Tuesday, May 8, 2012

Europe at Another Impasse?

Kerin Hope of the FT reports, Greece braced for repeat elections:
Greece is bracing itself for a repeat general election after its centre-right leader failed to win leftwing support to form a “national salvation government” after Sunday’s inconclusive outcome at the polls.

“We are now heading for a second vote next month in a deeply polarised atmosphere,” said a disappointed government official. The repeat election would probably take place on June 17, he said.

The failure of Greece’s two main pro-bailout parties to win a majority compounds a deteriorating economic situation as the government of Lucas Papademos, the technocrat premier, prepares to leave office next week, making way for a caretaker administration.

Mr Papademos, a former European Central Bank vice-president, called for political stability “so that the sacrifices of the Greeks don’t go to waste ... after we have already covered a large part of the difficult journey towards rebuilding the economy”.

Decision-making on further reforms, including finalising a new €11.5bn medium-term austerity package, will be stalled until a new administration is in place.

“Only non-political measures can go ahead,” the official said, admitting that it would be hard to push forward with 77 separate structural reforms due to be completed during June.

The stalemate puts at risk the timetable for disbursement of Greece’s next loan tranche from its second €174bn bailout. Despite a recent transfer of €3.5bn to cover financial emergencies, the country faces being unable to meet pension, salary and debt commitments next month.

The EU and International Monetary Fund have warned they will block further loan disbursements until the next Greek parliament approves the medium-term package, which would include deep cuts in healthcare spending and in public sector jobs – measures that triggered parliamentary rebellions under the two previous governments.

Alexis Tsipras, on a roll after his leftwing coalition Syriza vaulted into second place, almost quadrupling its share of the vote, was given the mandate to try and form a government on Tuesday after Antonis Samaras, whose New Democracy party finished first but fell well short of a parliamentary majority, failed to convince others to join him.

Mr Tsipras said after meeting the president that Greece’s election results had left the country’s commitment to the IMF-EU rescue deal invalid because a majority of people had voted for parties committed to scrapping the bailout.

With anti-austerity parties capturing almost 70 per cent in Sunday’s vote Greeks appeared to have expressed rising anger and frustration over high unemployment, wage cuts and a forecast of another 18 months of recession.

“This was a vote against reform ... We saw pro-European socialists who used to be popular losing their seats after years in parliament,” said Taki Michas, a political commentator.

Among prominent socialists who were voted out was Anna Diamantopoulou, the development minister and a former European Commissioner who launched a crackdown on corruption while in office and managed to unblock EU funds left unspent by her predecessors.

It was not clear whether New Democracy and Pasok would be able to regroup quickly after their worst showing at the polls in more than 30 years. Some analysts doubted whether a second election, following on so quickly, would trigger a more moderate voter response.

“All in all, Greece is unlikely to have a strong stable government any time soon, raising political uncertainty and potentially putting its bailout at risk,” said Wolfango Piccolo, analyst at Eurasia Group.

He said banks should come under state control and called for an international commission to investigate whether Greece’s debt is legal.

“The popular verdict clearly renders the bailout deal null,” Mr Tsipras told reporters.

The stalemate hit Greece’s stock market hard. The benchmark ASE Index dropped 3.8 per cent to 619.52 in late afternoon trade in Athens, the lowest since November 1992. The benchmark gauge has lost 9.1 per cent this year.

Mr Tsipras’s demand has little meaning unless he can form a government. That ambition appears doomed to fail, however, with the Greek Communists preferring self-imposed isolation. The Democratic Left split from Syriza several years ago and shows no sign of wanting to team up again.

Evangelos Venizelos, leader of the third-placed Panhellenic Socialist Movement, or Pasok, has suggested a four-way coalition of “pro-European forces under a prime minister who would be acceptable to a broad spectrum of Greeks”.

Final election results gave New Democracy 108 seats, followed by Syriza with 52 and Pasok with 41, with the remainder shared among four smaller parties including the extreme-right Golden Dawn, which is entering parliament for the first time with 21 seats.

Hopes for a coalition government are quickly evaporating. Ekathimerini reports, Tsipras lays out five points of coalition talks:

Alexis Tsipras, the leader of the runner-up in the May 6 general elections Coalition of the Radical Left (SYRIZA), presented the five points along which his discussions with minority party leaders will develop as he tries to form a coalition government after frontrunner New Democracy failed at the task on Monday.

Following a meeting with President Karolos Papoulias, who delivered the mandate to Tsipras, the 38-year-old politician said that «this is a historic moment for the left and a great challenge for me."

Addressing the press from Parliament later and before embarking on a string of meetings with party and union leaders, Tsipras rejected the efforts of New Democracy and third-placed PASOK for a so-called «national salvation government,» saying that a coalition of conservative and centrist forces would be a government «for the salvation of the memorandum» and would violate the mandate of the people, who have, «rejected the bailout agreement with their vote."

Tsipras challenged the two parties, who have ruled Greece for the past three decades but suffered a crushing defeat at the May 6 polls, to rescind their letters of guarantee to creditors saying that Greece would abide in full to the terms of the bailout deal, «if they truly regret what they have done to the Greek people."

On his upcoming talks to explore whether he will be able to form a majority coalition with parties of the left and parties representing environmental concerns, the head of SYRIZA -- which gleaned 16.78 percent at the ballot box and won 52 seats in the 300-seat Parliament -- laid out the five points that will be the focus of discussions:

* The immediate cancellation of all impending measures that will impoverish Greeks further, such as cuts to pensions and salaries.

* The immediate cancellation of all impending measures that undermine fundamental workers' rights, such as the abolition of collective labor agreements.

