Tag Archives: Politics of Greece

EU to Greece: No More Solidarity If You Vote No

On the eve of perhaps the most significant vote in the Greek parliament since the return of democracy to the country in 1974, the European Commission has warned Greek deputies that if they do not vote the right way, then “everything changes” as to whether “EU solidarity continues”.

“The only way to avoid immediate default is for parliament to endorse the revised economic programme.”

Olli Rehn

The Greek parliament opened debate on Tuesday on a draconian package of public spending cuts, structural reforms and a massive €50 billion sell-off of state assets imposed by international lenders. The Greek parliament is due to vote on the mid-term package on Wednesday and hold a second vote on its implementation on Thursday.

In a stern public statement issued the same day, EU economics commissioner Olli Rehn said there are only two options for the country: pass the mid-term package or default, the EUobserver.com reports.

“The only way to avoid immediate default is for parliament to endorse the revised economic programme,” he writes in a communique to reporters, read  by his spokesman, Amadeu Altafaj-Tardio.

“To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default.”

In recent weeks, a range of commentators, including mainstream and heterodox economists have recommended a range of other paths out of the crisis than those on the table.

The EU executive however dismissed such ideas as unrealistic.

“According to press reports over the last hours, there seems to be an illusion that there will be other plans on our desk,” Altafaj-Tardio says.

“This should be clear in all journalists, politicians and markets’ minds.”

Pressed whether the commissioner’s words meant that if the vote is defeated, Greece will be allowed to go bankrupt, the spokesman said: “If Greece does everything to take the objectives set a year ago, then EU solidarity continues. If not, then of course everything changes.”

He refuse to answer whether a country can default and still be a member of the eurozone.

“We are not putting ourselves in a scenario without Greece at this point in time,” he says.

However, a euro zone source close to talks on the subject confirmed toEUobserver that there are indeed “half-formed” ideas about emergency measures to take in the event that the Greek parliament votes down the measures.

“It would be extremely irresponsible if there were no Plan B. There have been discussions on what to do, a contingency plan in the event that Greece doesn’t vote the right way,” the source says.

Ideas include a show of public support, possibly with the European Financial Stability Fund directly purchasing Greek government debt – an option that has until now been forbidden.

One idea would involve allowing Greece to miss a payment and the EFSF then swooping in and buying up debt at a significantly discounted rate, but with very strict conditions, according to the EUobserver.com.

Another possibility is that Greece could return to the private sector for funding, although such a move would entail borrowing at acutely high rates.

A market analyst speaking to this website also confirmed that in theory, there is nothing preventing Athens from selling debt to private creditors, at least for a short period.

“In the event of a failed vote, Greece could still make the repayments due in July and August by borrowing in the short-term money market, albeit at a very steep interest rate,” Sony Kapoor, the director of international economic think-tank Re-Define, says.

“This would buy two more months of negotiation time.”

In the same statement, the commissioner again told opposition forces to drop their resistance to the mid-term package and forge “the necessary political consensus”.

Read the full post at EUobserver.com.

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Greece Ends Week In Absurdum

In spite of the alleged deal of another bailout package for Greece, the spreads on Greek CDS rose to the absurd level of 2150 basis points, that is 21,5 percentage points above the benchmark – the German bonds. Yesterday Chinese Prime Minister Wen Jiabao arrived in Europe to check on China‘s investments. Dear God!

“Given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems.”

Gavan Nolan

"Reductio ad absurdum" by Rodion Tikhomirov

The Chinese premier Wen Jiabao arrives in Europe Friday, and the main topic of discussion when he meets Europe’s leaders is likely to be Greece. China has been taking a keen interest in Europe’s periphery over the last few years.

The European Council on Foreign Relations estimates that 40% of Chinese investment in the EU is in eastern Europe and the peripherals, excluding Ireland.

  • In Greece the Chinese shipping company Cosco in 2008 signed a 35-year lease on a container port in Piraeus.
  • Jiabao’s deputy Zhang Dejiang visited Greece in 2009 with more offers of investment.

Of course, the reason China is so interested in Greece at the moment is that it is at the heart of the euro zone debt crisis.

China has made several public proclamations of support in favor of Greece and the other peripherals, though it is not clear if it has backed this up by buying large amounts of government bonds.

“Nonetheless, given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems,” credit analyst Gavan Nolan at Markit Credit Research writes in his weekly Market Wrap.

Of course, the reason China is so interested in Greece at the moment is that it is at the heart of the euro zone debt crisis.

China has made several public proclamations of support in favor of Greece and the other peripherals, though it is not clear if it has backed this up by buying large amounts of government bonds.

“Given its obvious interest in the stability of euro zone it will be keen to find what progress, if any, has been made in tackling the region’s fiscal problems,” Gavan Nolan points out.

So, what will Wen Jiabao find?

Well, the news that Greece and the EU had agreed a new five-year austerity plan last night was trumpeted as a great success.

But according to Markit the market participants are aware that the passage of the austerity bill through the Greek parliament is far from a formality.

Prime minister George Papandreou is in a stronger position after winning the no confidence vote earlier this week.

“But his control over his own party is still tenuous,” Nolan notes.

Another member of PASOK  declared Friday that he would vote against the bill, shrinking the already slim majority.

The vote begins on Tuesday but could last until Thursday.

Greece’s spreads closed the week at an unprecedented  record of 2150 basis points, reflecting the political uncertainty.

“But that is not the only doubt that the CDS markets are grappling with,” Nolan writes.

“The extent and form of private sector participation in the proposed bailout are still not clear. It seems that there will be an “informal and voluntary” rollover of debt similar to the Vienna Initiative.”

Nicholas Sarkozy and other European leaders have said Friday that they have been in discussion with financial institutions about a rollover, and there will be “no difficulties or concerns”, according to Sarkozy.

“But it remains to be seen just how “voluntary” this rollover is, and how they will incentive bondholders to participate,” Nolan comments.

Adding: “The answers to these questions are crucial for the CDS market and will influence spread direction. It should also be remembered that the total net notional outstanding for Greek sovereign CDS is just over EUR5 billion, and has been falling for some time.”

“This is small beer compared to the government bond market.”

“Unfortunately there have been several media reports that have been quoting the misleading gross notional figure; the lessons of the Lehman Brothers credit event auction clearly haven’t been learnt.”

China, on the other hand, has seen a considerable increase in its CDS net notional, particularly in recent months. It is now the 10th largest sovereign in terms of CDS exposure, according to DTCC figures.

The sovereign’s spreads have also widened in recent weeks, though they are nowhere near the levels they reached in the darkest days of the recession.

Premier Jiabao declared victory over inflation in an op-ed article in the Financial Times, Friday.

“Perhaps he is right, but the activity in the CDS market suggests that the Chinese economy faces more than one challenge in the months and years ahead,” Gavan Nolan concludes.

See also:

Markit Economic Research: HSBC Flash China Manufacturing PMI. 23062011.

Markit Economic Research. China PMI Flash Comment. 23062011.

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EU Talks About EU – And Greece

With the vote of confidence passed, the Greek Prime Minister George Papandreou now has the political authority to try to implement even more austerity measures in Greece as requested by the EU & IMF.

But what about the people on the streets of Greece who are unable to make ends meet?

And what about the contagion effect of Greek debt on the rest of the euro zone?

Should Greece leave the euro?

From the EUobserver.com:

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