Another deadline has been passed for Greece. Coalition parties will try again on Wednesday to strike a reform deal in return for a new loan package. One party official blamed Tuesday’s delay on missing documents. The heads of the conservative New Democracy, PASOK and LAOS had yet to receive the draft agreement with the EU and IMF only half an hour before they were supposed to meet Papademos on Tuesday, he was quoted by Reuters.
Papademos was locked in talks with troika officials late on Tuesday night. Kathimerini reports that one of the stumbling blocks that emerged on Tuesday was the troika’s new demands for cuts to basic pensions, which start at €360 per month, as well as supplementary ones. Sources said that Papandreou appeared to accept most of the terms of the agreement that he had been informed about at that point but that the option of further cuts to basic state pensions should be rejected. New Democracy wanted to guarantee that supplementary pensions would not drop below €300 but now have to agree to a cut in basic pensions. Though here seem to be support for a 20% reduction in the minimum wage but only for new hires.
If the party leaders agree on Wednesday, the troika officials are likely to hold talks with each of them individually. The new loan agreement would be submitted to Parliament on Friday and voted on two days later.
Threatening Greek exit
Massive protests in Greece against austerity with Greek resentment increasingly directed at Germany. Striking protesters burned a German and Nazi flag in central Athens on Tuesday. Angela Merkel tried to calm the atmosphere, saying that forcing Greece to abandon the euro would have “unforeseeable consequences”. Reuters quotes her saying: “I will have no part in forcing Greece out of the euro,” in response to a question from a Greek student at a meeting with young people in a Berlin museum.
Dutch Prime Minister Mark Rutte, helpful as ever, said the euro zone could live without Greece if it didn’t keep its side of the bargain.
Commission consensus about Greece’s EMU membership falls apart
The consensus in the Commission that Greece must remain part of EMU at all costs seems to fall apart, Süddeutsche Zeitung reports. The paper points to remarks by Commission vice president Neelie Kroes who had told the Dutch newspaper Volkskrant on Tuesday that a Greek exit from the eurozone was manageable. It is „simply not true“ that the currency union would break up as a result of Greek exit, Kroes said. „It is absolutely not the end of the world if someone gets out“, she stressed. Also the Greek commissioner Maria Damanaki confirmed that an exit had become a possible scenario for her country. The idea had been discussed for a year, „but now a potential scenario has become a real alternative that is openly tested“ although it is not yet „the preferred option“, she told the Greek newspaper To Vima. A Commission spokesman stressed that the Commission continued to wish that Greece stayed in the EMU. Also Angela Merkel repeated yesterday that Greece should stay because an exit would have „uncalculable consequences“.
Schäuble starts salami tactics on second Greek rescue package
According to Financial Times Deutschland, Wolfgang Schäuble now wants the Bundestag to vote only on a fraction of €30bn out of the total cost of the second Greek rescue package of €130bn. He is supported by the finance ministers of the Netherlands and Finland who met as part of the secret meeting AAA-rated ministers. The reason for this unexpected move is that the coalition has reason to fear that the general exasperation about the lack of progress in Greece made it uncertain that it would be unable to get the necessary parliamentary for the whole package. Also the coalition wants to keep up maximum pressure on Greece. In Brussels the Berlin, the move was greeted with surprise and irritation, the paper reports.
Democratic left party on the rise in Greece
A poll carried out for Skai showed the conservative New Democracy to lead with 31%, consolidating its growing popularity, while PASOK remains fifth place with 8%, according to Kathimerini. The Communist Party (KKE) and the Coalition of the Radical Left (SYRIZA) are holding firm at 12.5% and 12% respectively. But the Democratic Left has surged in popularity, garnering 18% of the public vote, up 4.5% since last month. All together, the left parties got 42.5%, but as KKE has ruled out cooperating with other parties, the figure is misleading.
Seven countries support the Franco-German push for a transaction tax
According to Les Echos seven EU countries support the Franco-German push for a rapid implementation of the financial transaction tax. In a statement last night the French finance minister Francois Baroin said support came from Italy, Portugal, Greece, Austria, Spain, Belgium and Finland.
