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Friday, February 17, 2012

The Greek Crisis: Five Key Developments

The decision on the second Greek bailout has been put on ice until (at least) next Monday, but things are moving fast in and around Greece these days - so here are yesterday's five key developments in the Greek crisis:
  • A new poll published by Greek magazine Epikaira confirmed that the Greek electorate is moving towards the extremes of the political spectrum. New Democracy - the centre-right party led by Antonis Samaras - is credited with 27.5% of votes, while former Greek Prime Minister George Papandreou's PASOK lags well behind with 11%. In total, the two 'mainstream' parties would therefore get 38.5% of votes. The Greek Communist Party, Democratic Left and the Radical Left Coalition (SYRIZA) are credited with a combined 43.5% of votes, but the first has ruled out entering a coalition with the other two hard-left parties. These results are clearly very significant, not least because they will give Germany, Finland and the Netherlands fresh impetus to argue that Greece's smaller parties should also provide written commitments to austerity. Unfortunately, as we point out in our latest briefing, at the moment it's quite hard to see any of these parties agreeing to such a request;
  • PASOK's Michalis Chrysochoidis, Greek Minister for growth and competitiveness (definitely an unenviable post), told reporters in Frankfurt that his party is "in favour of an extension of the life of [Greek Prime Minister Lucas] Papademos’s government...Elections should take place by the end of the constitutional term in 2013." Incidentally, Germany, Finland and the Netherlands reportedly brought up the possibility of postponing the Greek elections during Wednesday's conference call of eurozone finance ministers;
  • Greek President Carolos Papoulias' anti-Schäuble invective didn't go unnoticed in Germany. CDU MP Christian von Stetten yesterday said that, without the German Finance Minister, Greece would already have been bankrupt a long time ago. The Greek President's intervention, he went on, was "unthinkable" and "absurd". Most significantly, Mr von Stetten said that Papoulias' words would "certainly impact" on the Bundestag vote on whether to approve the second Greek bailout, due on 27 February;
  • According to Die Welt, the ECB has started the announced swap of its €50 billion Greek government bond holdings for new Greek bonds. The ECB is swapping the bonds at their nominal value, meaning that it is making profits out of them. These profits will then be distributed via national central banks to eurozone governments, which will have to decide whether they want to return the money to Greece as part of the second Greek bailout. The swap will be reportedly completed by 20 February. We will expand on this specific point later;
  • Separately, Schäuble is also said to have rejected the idea of providing Greece with a bridge loan to avoid the country defaulting on 20 March - when Greece needs to redeem €14.5 billion worth of its debt - and uphold the rest of the second Greek bailout until after the elections as a means to maintain pressure on Athens.
Lots of stuff going on, and not all is necessarily good news. As usual, if you want to stay on top of the eurozone crisis, we recommend that you check out the €uro-Zone section of our new website and keep following us on Twitter @OpenEurope.


Denis Cooper said...

It's questionable why any private investor should want to get involved with bonds issued by the government of any eurozone country, when the eurozone central bank is apparently free to:

a) Create a false market by buying up the bonds issued by a eurozone government, and then when it goes wrong

b) Contrive to dump its own losses on other bondholders, the private investors in those bonds.

Obviously this applies especially to bonds issued by the governments of eurozone states which are presently in financial difficulties, which are most likely to result in losses in the near future.

But it must also call into question the moral integrity, and therefore the reliability as counter-parties, of all eurozone governments including that of Germany.

And how does any of this square with the EU's supposed commitment to an open market economy with free competition, as expressed for example in Article 120 TFEU:

"... The Member States and the Union shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources ..."

and at numerous points elsewhere in the EU treaties?

Rik said...

@Denis Cooper
1. Probably the ECB rather has a problem a few years from now than one at this moment.
2. But fully agree. This makes investing in not AAA EZ bonds even more unattractive as it already is.
-Bankruptcies are deferred usually in a way that reduces assets/repayment-potential for private investors.
-Changing the rules during the game. Like here.
-market manipulation (massive bond buying and Sarko trade).
3. Imho this will mean that it will take years before the PIIGS can stand on their own legs again. And make interference (or a restructuring) necessary for many years to come. All at the expense of mainly the northern tax-payer.

Anonymous said...

By knowing what happened in indebted Greece, where loan sharks created
“bubbles” and the current inhuman debt, one can understand the inhuman
plan in total ...understand where this plan started just to bring all
states at the same end ...understand how this type of plans are
Global Debt Crisis

The greatest private fraud of human history.

Who are the great fraudsters who are becoming the murderers of the human kind?

How does the economy "illness" threaten Democracy and the freedom of people?