Greece Outside In

Tuesday, June 19, 2012

David Cameron fears 'near perpetual stagnation' in eurozone

Prime minister says Britain must look to emerging economies for economic salvation

The eurozone crisis could continue for years, forcing Britain to look outside a stagnant euro area for fresh export markets and economic salvation in the emerging economies, David Cameron has said.

His gloomy assessment of "near perpetual stagnation" came as pressure continued on Spanish bond yields and stock markets reacted coolly to the narrow Greek vote to back pro-bailout parties in Sunday's elections.

Speaking to reporters accompanying him to the G20 summit in Los Cabos, Mexico, the prime minister said: "It may be that the eurozone crisis is going to continue for some time, in which case the UK must do all it can to put its own house in order and link up with the fastest growing parts of the world."

There was a serious danger eurozone leaders would be unable for political reasons to take the economic steps necessary to resolve the two-year-old crisis. Cameron regards banking union and a commitment to share debts between eurozone countries as indispensable, but possibly politically unobtainable.

He said: "It's difficult for the recipient countries. It's also very difficult for Germany. We have to understand the German difficulties.

"It is very difficult politically to take the steps that are required economically. We decided not to take those steps when we didn't join the euro.

"But nonetheless if you want a functioning single currency you have to take at least some of those steps. You need to have elements of banking union, fiscal transfers and so on."

He then sketched out three alternatives for the euro-area:

"Option one is that they take action to strengthen the eurozone, to make it more coherent. If this deals with the current problems it is clearly in their and our interests.

"Option two is enough financial action and just enough political and economic action to keep the show on the road, but without solving the fundamental problems.

"Option three is they don't take any of these steps and dominoes start to fall, which would have very severe financial consequences across the world and would seriously affect us."

Cameron, who believes the eurozone will muddle along on a path of slow growth, urged Greek politicians to quickly form a new government. He said: "The outcome of the Greek elections looks positive in terms of a clear commitment to staying in the eurozone and accepting the terms of the memorandum, but those parties that want that to happen cannot afford to delay and position themselves. If you are a Greek political party, and you want to say in the eurozone and you want to accept the consequences that follow from that in the memorandum, you have got to get on with it and help form a government to deliver that. I think delay could be very dangerous."

Britain accepts Greece may need more time to repay its loans.

Before travelling to Los Cabos, Cameron held a conference call with leading eurozone members attending the G20. A senior British diplomat described the call as displaying "a sense of purpose, in that it was a clear enough result to see that there could be a government that wants to stay in the euro and that is prepared to take the measures necessary to go with that.

"There was also a sense that this is a long, hard road that has got to be travelled. And there was a sense of urgency: right, we have had the election, now we need the government. That's where the questions need to go today."

Cameron would like to see some kind of banking union in the eurozone and the emergence of a system of transfer of resources within the euro area, possibly through euro bonds.

His aides say they expect further pressure to be put on Angela Merkel at the G20 summit, just as it was put on the German chancellor at the G8 summit in Washington last month. British officials stressed it had to be "constructive pressure".

Cameron is acutely aware that Merkel wants expectations lowered and that too many European politicians do the opposite at summits, leading to subsequent disappointment in the markets.

Barack Obama was meeting Merkel at the G20 summit separately, to seek an update on German thinking. The US president is also due to meet the key eurozone players – France, Germany, Italy and Spain. This quartet will meet in Italy on Friday ahead of a European council meeting next week.

Patrick Wintour

Greek elections: Antonis Samaras faces tough task to forge unity

The faultlines are so deep that even if a government is formed, many believe it will be a miracle if it survives for long

The morning after the night of Greece's make or break election was surprising only because it was so calm. The banks were open and doing a brisk business. The cafes were full; the roads were protest free.

After weeks of being bombarded by talk of Drachmageddon and the perils her country would face if it had elected radical leftists playing with its eurozone future, Fotini Stamatopoulou woke up heaving a sigh of relief. "I was tremendously happy," said the 30-something aesthetician, "that in the end the left didn't get in because who knows what could have happened? But now I want to see action. I want to see a government formed."

On Monday that task fell to Antonis Samaras, the conservative New Democracy leader whose party narrowly beat the radical left coalition Syriza in a poll that had the world on tenterhooks.

Although the election produced no outright winner, New Democracy captured 29.7% of the vote enabling it to control 129 seats in Athens's 300-seat House. But for Samaras the hard work has only just begun.

After years of reputedly craving the job of prime minister, the ambitious politician faces the Herculean labour of forging a government of "national salvation" at a time of unprecedented crisis.

