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August 22, 2011

Finance Minister Evangelos Venizelos appeals to EU leaders to mediate deal with Finland

Many are worried about complications stopping the next €8 billion tranche payment scheduled to be paid to Greece next month, though Venizelos has stated the money will be provided regardless. With claims of dissension growing among some of the eurozone member countries over the special collateral deal Finland has required for its participation in further loans to Greece, it is expected that Germany will have the final say in creating a guarantee on the money flowing to Athens.

Wall Street Journal on the dilemma facing Athens, Berling and Helsinki:

"The letter was sent to Eurogroup Chairman Jean-Claude Juncker, European Monetary Affairs Commissioner Olli Rehn and European Central Bank President Jean-Claude Trichet.

It comes after the governments of Austria, the Netherlands, Slovakia, Slovenia and Estonia all expressed criticism of the deal.

Under its terms, Greece will deposit about EUR500 million in an escrow account with the Finnish state, as a precondition for Finland to release funds to the European Financial Stability Facility, Europe's temporary bailout fund, which is being used to finance fresh aid for Greece.

Last month, European leaders agreed on a fresh EUR109 billion assistance package for Greece, as well as a series of other measures aimed at stopping the Greek debt crisis from spreading to other euro-zone countries.

Finland had previously demanded collateral from Greece as a precondition for contributing to the bailout fund. During the July 21 Summit, European leaders directed Greece and Finland to work out a bilateral agreement to assuage Finnish concerns. "

August 21, 2011

Bank run prompts government action; eve of €10 billion withdrawal looms for major banks as Papandreou government prepares to make bond maturity payments

Proton Bank is facing liquidity collapse and the Greek government is capitalizing the wavering institution by backing a €50 million bond loan from four other Greek banks (National Bank of Greece, Alpha Bank, EFG Eurobank, and Piraeus Bank), and by an injection of €100 million directly, which is technically illegal under Greek law, a move that has prompted a rush of criticism at Greek finance minister Evangelos Venizelos.

"Greek banks no longer have sufficient high-quality collateral to seek funding from the European Central Bank after recent sovereign downgrades. But they are eligible for liquidity allocated by the Bank of Greece in agreement with the Frankfurt-based ECB and are expected to seek it this week.

All four big lenders – National Bank of Greece, Alpha Bank, EFG Eurobank and Piraeus Bank – face a looming liquidity crunch as about €10bn of government deposits are set to be withdrawn from local banks to pay off debt maturing in the next few weeks. "

Quotes (above) from Financial TImes article by Kerin Hope.

Fourth year of recession ahead, analysts begin to warn

Despite official predictions about an end to the economic downturn in Greece and finally a long expected growth trend, none of this is seen as coming to pass and instead new analysis is indicating another 2% contraction in 2012. The implication is that even further austerity may be pressed onto the Papandreou program and payments on the existing IMF/ECB/eurozone loans could be in jeopardy.

This is happening while German Chancellor Angela Merkel and French President Nicolas Sarkozy are proposing a 'eurozone financial economic government' to run the financial fortunes of the 17-member eurozone. The dilemma for the European Union is the collapsed fortunes of several member states, and the slowing, or nearly stand-still growth of the major European economies (such as Germany, France, Italy). With many EU banks hanging over an abyss of bad balance sheets and rough forecasts, this is seen as a bid to rescue failing institutions by forcing healthier bodies to essentially join in a coordinated rescue and austerity program.

August 12, 2011

Greece in "deep recession" GDP contraction of 6.9%

The country's statistics agency said the economy contracted by 6.9 percent in the second quarter of 2011 compared to the same period last year, down on the 8.1 percent recorded in the first quarter.

Unemployment moves up to 16.6%

Elstat has presented new statistical information:

Consumer price index July 2010-2011 2.4%
Harmonized Index Consumer Prices July 2010-2011 2.1%
Gross Domestic Product (GDP) 2nd Quarter 2011 -6.9%
Unemployment rate May 2011 16.6%
Industrial Production (non-construction) June 2010-2011 --13.1%
Turnover Retail Trade May 2010-May 2011 -8.8%
Producer Price Index Industry May 2010-2011 6.6%
Building (volume) April 2010-April 2011 -32.3%
Population count 2001 10,964,020  
(2008 Eurostat Estimate Population) 11,262,000  

See previous stats on the Greek Inflation page

August 10, 2011

Plan to extend bond swaps to 2024

In an effort to achieve a goal of €135 billion rollover, a plan put together by the Papandreou government (with assistance from the EU and the Washignton DC Institute of International Finance) is looking to gain private investor participation of an estimated 90% og bond holders. The plan goes four years beyond the original 2020 deadline for bond-swaps that came out of the July EU/IMF/ECB deal in July.

If the plan succeeds in being implemented, it will give Greece breathing space through 2024 by exchanging a mass of bonds for new ones worth less than the original values. Though certain to trigger a default rating from the credit rating agencies, so far this appears to be an agrred upon maneuver that should shortly thereafter allow Greece to be moved higher than the presently "junk level" of Ca.

Will the EU collapse?

With the American credit rating drop a few days ago, and the Italian crisis becoming sharper, speculation on a complete unraveling of the eurozone is becoming more common on the pages of the big newspapers of the world. For example Robert Samuelson at the Washington Post:

"This is the monster now stalking Europe. Last week, rates on 10-year Italian and Spanish bonds exceeded 6 percent, roughly four percentage points above rates on 10-year German bonds. Meanwhile, the outlook for economic growth is deteriorating without offsetting gains in the rest of the world that might boost Europe’s exports.

