Post by L0gjICK on Jan 29, 2010 9:00:34 GMT -5
France, Germany and other European countries have begun discussing privately how they can come to the aid of fellow euro-zone member Greece, as doubts intensify over the country’s ability to get its budget under control.
Despite public attempts to discourage such expectations, discussions are under way, although the shape or scale of a possible bailout package has yet to be determined, according to officials in several capitals, all speaking on condition of anonymity.
“Greece failing is not an option and lots of people think that we will have to intervene at some stage,” said a euro-zone finance official, who was not permitted to speak publicly because of the sensitivity of the matter. “It doesn’t have to happen, and we hope it won’t, but it would be better than seeing a default.”
As a condition of any aid package, the Greek government led by Prime Minister George Papandreou, a Socialist, would be asked to provide a more detailed program to bring the country’s deficit of 12.7 percent of gross domestic product under control. European Union rules call for a maximum of 3 percent of G.D.P. Officials insist that any bailout must not put into doubt the credibility of the euro itself.
Greece’s budget crisis poses a big new test for the common currency and has even led to speculation that the country might be forced out of the euro zone, a suggestion that has been dismissed in Athens and other capitals.
The latest moves reflect a continuing skepticism among euro-zone members over the practicality of the plans put forward so far by the Greek government. It wants to reduce the deficit to 3 percent of G.D.P. by 2012, an objective described as unrealistic by one European diplomat, speaking on condition of anonymity. These plans are to be assessed by the European Commission early next month. A commission spokeswoman, Amelia Torres, declined Thursday to comment.
Greece’s deficit is four times the E.U.’s limit, while the country’s debt amounts to 113 percent of G.D.P. But officials insist that, because Greece is not one of the euro-zone’s larger economies, the problems created by its dire public finances can be absorbed.
The mechanism of any E.U.-sponsored bailout would be complex since there is doubt as to whether it is permitted under the Union’s governing treaty.
One option, deemed unlikely, would be issuing a sovereign bond for the entire, 16-nation euro area. That would probably require complex legal changes among members, which would be time-consuming.
Nevertheless, the Socialist leader in the European Parliament, Martin Schulz, on Thursday called on the commission to bring forward proposals to introduce eurobonds. “Now is the time for us to stand shoulder-to-shoulder with Greece — not to abandon the country to the mercy of world markets,” he said.
Alternatively, there would be few legal impediments to bilateral aid being offered by member states from the euro zone. How that money would be raised and expedited has yet to be determined.
Another official said that there had been no discussion yet on “burden-sharing” — how much each member would be expected to contribute — although the assumption in the market is that Germany and France, as the largest economies, would bear the brunt of any financing.
Yet another alternative might be to speed up the payment of E.U. development aid for poor regions already due to be paid during the period 2007-13. That could help Greece bolster its public finances in the short term and give it financial breathing space.
Talks are likely to intensify ahead of an E.U. summit meeting on Feb. 11 in Brussels. This was called to discuss longer-term plans to revitalize the European economy but risks being overwhelmed by the Greek crisis.
Since coming into office in October, the government of Mr. Papandreou has presented a plan to bring the deficit down by freezing public sector wages, trimming the civil service and increasing taxes. But as Mr. Papandreou and his finance minister, George Papaconstantinou made the rounds at the World Economic Forum at Davos, Switzerland, on Thursday, the message did not seem to be getting across. The spread on benchmark 10-year Greek bonds — the difference in yield — over the equivalent German bonds grew to 3.73 percentage points Thursday, the widest level since the inception of the euro.
On Monday, Greece was able to raise €8 billion, or $11.2 billion, more than twice its €3 billion target. But it priced the five-year bonds at a hefty premium of 3.50 percentage points over the benchmark rate, which meant it will be paying a yield of about 6.22 percent.
During an interview this week, Mr. Papaconstantinou acknowledged that these high rates were punitive but asked that investors keep faith in his government’s plan to tackle Greece’s intractable problems of a bloated, inefficient state and a private sector that has long been unwilling to pay the taxes to finance it.
“Only a center-left government can do this,” he said, sitting in his spacious art-bedecked office in Athens. “The markets should trust us not because they believe in the global good but because the return on Greek debt is good.”
Greece needs to raise at least €53 billion this year, much of it this spring. The Greek debt management agency has not issued a calendar of 2010 bond issues. But analysts expect the country to try to sell a 10-year bond next month. The success of that sale now looks like it may become the test of whether the country will require help from its neighbors.
The crisis erupted after the new Greek government revealed that statistics provided under the previous administration were seriously flawed.
The European Commission is expected to propose during the next few weeks that the E.U.’s statistical service be granted new powers to audit figures in member states.
The Greek government faces a hugely complex task in trying to reassure the markets that it will get its finances under control, while calming public fears about potentially draconian budget cuts.
During the interview, Mr. Papaconstantinou said he would be traveling to the United States and Asia in an attempt to attract new investors. But the Finance Ministry has denied reports that it is trying to persuade China to purchase as much as €25 billion in government bonds.
“There is certainly an appetite for euro denominated assets in Asia,” said Miranda Xafa, a former official at the International Monetary Fund who now works at IJ Partners, a fund company based in Geneva. “But the government needs to show that it is meeting its targets. The window is very narrow.”
And while other peripheral countries like Ireland have also seen the cost of their debt insurance increase this week, the view within Europe seems to be that it is Greece that is most at risk.
“This is the first full scale test” of European monetary union, said Gilles Moëc, a European economist for Deutsche Bank.