Not since the collapse of military rule has the country come so close to resembling a failed state. Following almost three months of political paralysis - in the runup and wake of an inconclusive poll in May – Greece's public finances are in tatters, its public administration is in disarray, and its austerity-weary people are broken and beaten down. It has now been left to Samaras to pick up the pieces.

Greeks are acutely aware of how close they have come to the brink. Dependent on loans to prop-up their debt choked economy many also know that time is running out with patience running thin among lenders at the EU and IMF.

"We will remember this as a very dark period. This may be our very last chance," said Vasillis Isporas, a chef who at 28 enthuses at the fact that he has work at all. "We created a system that was totally out of control, a state that had become a big fat cow which everyone wanted to exploit, a political set up that was just plain corrupt."

Isporas voted for Syriza not because he liked its programme or even Alexis Tsipras, its young firebrand leader. "For most of my life I have voted conservative," he says. "But this time, my girlfriend and I voted for the left because we wanted to send a message. We wanted to give the right a lesson. We wanted to say clean up your act."

Sunday's election will be remembered as the ballot that was determined by fear and hope, desperation and rage. Politicians, pollsters and pundits were convinced the conservatives clinched victory not because traditional voters had returned to the fold after the party's defeat in May but because Greeks abandoned traditional allegiances to support a party seen as the best guarantor of keeping their country in the eurozone. Faced with the prospect of Athens being ejected from the shared currency, a large slice of the electorate cast their ballots not with their hearts but with their minds.

"Frankly just the thought of voting for a party that is so responsible for the mess we are in made me retch," said Hara Econopoulou, who at 58 has only ever voted for the socialist Pasok. "But we couldn't go on like this without a government. It was essential that the leading "pro-European" party came first. I came out [of the polling booth] saying may God not cut off my hand!"

A majority of Greeks may identify their future with EU membership – widely credited for the dramatic improvement in lifestyles over the past 30 years – but at least 50% also vehemently oppose the EU- and IMF-dictated austerity that has turned their country into a poverty house.

Syriza's rise in less than two months from outcast to main opposition party has many thinking it is only a matter of time before the far-left group of Marxists, Maoists, ex Euro-communists and socialists comes from behind to snatch power.

The mood among party officials since the election has been one of euphoria and jubilation. "This is only a temporary state of affairs," said Panaghiotis Lafazanis, a senior Syriza cadre. "These barbaric measures cannot continue. Very soon everything will change," he said, intimating that by the end of the year elections will be held again.

After receiving a mandate from the country's head of state to form a government, the Harvard-educated Samaras said he would attempt to create a broad-based coalition that could "re-negotiate" the onerous terms of Greece's latest €130bn loan agreement. "It should have as many parties as possible," he said.

Late on Monday the leader announced he had agreed with the head of Pasok, Evangelos Venizelos, to build a coalition within the three-day period that the mandate foresees.

Once bitter political rivals, the socialists, who came in with 12.3% of the vote, say the creation of a government of "national co-responsibility" is vital if Greece is to be successfully steered through the crisis, its worst in modern times. Combined, the two parties would control a comfortable majority of 162 seats in the Greek parliament.

But acutely aware that without the swing vote New Democracy may not have emerged the victor, cadres said it was essential that the small Democratic Left party was also included. Many insisted that the new administration should not only be determined to enact long overdue reforms but also be seen as the harbinger of a "new era" that could mend the broken trust of Greeks in their own political establishment.

"Fixing that bond is very important. We should form a government with the best people, both in and out of active politics," said the New Democracy MP Kyriakos Mitsotakis, a senior party member. "We are aware that a lot of people voted for us with suspicion because they wanted to keep Syriza out."

But faultlines in Greek society are so deep that even if a government is formed many believe it will be a miracle if it survives for long. To secure further rescue loans Athens has agreed to pass an extra €12bn in budget cuts, measures that are seen as vital if its moribund economy is to reclaim competitiveness. And on Monday creditors lead by Germany appeared in little mood to relent. The fiscal adjustment program might be relaxed but "only marginally," several officials said.

Some 2,500 Greeks have taken their own lives since the outbreak of the debt crisis. Their coffins would run 5km long if put in a line.

"Greek society simply cannot endure any more measures," insisted Mitsotakis. "It's not a question of what party is in office, it is a fact."

Helena Smith

New Clash Over Greek Rescue Looms

Greece appears headed for a new clash with Germany as the winners of Sunday's election prepare to ask Europe for more time to cut spending.