So Europe now faces a crisis that is at once financial, economic, diplomatic, political and social. The vaunted “European model” of generous welfare benefits is steadily reneging on its promises. Naturally, this is highly unpopular. Strains among countries are worsening as all seek to shift blame and costs to others.

Can Europe save itself? If not, will anyone? One suggestion is a common bond that would allow weak countries to share Germany’s credit rating; but this would have Germany guarantee other countries’ debts — a role Germans are likely to reject. There seem to be three other possibilities.

First, the European Central Bank — Europe’s Federal Reserve — tries to stabilize financial markets by buying the bonds of besieged debtor nations.

...Second, the International Monetary Fund organizes a global rescue package worth trillions of euros. Europe’s debtor nations could borrow at low rates with long maturities.

...Third, some European nations could negotiate write-downs on their debts or default on them. Superficially, this seems a solution. But it would create other problems. Defaults would inflict huge losses on banks, insurance companies and pensions. Many European banks might collapse unless rescued. "

August 2, 2011

Greece could leave eurozone "tackle problems" then return

An interview with Pacific Investment Management Company CEO Mohamed El-Erian at Barrons covered a variety of topics (such as whether the United States debt problem was bringing it toward the same situation as Greece). Mohamed El-Erian remarked that:

"Greece could be allowed to temporarily leave the euro zone, El-Erian suggested. The country would then need to tackle its debt, growth and competitiveness problems before it could rejoin the currency union, El-Erian said."

Greece in the midst of "silent bank run"

Despite the urging of new Greek finance minister Evangelos Venizelos for Greeks to bring back their money from offshore banks, money continues to vanish from the Greek banking system, with a count of €4.4 billion withdrawn in May 2011 alone. €21 billion was promised as a 'recapitalization' fund for Greek banks during the last round of bailout planning with the eurozone/ECB/IMF, which may be the only thing keeping doors open for banks as it is usually being stated that funds being withdrawn are actually coming from the European Central Bank, with actual Greek depositor funds long since gone (Greek banks hold some €48.4 billion of Greek national debt.)

"Greece could be allowed to temporarily leave the euro zone, El-Erian suggested. The country would then need to tackle its debt, growth and competitiveness problems before it could rejoin the currency union, El-Erian said."

Further reading:
UK Guardian "Greece in panic as it faces change of Homeric proportions" by Aditya Chakrabortty

"...The clerk leans over: "I've been working in a bank for 31 years, and I've never seen a panic like this."

Official figures back him up. In May alone, almost €5bn (£4.4bn) was pulled out of Greek deposits, as part of what analysts describe as a "silent bank run". This version is also disorderly and jittery, just not as obvious. Customers do not form long queues outside branches, they simply squirrel out as much as they can. Some of that money will have been used to pay debts or supplement incomes, of course, but bankers put the sheer volume of withdrawals down to a general fear about the outlook for Greece...."

The Euro is "structurally doomed"

An interview ("Europe at brink of a major financial crisis") at CNBC on Aug 2 had Scott Minerd, CIO of the fixed-income firm Guggenheim Partners, saying:

"They keep throwing more and more liquidity at it thinking it's going to get better and it's not," he added. Europe fails to recognize that it has a "structural problem, not a liquidity problem."

People will "flee the euro" unless they find a way to bifurcate the euro in some way where strong countries are in the euro only and the weak countries are out, Minerd explained, adding, "To be honest with you, I don't see the mechanism to do that."

Minerd goes to to say that compared with the euro, the USA debt problems are 'the least dirty shirt in the bag.'

Greek talent leaving the country

I saw this via Living in Greece, about the emigration that is apparently decimating the Greek pool of media talent (article at the UK Independent):

"...Now everybody is desperately looking for some perspective. It's not just our work that's at stake; it's our future, our lives. You have this sense of freefalling.

People are in distress. Parents are worrying they won't have any pension to support their unemployed children.

There is also a lot of discrepancy in the media. One newspaper may frame a news story in a certain way while the other publishes the opposite. Many Greeks don't understand what's going on. For the past year, almost every month, a big media outlet is firing people. If you don't lose your job, you're forced to accept salary cuts. Colleagues tell me there is exploitation.

I know personally seven people who are leaving Greece this September and 15 more who are planning to. "

Conflict between rival social groups equals government paralysis

The use of violence between competing groups to influence (or scare) government toward certain actions isn't civil war (which Greek history provides some rather daunting examples) but it does demonstrate the scale of disunion haunting the capital city. Article by Nikos Konstandarasat eKathimerini:

"How much lawlessness can a society tolerate before it falls apart? When do we cross the line where the majority can no longer accept the impunity of organized groups and take action? Unfortunately, in Greece we are in danger of testing these limits and of learning what happens when the balance between social groups is shaken. This is the balance on which civilization stands.

Such fears may seem an exaggeration in our European country, but who would have believed a few years ago that today we would be living with the consequences of economic collapse? This situation was caused chiefly by governments which did not dare stand up to the demands of organized groups."

Turkey's Military abdicates

Christopher Hitchens (who has focused on the Cypriot conflicts of Greece and Tyurkey many times, e.g., the books "Cyprus" 1984 and "Hostage to History " 1997) takes a look at the "the almost-overnight liquidation of the Ataturkist or secularist military caste" in an essay at Slate. He seems to be saying that Ataturk revolution has come to an ignoble end through international pressures and old-fashioned corruption, topped off with a rising islamic ferver in Turkey.

The issue for Greece (and in a milder way, Europe) is what sort of pressures the new situation will create with a list of long unsettled territory conflicts between Ankara and Athens dotted around the Aegean Sea.

Related reading: Strategypage web site covers the military ramifications of the change in Turkey.

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