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Jan 30, 2010

Pressure on Greece to 'solve its own problems": May 15 deadline for Greece to impose reforms

UK Times Online mentions that the pressure between the EU and Greek officials is getting higher. With an imposed deadline of May 15, and the leaking of documents to demonstrate that EU officials are pushing for bigger cuts than the Prime Minister Papandreou was hoping to have to make:

" European officials will this week set the Greek government a four-month deadline to impose a stringent regime of budget cuts and financial reforms.

Leaked documents have revealed Brussels will publish a plan for Greece this week, under the headline “Urgent measures to be taken by May 15, 2010”.

The package includes demands to “cut average nominal wages, including in central government, local governments, state agencies and other public institutions”. It also suggests new taxes on luxury goods and proposals to speed up tax payments by the self-employed.

Greece has been under pressure from international investors over fears it will default on its debts, precipitating an unprecedented strain on the euro. Fears of a Greek debt default have spread concerns that other EU countries could face problems — including Ireland, Spain, Portugal or Italy.
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Richer eurozone countries such as Germany and France would be expected to bail out Greece in the worst-case scenario, to prevent a disastrous crash in the value of the single currency.

Officials in both countries have been attempting to play down such speculation, heaping further pressure on Greece to resolve its problems itself."

The last week bond plunge had Papandreou declaring it a covert attack by unnamed parties on Greece and the EU in general:

"The Greek Prime Minister accused speculators of targeting the country as a “weak link” in the euro yesterday, as the value of Greek bonds plunged on financial markets. The risk premium on the yield of Greek government debt rose to a new record of 4.05 per cent above the yield on the benchmark German bund.

Speaking at the World Economic Forum in Davos, George Papandreou said: “This is an attack on the eurozone by certain other interests, political or financial, and often countries are being used as the weak link, if you like, of the eurozone.”

Kathimerini is saying Papandreou is coming down to having one last chance:

"Papandreou has one last chance for decisive action. In this, he will have the backing of the conservative opposition and a significant section of the voting public, which is prepared to make the necessary sacrifices for the sake of the country."

Recession "uncovering Greek economic cracks"

Jane Foley at Reuters Uk "Great Debate" flips over a few rocks looking at the dilemma facing Greece as the economic and budget crisis gets closer to reaching a climax. "Bailout" has been proffered in many places as Greece's 'get out of jail (almost) free' card, in fact Foley says that "German and French pride" virtually requires that.

Is the alternative that Greece will leave the euro behind and then devalue a reborn drachma?

"What makes Greece different is that it is highly questionable as to whether the electorate have the stamina to suffer reform. The farmers have this month been blockading roads; the risk of rising social discontent is high.

Worsening the hand of the Greek government is the fact that tax avoidance is high. If yields continue to rise, Greece may begin to see appeal in the re-establishment of a very weak drachma. It is exactly this risk that will force the authorities within Germany and France to work out a bail-out for Greece.

If it was just down to economics than the lack of budgetary rigour would probably have kept Greece out of EMU in the first place. The fact is that EMU was always more about politics than economics and it is this reason which will force the grandfathers of EMU to protect their system and bail out Greece.

They will of course make Greece squirm first; lessons have to be learnt and pledges have to be made. Greece may be given certain goals which will have to be achieved before rewards are made. But the fact is that if Greece exits EMU, the whole system could topple. German and French pride is not about to allow this to happen. "

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