 Greek insurrection takes shape; European response makes it worse
Panic everywhere. European shares fell, spreads rose across the board, and the euro was down below $1.30 again. The panic set in as the outside world started to comprehend the enormity of the Greek election results. The trigger was the speech by Alexis Tsipras, the young leader of the anti-austerity Syriza party that ended up in second place in Sunday’s elections. Kathimerini writes that Tsipras yesterday proposed a five point plan: immediate cancellation of the austerity programme, cancellation of the law to end collective contracts, proportional representation, nationalisation of the banks, and the formation of a committee to investigate whether Greece can pay its debts. Tsipras has three days to form a government. He spent Tuesday in talks with leftist parties but had mixed success. He is due to meet the heads of PASOK and New Democracy on Wednesday. It is expected Tsipras will be unable to reach any agreement by Thursday, leading to PASOK taking over the mandate to form a government. After that, Papoulias will call in the party leaders to try to broker a deal. If that fails, a caretaker government will be appointed and new elections called. Kathimerini writes that Tsipras is to send a letter to Jose Manuel Barroso, Herman Van Rompuy and Mario Draghi to argue that the fact that PASOK and New Democracy received just 32% of the vote means that the terms of the bailout can no longer apply. Tsipras wants PASOK and New Democracy to do the same in a letter to the IMF and the EU. This prompted Antonio Samaras to accuse Tsipras of risking Greece’s membership of the eurozone. The conservative leader said his party would be prepared to back a minority government “as long as it secures the country’s position in the eurozone and its national interest.” But, he said, the leftist leader’s statement left no doubt “that he has no intention of safeguarding Greece’s European identity and future” and revealed “unbelievable arrogance.”
Jörg Asmussen became the first eurozone official to link Greek membership of the eurozone to the reform programme. He told Handelsblatt that there was no readiness from the troika’s side to re-engage in negotiations Asked if Greece should get out of the eurozone if it does not implement the program he replied that it was up to them to decide whether they want to remain a member. According to Süddeutsche Zeitung, the troika has cancelled all meetings it had planned to hold in Athens in May in order to wait for a clarification of the political situation.
Informal summit on growth agenda Herman Van Rompuy has called EU leaders to discuss the fallout from the Greek and French elections and the increasing clamour for new measures to boost growth in Europe’s recession-struck economies at an informal meeting on May 23, according to the Irish Times. Enda Kenny said that he had urged Van Rompuy to hold a summit meeting on a growth agenda, “but there are issues that are clearly not in Ireland’s interests, including changes to corporation tax rates.” Preparations for the summit are overshadowed by the uncertain political outlook in Greece.
Bankia is threatening to become the next Northern Rock The Bankia recapitalisation is turning out to be one of the more important developing stories of the eurozone crisis. This is an affair that looks increasingly like an Iberian Northern Rock story. Following on from our briefing yesterday, in which we quoted an El Pais linking the resignation of Rato to the capital injection, it turns out that the Spanish government totally cocked up the transition. Mariano Rajoy started the avalanche with a rare radio interview he gave on Monday, in which he talked in vague terms about the need to recapitalise the banking system. Then Rato’s resignation letter came out. While Rajoy and Rato had earlier agreed on Rato’s eventual departure, this sudden shift came as a surprise. This was not supposed to happen this way. Rato must have realised he was being set up as fall guy, and wanted to pre-empt the news flow. The government attempt to micromanage the process clearly came unstuck. The result: denials everywhere, and worried retail investors, who are beginning to get out. The parallels to Northern Rock are obvious. Further delevopments: El Confidencial reports that BFA, the parent group of Bankia, and Bankia are to push forward their board meetings to today. And here is their article about the retail investors starting to panic. And finally, here is El Confidencial article about the now inevitable nationalisation of Bankia, to be announced on Friday. That articles includes the detail that Deloittes, the auditors of BFA, refused to sign off on the accounts. The original plan had been to do announce the entire package on Friday – Rato successions, the recapitalisation etc.
Asmussen tells Hollande to respect fiscal pact and to get deficit down in time In Handelsblatt interview Asmussen also said Francois Hollande would need to respect France’s obligations within the eurozone, including the ratification of the fiscal pact. “Also I expect that the new government will stand by its promise to bring the deficit below the 3% limit.” Asmussen stressed that “it must be clear to everyone that the fiscal pact that is complemented by a growth element must not be weakened in its substance”.
