Saturday, February 4, 2012

Countdown to PSI’s Paradox?

Ekathimerini reports that a crucial meeting between Prime Minister Lucas Papademos and the leaders of the three parties supporting his government has been postponed until Sunday:

Finance Minister Evangelos Venizelos, meanwhile, is locked in feverish talks with Greece’s creditors and his eurozone peers.

Papademos is set to meet at 1 p.m. on Sunday, rather than on Saturday, with the presidents of PASOK, George Papandreou, of New Democracy, Antonis Samaras and of Popular Orthodox Rally (LAOS), Giorgos Karatzeferis in an effort to reach a deal on painful reforms that the new bailout contract with the eurozone and the International Monetary Fund will depend on.

The reason for the postponement of the meeting was not immediately clear. A small group of Communist Party (KKE) supporters had been protesting outside Papademos's office in central Athens on Saturday morning but it's not clear whether this affected with the timing of the meeting.

Negotiations with representatives of the IMF, the European Commission and the European Central Bank – known as the troika – are continuing in Athens on Saturday after a lengthy session on Friday with Venizelos having new meetings with key government ministers and the troika throughout Saturday while participating in a decisive Eurogroup teleconference meeting at 2.30 p.m.

The heads of the Institute of International Finance, representing the majority of Greece’s private creditors have also arrived in Athens to conclude a long-delayed agreement on the private sector involvement (PSI) in the Greek debt haircut.

Greek finance minister, Evangelos Venizelos, says crucial issues remain in talks with lenders:

Greece needs to resolve «crucial» issues in talks with foreign lenders to secure a 130-billion-euro bailout, with a long-delayed bond swap now the easier part of the negotiations, the near-bankrupt country's finance minister said.

"After 12 hours of tough negotiations, we have solved many issues but other crucial issues are still open,» Finance Minister Evangelos Venizelos told reporters. «I would say that the PSI (bond swap) is the easier part of the process now."

He said euro zone finance ministers would hold a conference call on Saturday afternoon to discuss Greece ahead of a meeting in person on Wednesday.

Late Saturday evening, after the Eurogroup meeting, Venizos said he sees a thin line between success and deadlock:

“We are on the razor’s edge, the distance separating a successful completion of the negotiations to a deadlock is very small,” said Venizelos referring to talks with the representatives of the European Commission, the European Central Bank and the International Monetary Fund, referred to as the troika.

He added that the government and the troika have agreed on the way that banks will be recapitalized, the course of privatizations and many institutional reforms such as the creation of an effective mechanism that will monitor and eventually suppress the prices that concern the commodities an average household would buy.

What is still on the negotiating table is the labor relations in the private sector and the fiscal measures that need to be taken within 2012.

Venizelos then stressed it is high time all political forces made some binding decisions.

Mr. Venizelos is feeling the heat from his European counterparts, losing patience with Greece:

"There was a very clear message that was conveyed from all participants of the teleconference ... to the Greeks that enough is enough," one euro zone official said. "There is a great sense of frustration that they are dragging their feet.

"They should get their act together and start talking honestly, decisively and speedily with the Troika on the aspects of the programme that remain to be finalised - on fiscal and labour market reforms," the official said.

For its part, Troika is turning up the heat on party leaders:

Greece’s lenders are also asking for a supplementary 2012 budget to be drawn up and passed through Parliament, given that Greece’s economy performed worse than expected last year.

The new budget will have to include about 4 billion euros’ worth of extra measures that were not in the fiscal plan voted through the House in December. Sources said that the troika has made it clear that if this step is not taken, Greece will not receive in March a loan of 89 billion euros, which will be made up of the remainder of its first bailout and the first installment of the new deal.

The troika has already said that it wants the government to focus less on tax hikes and more on spending cuts, so the 4 billion euros in savings is likely to come from a reduction in expenditure on defense, municipalities and drugs. Health Minister Andreas Loverdos said this week that a ceiling of 2.9 billion euros would be set for public spending on medicines.

The EC, ECB and IMF have also asked for savings on public sector wages by introducing a new salary structure for doctors, military personnel and judges from this year.

All of these issues, as well as the controversial topic of lowering the minimum wage and cutting private sector salaries, will be tabled at Papademos’s meeting with the party leaders.

Sources said the prime minister is determined to reach some kind of conclusion at the end of the meeting. If the party leaders fail to agree, Papademos will ask them to allow him to negotiate with the troika or to include Papandreou, Samaras and Karatzaferis in such talks. Government spokesman Pantelis Kapsis ruled out the possibility of Papademos resigning.

The most contentious issue remains cuts in private sector wages. Troika is insisting on changing private labor terms:

Greece’s official creditors remain will not give in on their demand for changes and wage cuts to the labor status in the private sector, Skai radio said on Saturday afternoon citing an unnamed government official, as talks about the new loan contract continue in Athens.

For those of you who do not understand, let me explain. Unlike the rest of the world where wage contracts are based on 12 months of the year, Greek workers have a 13th and 14th salary typically given at Christmas and Easter. Why in God's name did they ever introduce this? Probably because some Greek politicians wanted to buy more votes.