New Greek Rescue Clash With Germany Looms

New York Times

New Greek Rescue Clash With Germany Looms
Wall Street Journal
Greece appears headed for a new clash with Germany over its rigid bailout program as the winners of Sunday's Greek election prepare to ask Europe for more ...
Greek leaders close to coalition, aim to ease bailoutReuters
After Greek Vote, Europe Still Has a Host of ProblemsNew York Times
Winning Greek party seeks coalition partners, gets early snubsLos Angeles Times
CNN -Salt Lake Tribune -Fox News
all 11,290 news articles »

Greek government talks enter second day

Greece awaits a new government with bated breath. The conservatives have three days to hammer out an agreement with partners to form a coalition government. The clock is ticking, but the leaders are confident of success.

'Grexit' Looking Less Likely; Now, On To The Next Crisis

As the risk of Greece leaving the euro recedes, investor focus shifts to Spain, where bond yields are soaring to record levels.

Monday, June 18, 2012

G20 summit: Barroso blames eurozone crisis on US banks

EC president says European leaders have not come to Mexico to receive lessons on how to handle the economy

The opening day of the G20 summit was threatening to deteriorate into a fractious row between eurozone countries and other non-European members of the G20, notably the US, as EU commission president José Manuel Barroso insisted the origins of the eurozone crisis lay in the unorthodox policies of American capitalism.

As Europe's leaders came under intense pressure to act decisively to cure the euro's ills, and a campaign gathered pace to relax some of the austerity programmes laying waste to countries burdened with unsustainable debt levels, Barroso insisted that Europe had not come to the G20 summit in Mexico to receive lessons on how to handle the economy.

When asked by a Canadian journalist "why should North Americans risk their assets to help Europe?" he replied: "Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy.

"By the way this crisis was not originated in Europe … seeing as you mention North America, this crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market."

After the Greek election at the weekend, which may have shifted the terms of the debate over how to shore up the euro, world leaders meeting in Mexico focused on the European crisis amid strong signs of big trouble brewing in Spain.

Madrid's 10-year cost of borrowing went through the 7% barrier on the bond markets for the first time in the single currency era, the level at which borrowing becomes unaffordable. The Spanish government demanded intervention from the European Central Bank.

Spain's prime minister, Mariano Rajoy, is expected to ask for up to €100bn in eurozone bailout funds for Spain's stricken banks at a meeting of eurozone finance ministers in Luxembourg on Thursday, senior Eurogroup sources said. Voicing exasperation with the European response to the debt crisis, Robert Zoellick, the outgoing American head of the World Bank, warned the G20 summit in Mexico of a growing rift between the Europeans in charge of the bailouts and the IMF.

"The world's waiting for the Europeans to say what they want to do," said Zoellick. He predicted a showdown between the IMF and Europe by the end of the summer in the absence of any decisive action.

Barack Obama was expected to press Germany's chancellor, Angela Merkel, in Mexico on Monday night on the issue of eurobonds – the pooling of liability for single currency countries' debt. But there is no chance of Merkel agreeing to underwrite the debt of other European countries for the foreseeable future.

Fresh from his victory in the Greek election, the centre-right leader, Antonis Samaras, promptly tabled demands for a softening of the draconian austerity programme that Greece has to implement for the eurozone bailout.

Samaras, the prime minister-designate pledged to stick broadly to the Greek bailout terms but added: "We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships."

Politicians and officials in Brussels and Germany appeared to suggest that the new Greek leader's demands could be at least partly satisfied by extending the repayment schedule on the bailout loans or lengthening the target deadlines for cutting the budget deficit.

There were also reports that the terms underpinning Ireland's bailout could also be relaxed, giving Dublin a much longer repayment schedule on the loans. The talk of rescheduling the Greek bailout terms surfaced quickly on Sunday night, with the German foreign minister, Guido Westerwelle, suggesting the Europeans could alter the timings. That triggered a row in Germany among the political class over the pros and cons of going easier on Greece.

In Brussels, the respected Bruegel thinktank said: "It is now increasingly clear that the [Greek] programme is severely off track. The [Samaras] victory doesn't change this fact and it has become unavoidable to open a discussion about the shape and form of a new Greek programme. This is a fact now broadly acknowledged by policymakers and in particular by German officials who have openly discussed the possibility of stretching fiscal targets."

Martin Schulz, the German social democrat who presides over the European parliament, added: "The new Greek government will be able to count on our constructive cooperation in possible fine-tuning of its reform strategy and economic targets. If Greece sticks to its commitments, the EU can examine what could be done further to solve the crisis."

From Mexico, however, Merkel appeared to dismiss any easing of the Greek conditions. "The new Greek government has to implement the commitments entered into by the country. The programme framework has to be kept."

The eurogroup source said that Samaras was expected to show up in Luxembourg on Thursday for the meeting of eurozone finance ministers which will grapple with Spain and how to respond to the Greek election results.

José Manuel Barroso