* The immediate abolition of a law granting MPs immunity from prosecution, reform of the electoral law and a general overhaul of the political system.

* An investigation into Greek banks, and the immediate publication of the audit performed on the Greek banking sector by BlackRock.

* The setting up of an international auditing committee to investigate the causes of Greece's public deficit, with a moratorium on all debt servicing until the findings of the audit are published.

"We are not indifferent to whether the country will be governed or not, but we are primarily concerned with the direction in which the country will be governed and whether the people's mandate will be respected,» Tsipras said.

The SYRIZA leader is expected to meet first with Fotis Kouvelis from Democratic Left (which received 6.1 percent of the vote and 19 seats) and then with Ecologist Greens (2.93 percent; no seats) representative Ioanna Kontouli and Social Pact (0.96 percent; no seats) president Louka Katseli. Earlier he spoke on the telephone with Greek Communist Party leader Aleka Papariga who rejected a face-to-face meeting.

Tsipras has indicated that he will use the full three days at his disposal to talk with all the party leaders, including those of New Democracy and PASOK, but barring Chrysi Avgi (Golden Dawn).

After reading Tsipras' proposals, a friend of mine wrote me: "He probably wants to bring back the Lada." To be fair, some of Tsipas' proposals merit consideration, especially abolishing the law that grants MPs immunity from prosecution, but he's dreaming if he thinks Greece can rescind all the austerity measures and still get the bailout.

However, as I wrote in my last comment on Europe's Golden Dawn, the election results in France and Greece were a clear protest vote against savage austerity measures. Henry Samuel of the Telegraph reports, French and Greek political earthquakes point to rise of the anti-austerity movement:

With unemployment in Europe at its highest level since the creation of the single currency, resentment has been growing over whether strict budgetary discipline is the best way to brace a spiral of debt.

Street protests have been seen across Italy, Spain and Portugal as people reacted to spending cuts that have slowed economies across Europe.

Savings have been wiped out and in Spain, a real estate crash has helped swell unemployment to 25 per cent of the workforce.

Many economists have advocated a greater emphasis on growth, but it has only gained traction among European policy-makers and politicians in the past few weeks.

Paul Krugman, an economics Nobel Prize winner, welcomed the anti-austerity groundswell in Europe, saying the bloc’s voters proved “wiser than the Continent’s best and brightest”.

He said the health of the German economy was “an argument for much more expansionary policies elsewhere, and in particular for the European Central Bank to drop its obsession with inflation and focus on growth”.

Anti-austerity momentum came to a head on Sunday night, when voters in France and Greece spectacularly ousted governments seen as towing the fiscal discipline line too strictly.

In France, new Socialist president-elect Francois Hollande said his victory marked “a new departure for Europe and hope for the world” because it showed “austerity can no longer be the only option”.

Meanwhile in Greece, where over 60 per cent of voters support anti-austerity parties, parties who reject the extreme belt-tightening that comes with international bail-outs were the big winners in parliamentary elections on Sunday.

Hannes Swoboda, leader of European Socialists and Democrats, said yesterday: “This radical austerity policy has pushed Europe into recession and brought about the explosion in unemployment. It has led to the votes for extremists in Greece and the upsurge in the National Front in France.” “The process of stabilisation must be based on a growth pact to stimulate investment and job creation”.

Even in Germany, the state of Schleswig-Holstein ousted a centre-Right government made up of the same parties as Chancellor Angela Merkel’s federal coalition, which preaches austerity.

Gaining ground on Ms Merkel’s Christian Democrats, the Social Democratic Party yesterday joined the Hollande growth bandwagon, with its president, Sigmar Gabriel, saying the Frenchman’s victory “shows there is another solution than a politics uniquely based on austerity in Europe”.

In Italy, which is holding local elections, the centre-left PD, one of two parties which the Prime Minister Mario Monti depends upon for his majority, urged him to delay parliamentary approval of the EU fiscal compact and slow the process towards deficit reduction.

An anti-austerity movement is also gaining ground in Ireland, which on Monday said it would not defer a referendum on the EU fiscal pact.

Eamon Gilmore, the deputy prime minister, said Mr Hollande’s victory showed there was a new emphasis on growth in Europe, but warned that postponing the May 31 plebiscite would put off investors.

Paul Murphy, MEP for the Socialist Party and United Left Alliance, urged Ireland to block the treaty. “With a No vote, people in Ireland can add to the momentum against this attempt to write austerity into law,” he said.

The message to Ms. Merkel and European leaders is loud and clear: stop focusing on austerity and start focusing on growth. The real crisis is an unemployment crisis, not a debt crisis. Without jobs, the debt crisis will balloon to unprecedented levels.

Europe is at another impasse, and global markets are reeling. I'll keep repeating myself but my feeling is that this is just another huge scare and the banksters and elite hedge funds are scooping up high beta shares on the cheap, waiting for the next rally.

The Bear Paradox of 2012 is intact, but manage your risk carefully here as I have a feeling the greedy bastards will push this sucker lower before going on "Risk On" mode. Once again, elite hedge funds and big banks' prop trading desks will make off like bandits.

Below, John Taylor, founder and chief executive officer of FX Concepts LLC, talks about Greece's debt crisis and a potential exit from the Euro. Taylor, speaking with Erik Schatzker and Sara Eisen on Bloomberg Television's “InsideTrack," also talks about the outlook for the U.S. dollar.

I disagree with Taylor, if Greece exits the eurozone, chaos will ensue. Those who think otherwise are kidding themselves if they think Spain, Italy and Portugual and rest of eurozone will not be negatively impacted.

No comments:

Post a Comment