EU `Pretending' Greek Package Will Work?
Greek President Karolos Papoulias slammed Germany’s finance minister for recent comments about his country as stalled bailout talks stoked tensions between Greece and the northern European countries funding its rescue.
“I don’t accept insults to my country by Mr. Schaeuble,” Papoulias, who fought in the resistance against the Nazis during World War II, said in a speech today. “I don’t accept it as a Greek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all of Europe.”
Papoulias’s comments came as Wolfgang Schaeuble and other European officials pushed Greece to gouge more cuts out of its budget to qualify for a new bailout that would stave off an economic collapse. Schaeuble today blamed Greece’s New Democracy party, the second largest, for holding up agreement on a new rescue package and his deputy, Steffen Kampeter, compared Greece to a “bottomless pit.”
Greek politicians are expressing their frustration after European finance ministers last week rejected a Greek austerity package worth 7 percent of gross domestic product. That prompted New Democracy leader Antonis Samaras to complain that a gun was being held to the country’s head. George Karatzaferis, head of Laos, the third party in the governing coalition, said the country “could do without the German boot.”
Playing With Fire
“We are continually faced with new terms,” Finance Minister Evangelos Venizelos told reporters in Athens today. “In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”
Luxembourg Prime Minister Jean-Claude Juncker later said after a conference call with euro region finance ministers that he’s confident a decision on Greece will be made on Feb. 20.
Papoulias, 82, asked today to have his public salary stopped as a gesture of solidarity with Greeks amid the country’s economic crisis, Venizelos told reporters.
Papoulias receives about 300,000 euros ($392,400) a year, according to Bloomberg calculations based on government documents. The press office of the president couldn’t confirm the data. U.S. President Barack Obama received a total of $395,188 in 2010, according to his tax return published on the White House website.
Papoulias has decided to forfeit his annual compensation “as a symbolic gesture at a moment when the Greek people are called upon to undergo such sacrifices,” Venizelos said.
Demonstrators in Athens tore up marble in front of parliament, clashed with police and set 45 buildings on fire on Feb. 12, protesting against the government’s new package of spending cuts.
Papoulias is expressing the frustration of many Greeks tired of being lectured by German, Dutch and Finnish politicians. It seems like the Germans want Greece out and are openly criticizing Greece's political establishment. Can't say I blame them. A friend of mine put it this way: "Guess that the Germans are tired of cutting cheques and then listen to Greek politicians call them Nazis and insist that they owe war reparations."
But Greek leaders are meeting Eurogroup's demands. Ekathimerini reports that the head of conservative New Democracy, Antonis Samaras, sent a letter on Wednesday to the heads of the country’s foreign creditors, saying that he was committed to the terms of a new debt deal. The leader of Socialist PASOK and former prime minister George Papandreou sent a similar letter on Wednesday confirming his commitment to the conditions of the debt deal.
Meanwhile, successive postponements to the approval of the conditions for the Greek debt swap have brought about changes to the already tight timetable set for the process of the private sector involvement (PSI) plan:
The main problem is that the eurozone countries have not yet ratified the increase in the guarantees of the European Financial Stability Facility as agreed last October. The original plan had been for the approval to come on February 7 or 8 and the official proposal to be made last Monday.
Now the official proposal will be made next week at the earliest, and without the ratification of the EFSF changes by the member states’ parliaments. The increase in the EFSF guarantees is of vital significance for the PSI implementation, as the facility will supply a total of 93.7 billion euros in guarantees for the debt swap to proceed smoothly.
It is clear that the delay in the approval of these guarantees is increasing fears of a possible failure in the process, with investment bank Lazard warning that if the EFSF has not collected the funds in time there will be a three-week period of dangerous uncertainty for bondholders.
With the position of the European Central Bank still unclear regarding its possible participation in the haircut, either directly or indirectly, the terms of the agreement with private bondholders have been set, with the target being to relieve Greece of some 100 billion euros of debt.
It is safe to say that the new bonds will have a 3 percent interest rate if they mature by 2020, a 3.75 percent coupon if they mature after 2020 and an average rate for their whole period of 3.4-3.5 percent; they will have a 30-year maturity period and will contain a growth clause.
That clause will provide that if Greece has two consecutive years of growth, with the second year posting a GDP increase of more than 2 percent, the new bonds’ interest rate will increase by 1 percent.
French lender BNP Paribas has already proceeded to a 75 percent haircut on the Greek bonds in its portfolio, suffering losses of 567 million euros from the haircut in the last quarter of 2011.
As Soros predicted, the Greek debacle is going from bad to worse. It has been mishandled by everyone: Greek and eurozone leaders. Quite frankly, I'm also wondering whether Greece should just default and get out of the eurozone. It will be a disaster but it's better than watching the country slide deeper into a depression and subjecting its citizens to the ridicule of Mr. Schaeuble and his northern European counterparts.
Eurozone leaders are sowing the seeds of their destruction. If they do not address this crisis in a more comprehensive way, it can easily degenerate into a full blown catastrophe. Some think we are not far off.
Below, Matteo Cominetta, a European economist at UBS AG, talks about the potential risks associated with Greece leaving the euro. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." He rightfully notes a lot of people are underestimating the risk of a Greek exit and goes as far as stating that Greece needs a 100% haircut on it debt.
Also, Yanis Varoufakis, professor at the University of Athens, and Miranda Xafa, president of EF Consulting, talk about the outlook for Greece after lawmakers approved the austerity package demanded to secure a financial lifeline. They speak with Owen Thomas on Bloomberg Television's "Countdown." Good interview, well worth listening to. Varoufakis makes a good point on the hypocrisy of pretending the Greek bailout will work.
Finally, listen to the latest 'Farage barrage' where he castigates his fellow EU parliamentarians, warning them that "when it comes to chaos, you ain't seen nothing yet". Unfortunately, getting the drachma back won't make a meaningful difference in the lives of many young Greeks who have lost all hope and are leaving the country in search of a better life elsewhere.