Regardless, Greeks working in the private sector are in no mood to give up an inch of their wages and understandably so. With the economy going through the wringer, unemployment skyrocketing, food and energy prices soaring, they have already experienced cuts in their wages and pension benefits.

Worse still,
they're being taxed more to support an over-bloated public sector. Many Greeks working in the private sector are frustrated at the slow pace of cuts in public sector.

Things are bad in Greece. In a scene reminiscent of the Irish potato famine, farmers in Thessaloniki distributed more than 10 tons of potatoes which were snapped up quickly from people falling on hard times.

Moreover, you know things are bad when the Greek government insists that the issue of war reparations remains unresolved:

The government on Friday insisted that the issue of German World War II reparations to Greece remained unresolved despite the International Court of Justice in The Hague rebuffing a Greek reparation claim for atrocities committed by Nazi troops in the village of Distomo, central Greece.

“The issue of German reparations remains open,” the Foreign Ministry said in a statement. The Hague’s decision on Friday, the ministry said, does not prevent Greece from seeking reparations from Germany.

In November 2008, a court in Florence ruled that the families of the 218 men and women killed by Nazi troops in the village of Distomo should be awarded a villa in Menaggio, near Lake Como, which is owned by a German state nonprofit organization, by way of restitution.

Germany successfully appealed against the Italian ruling.

The 15-judge court said in its 12-3 ruling on Friday that the Italian case violated Germany’s longstanding immunity from being sued in national courts.

The ministry noted that the decision does not influence “the international responsibility and resulting obligation of a country to provide compensation where it is due.” The ruling also clarified that such issues could be resolved at the bilateral level, the ministry added. “In this way the court confirmed that these issues have not been resolved,” the ministry said, adding that the government would study the decision carefully.

A spokesman for conservative New Democracy, Yiannis Michelakis, was more outspoken in his assessment of the ruling, which, he said, “does not affect the issue of war reparations,” adding however that “it is not aligned with European values nor with the sense of justice of the Greek people and the people of Europe in general.”

Earlier this week a group of 28 MPs from ND, socialist PASOK and the Coalition of the Radical Left (SYRIZA) called for the issue of war reparations to be debated in Parliament.

Although it sounds like they're grasping at straws, Greece has a legitimate case for war reparations, but that remains a long process which could take years to resolve.

Right now Greece and its creditors have to focus their attention on finalizing debt talks. On this, Andreas Koutras reports on the countdown to PSI's paradox:

The Greek FM Mr Venizelos announced that the PSI talks are close to completion.

This is not the first time. On numerous occasions a PSI deal was announced as imminent. This reminds me of Zeno’s Paradox. Every day we run half the distance to the PSI completion, but we never get there. There is however a deadline that many see as immovable, the 20th March 2012. This is the date that the GGB4.3% needs to be repaid, all 14.4billion of it.

Working backwards from that date, we have the following tentative schedule:

· Around one week may be needed to administer and settle the new Greek PSI Bonds. Even this may be optimistic. Also the funds need to be disbursed by the EZ.
· Once the PSI is finalised, there should be at least two weeks for the offer and to gather up any interest.

So, assuming everything goes to plan and participation is very high, the PSI would need to be in place by the end of February (Friday 24th of February).

If on the other hand, it does not go according to plan and participation is low, then a decision needs to be taken on whether to introduce and activate CAC’s. Greece could in principle pass the law any time in the next 7 days or by the 10th of February (Friday).

But activating the CAC also requires a meeting of the bondholders with the necessary majority. This may actually take another week. So, if there is a need for coercive restructuring the PSI must at least be done before the 17th February.

In the case of a coercive restructuring followed by a credit event, the EZ must have in place contingency plans for possible contagion. The next 3Y LTRO is on the 29th February (Leap year) and it may fall right in the middle of the PSI messy offer.

Timing wise, this is a rather restrictive schedule as it leaves very little room for errors or unforeseen events. Markets should be prepared for a rough ride in the next few weeks.
I believe markets should be prepared for a negative or positive surprise. Anything can happen between now and March 20th. Longer term, Greece has to reform itself, and Germany and Europe can and should help.

Greece should also be looking to build on its alliance with Israel and learn from its success in boosting productivity. In fact, Canada may copy some of Israel's policies on funding high-tech startups and turning research ideas into businesses as it seeks to revive the country's weak performance in business innovation and productivity.

Let me end by stating that I'm optimistic that we will get passed this Greek and European 'debt crisis' and start focusing on the real crisis threatening our global economy -- lack of jobs and growth.

Policymakers are deluding themselves if they think austerity alone will free us from another debt crisis. Quite the opposite, austerity is padding the banksters pockets, ensuring debt slavery and a "generation of depression". Below, euronews reports on the latest events. Also embedded a recent Michael Hudson interviews with Lauren Lyster and Max Keiser and the latest Farage 'barrage', railing against EU policies in Greece (another classic).

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