, according to Reuters. Here are five key elements of the bailout deal.

A special debt account

Greece will have to pass a law in the next two months that requires the country to pay its debtors before paying for government services. In the interim, the bailout funds will be deposited into an escrow account separate from its main budget. That account must always have enough money in it to pay off debts as they come due in the next three months, the Associated Press reports.

This requirement means that Greece could end up “being forced to pay interest on its debt before compensating teachers, doctors, and other state employees” – some of whom are likely already not being fully paid, or paid at all.

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Draghi’s sleight of hand saves ECB from losses

Financial Times
February 21, 2012

Eurozone finance ministers trying to plug holes in Greece’s second bail-out plan turned to the European Central Bank in the early hours on Tuesday morning.

But while agreeing to forgo up to €5bn in potential profits on its Greek bonds, the euro’s monetary guardian has protected itself against forced losses on its bond holdings and will not make direct payments to Athens.

Ahead of the meeting Mario Draghi, president, had ruled out taking losses on its portfolio. It was acquired for an estimated €40bn under a “securities markets programme”, launched by Jean-Claude Trichet, his predecessor in May 2010, when the eurozone debt crisis first threatened to blow out of control. The ECB, he said, could not embark on “monetary financing”, or central bank funding of governments, which is banned under European law.

With Mr Draghi’s agreement, however, finance ministers were able to earmark €5bn in profits the ECB expects to earn on its Greek bonds over three years. Once distributed, governments will use the funds as compensation if their own financing costs are higher than the lower interest rate they agreed to charge on official loans to Greece.

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Greek deal leaves investors fearful of two-tier bonds

Financial Times
February 21, 2012

Bond markets reacted with remarkable equanimity to Greece’s second bail-out.

Both in the aftermath of the deal announced early on Tuesday and in the long build-up to it, there have been few of the jitters that greeted the first three eurozone rescues of Greece, Ireland and Portugal.

But investors and analysts worry that in the rush to patch up Athens and show that the crisis in Greece is being contained, longer-term damage is being done to Europe’s bond markets.

“What has happened is not good for the market in the long term, but it is better than the alternative in the short term,” says Gary Jenkins, head of Swordfish Research.

The concern over how the Greek deal has been concluded centres on the question of subordination. Traditionally only the International Monetary Fund has been seen as being “super senior”.

But some investors are now worried that they may end up being junior bondholders to other entities.

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Νούριελ Ρουμπίνι

ΣΚΑΙ
Οι Νέοι Φάκελοι
21 Φεβρουαρίου 2012

Ο διάσημος οικονομολόγος Νούριελ Ρουμπίνι, που προέβλεψε πρώτος την αμερικανική κρίση ήδη από το 2006 και τον αποκάλεσαν γι' αυτό "Δρ. Συμφορά" μιλά αποκλειστικά στον Αλέξη Παπαχελά για την συμφωνία των Βρυξελλών και το μέλλον της ελληνικής Οικονομίας μετά το κούρεμα του ελληνικού χρέους. Ολόκληρη η συνέντευξη Ρουμπίνι στον Αλέξη Παπαχελά, που δόθηκε κατά την διάρκεια της επίσκεψης του διάσημου οικονομολόγου στην Αθήνα με σκοπό την συμμετοχή του σε συζήτηση με θέμα Ευρώ ή Δραχμή που διοργανώθηκε από την Intelligence Squered Greece, θα μεταδοθεί στα πλαίσια της μεγάλης έρευνας των Νέων Φακέλων "Πώς φτάσαμε στο Μνημόνιο" που συνεχίζεται την Δευτέρα 27 Φεβρουαρίου με το δεύτερο μέρος.

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