IG Metall asks for a 6.5% pay rise
The board of the powerful German metal worker’s union IG Metall advised its seven negotiating districts to ask for a pay rise of „up to 6.5%“, Frankfurter Allgemeine Zeitung reports. IG Metall boss Berthold Huber said the economy had been remarkable in 2011 and that the industry was looking forward to a solid development. The employer’s federation Gesamtmetall said the demands were exaggerated and offered a maximum of 3.0%. An additional sticking point in the negotiations will be IG Metall’s demand that temporary workers should enjoy equal pay with permanent workers after a certain time in a company. Negotiations will start March 6. IG Metall is the biggest union in Germany and represents 3.6m workers.
Budget commissioner warns of €11bn whole in the EU budget
Talking to Financial Times Deutschland budget commissioner Janusz Lewandowski warned that the EU budget is likely to face a shortfall of €11bn. The reason is an increase in demand for structural funds. For the moment the commission was able to pay out. „But probably by the end of this year there will be gap and I will have to ask for additional financing“, Lewandowski warned. The problem is exacerbated by the fact that structural aid payments start slowly and rise towards the end of the EU budget period that is now approaching. The paper points out that the shortfall also illustrates the contradiction between the EU government’s decisions to increase the use of structural funds to combat the crisis while at the same time ask the governments ask for cuts in the EZ budget.
Benoit Coeure says China’s idle money should be “mobilised” to help the eurozone
In his first speech since ascending to the ECB’s executive board, Benoit Coeure said China and other newly industrialised countries with high levels of reserves, should put this idle money to good use, and<s> give it to the eurozone</s> support the global financial system, according to Reuters. He said these countries held $2.1 trillion in US treasuries, and had total reserves of $6.5 trillion, levels that are not justified for precautionary motives. He said the unused resources needed to be “mobilised” by reinforcing the IMF. “The IMF could borrow global excess reserves and use them to support programme countries that are suffering from liquidity shortages, under strict conditionality.”
German press cautiously applauds Draghi’s pragmatism after his first 100 days at the ECB
In reviews of Mario Draghi’s first 100 days at the ECB, Financial Times Deutschland, Handelsblatt and Süddeutsche Zeitung cautiously applaud the central bank president’s pragmatism and leadership qualities. FTD, however, warns that first cracks in the relatonship between Draghi and the Bundesbank are beginning to show. Jens Weidmann and a few other central bank governors were clearly irritated that Draghi had pushed ahead with an interest rate cut on December 8 without prior consultation and against their wishes. Also, the Bundesbank thinks that the 3 year LTRO’s announced that day where too generous and that banks should have been asked a supplement to the policy rate of 1.0% for the ECB liquidity. Weidmann last week for the first time went public with his criticism when he warned that too much generosity in the liquidity measures created stability risks. In a comment for Frankfurter Allgemeine Zeitung, Stefan Ruhkamp warns that the Eurosystem is taking on too much risk in its easing of the collateral framework and in allowing credit claims of doubtful quality to be used as collateral.
The pain of Spain
The FT and Reuters Breakingviews had editorials on Spain’s adjustment. The FT applauds the new Spanish government’s determination to force the banks to take losses, but criticised that austerity is going to make that process more difficult. Total mortgage assets in the Spanish banking system are about €360bn, of which half is considered troubled. The Spanish government has told the banks to write off €50bn this year, which is a good start for a long overdue deleveraging of the private sector. The comment says that due to Madrid’s fiscal masochism, the tasks of deleveraging is made unnecessarily more difficult, as the ensuing recession increases the size of troubled bank assets, as personal loans and corporate loans will also have to be increasingly written off. Breakingviews called on Spain to take it easy with fiscal adjustment, and not try too hard to meet the deficit target of 4.4% for this year.
(We agree, but would go further, and call on Madrid to increase the fiscal deficit for as long as the deleveraging in the private sector takes place. The Spanish economy is otherwise likely to fall into a prolonged slump, with consequences similar to Greece. Due to the toxic interaction between private and public sector debt, we are much more concerned about Spain than Italy, which merely faces a high level of state debt.)
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