Merkel prepares her counter-offensive on Hollande According to Le Figaro Angela Merkel and her lieutenants are preparing a counter-offensive to Hollande’s request to re-orient the eurozone’s crisis strategy and to keep the currency union on her path of fiscal consolidation and structural reform. The chancellor’s advisor quoted by the paper said that should growth be financed by new debt it would be Germany in the end who would have to pay for socialist’s victory. “The French economy and her finances remain in a precarious state”, Peter Altmaier, one of Merkel’s closest confidents, said. “France has no room for manoeuvre”, he added warning that all increase of deficit and debt in France would at once be sanctioned by the markets.
Bild fears Germany will have to pay for Hollande’s victory Germany’s mass market daily Bild has an article enumerating a long list of Francois Hollande’s electoral presents. The story runs under the headline “The French will retire at age 60 … and we at age 67!”. It lists among other items the promise to freeze gas prizes for three months, to cut VAT back from 21.2% to 19%, to raise school subsidies for poor families by 25%, to lower the retirement age back from 62 to 60 years for certain categories and raise the minimum salary to €1398 per month. In a separate editorial comment Jän Schäfer explains Bild’s 10m daily readers that this is a “beautiful expensive dream”. Schäfer argues: “For years Europe has lived above its means and it has wasted billions of euros. Therefore it is no longer the time for presents but for painful reforms and consolidation programs. Otherwise others will have to pay the bill for France. And most probably that will be the Germans …”.
Spaniard to replace Regling at the helm of the ESM The Spanish top official Belèn Romana Garcia is likely to replace Klaus Regling at the helm of the ESM, Handelsblatt reports. Regling’s departure would be a consequence of Wolfgang Schäuble’s nomination as the new eurogroup chairman which is almost certain according to the paper. Jean-Claude Juncker’s departure from the eurogroup’s chairmanship would open the way to the nomination of Yves Mersch, currently governor of Luxemburg’s central bank, to succeed to the José Manuel González-Páramo at the ECB’s executive board. The French however may lose out in the game of musical chairs, Handelsblatt points out, since their candidate to succeed to Thomas Mirow at the EBRD is encountering resistance.
CDU candidate Northrhine-Westphalia calls state elections a referendum on Merkel’s euro policy The CDU candidate for the state elections in Northrhine-Westphalia Norbert Röttgen said next Sunday’s vote in Germany’s most populous state was a vote to strengthen Angela Merkel’s stability policy during the eurozone crisis, Frankfurter Allgemeine Zeitung reports. By transforming the election into a referendum on the chancellor’s European policy, he wants turn attention away from himself and blame the chancellor for his likely failure, Merkel and other CDU officials in Berlin think who were surprised and angry by Röttgen’s strategy. The current environment minister who was once considered to be very close to Merkel claims his strategy was agreed with the party at a recent meeting but other participants denied this was the case. Röttgen is expected to lose to the outgoing SPD state prime minister Hannelore Kraft.
Treason! Much of the crisis commentary is about narratives. The German narrative is well known to our readers here. A quite shocking example, even to us, has been a commentary in this morning’s Welt in which the author argues that the SPD’s repositioning on the fiscal pact – falling in line with Francois Hollande – was bordering on treason (“Vaterlandsverat”). The argument, by a Dorothea Siems, is the usual one: a growth pact would cost so much money that Germany (!) would be crippled under its debt burden. We were intrigued by the word “treason” because the author clearly portrays this as a fight between French and German interests, and see the SPD trying to align itself with the enemy. (Die Welt is an awful newspaper in general, which is why we have not included it in our press review, but it is now qualifying to make it into our rogue’s gallery, along with Bild.)
What Hollande must tell Merkel Back on earth again, this is a good column by Martin Wolf in which he outlines what Hollande has to say to Merkel. First, he must forget his domestic promises. No one will take him seriously if he does not. Second, he must embark on a serious discussion on endgame scenarios, which including five components: symmetrical adjustment, permanent transfers; external surplus for the eurozone; semi-permanent depression; total break-up. Of those five, the only sensible course is number one. Wolf concludes that the chances that Hollande can deliver are small. But he is the only chance the eurozone has got.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois Getting significantly worse for Italy and Spain (but not France!); euro again below $1.30.
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