The question of whether the I.M.F.might become involved in a bailout appears to have divided European governments. Some countries would prefer to see a regional resolution, while others see no problem in working with the supranational lender.
Despite public attempts to discourage such expectations, discussions are under way, although the shape or scale of a possible bailout package has yet to be determined, according to officials in several capitals, all speaking on condition of anonymity.
“Greece failing is not an option and lots of people think that we will have to intervene at some stage,” said a euro-zone finance official, who was not permitted to speak publicly because of the sensitivity of the matter. “It doesn’t have to happen, and we hope it won’t, but it would be better than seeing a default.”
As a condition of any aid package, the Greek government led by Prime Minister George Papandreou, a Socialist, would be asked to provide a more detailed program to bring the country’s deficit of 12.7 percent of gross domestic product under control. European Union rules call for a maximum of 3 percent of G.D.P. Officials insist that any bailout must not put into doubt the credibility of the euro itself.
Greece’s budget crisis poses a big new test for the common currency and has even led to speculation that the country might be forced out of the euro zone, a suggestion that has been dismissed in Athens and other capitals.
The latest moves reflect a continuing skepticism among euro-zone members over the practicality of the plans put forward so far by the Greek government. It wants to reduce the deficit to 3 percent of G.D.P. by 2012, an objective described as unrealistic by one European diplomat, speaking on condition of anonymity. These plans are to be assessed by the European Commission early next month. A commission spokeswoman, Amelia Torres, declined Thursday to comment.
Greece’s deficit is four times the E.U.’s limit, while the country’s debt amounts to 113 percent of G.D.P. But officials insist that, because Greece is not one of the euro-zone’s larger economies, the problems created by its dire public finances can be absorbed.
The mechanism of any E.U.-sponsored bailout would be complex since there is doubt as to whether it is permitted under the Union’s governing treaty.
One option, deemed unlikely, would be issuing a sovereign bond for the entire, 16-nation euro area. That would probably require complex legal changes among members, which would be time-consuming.
Nevertheless, the Socialist leader in the European Parliament, Martin Schulz, on Thursday called on the commission to bring forward proposals to introduce eurobonds. “Now is the time for us to stand shoulder-to-shoulder with Greece — not to abandon the country to the mercy of world markets,” he said.
Alternatively, there would be few legal impediments to bilateral aid being offered by member states from the euro zone. How that money would be raised and expedited has yet to be determined.
Another official said that there had been no discussion yet on “burden-sharing” — how much each member would be expected to contribute — although the assumption in the market is that Germany and France, as the largest economies, would bear the brunt of any financing.
Yet another alternative might be to speed up the payment of E.U. development aid for poor regions already due to be paid during the period 2007-13. That could help Greece bolster its public finances in the short term and give it financial breathing space.
Talks are likely to intensify ahead of an E.U. summit meeting on Feb. 11 in Brussels. This was called to discuss longer-term plans to revitalize the European economy but risks being overwhelmed by the Greek crisis.
Since coming into office in October, the government of Mr. Papandreou has presented a plan to bring the deficit down by freezing public sector wages, trimming the civil service and increasing taxes. But as Mr. Papandreou and his finance minister, George Papaconstantinou made the rounds at the World Economic Forum at Davos, Switzerland, on Thursday, the message did not seem to be getting across. The spread on benchmark 10-year Greek bonds — the difference in yield — over the equivalent German bonds grew to 3.73 percentage points Thursday, the widest level since the inception of the euro.
On Monday, Greece was able to raise €8 billion, or $11.2 billion, more than twice its €3 billion target. But it priced the five-year bonds at a hefty premium of 3.50 percentage points over the benchmark rate, which meant it will be paying a yield of about 6.22 percent.
During an interview this week, Mr. Papaconstantinou acknowledged that these high rates were punitive but asked that investors keep faith in his government’s plan to tackle Greece’s intractable problems of a bloated, inefficient state and a private sector that has long been unwilling to pay the taxes to finance it.
“Only a center-left government can do this,” he said, sitting in his spacious art-bedecked office in Athens. “The markets should trust us not because they believe in the global good but because the return on Greek debt is good.”
Greece needs to raise at least €53 billion this year, much of it this spring. The Greek debt management agency has not issued a calendar of 2010 bond issues. But analysts expect the country to try to sell a 10-year bond next month. The success of that sale now looks like it may become the test of whether the country will require help from its neighbors.
The crisis erupted after the new Greek government revealed that statistics provided under the previous administration were seriously flawed.
The European Commission is expected to propose during the next few weeks that the E.U.’s statistical service be granted new powers to audit figures in member states.
The Greek government faces a hugely complex task in trying to reassure the markets that it will get its finances under control, while calming public fears about potentially draconian budget cuts.
During the interview, Mr. Papaconstantinou said he would be traveling to the United States and Asia in an attempt to attract new investors. But the Finance Ministry has denied reports that it is trying to persuade China to purchase as much as €25 billion in government bonds.
“There is certainly an appetite for euro denominated assets in Asia,” said Miranda Xafa, a former official at the International Monetary Fund who now works at IJ Partners, a fund company based in Geneva. “But the government needs to show that it is meeting its targets. The window is very narrow.”
And while other peripheral countries like Ireland have also seen the cost of their debt insurance increase this week, the view within Europe seems to be that it is Greece that is most at risk.
“This is the first full scale test” of European monetary union, said Gilles Moëc, a European economist for Deutsche Bank.
The question of whether the I.M.F.might become involved in a bailout appears to have divided European governments. Some countries would prefer to see a regional resolution, while others see no problem in working with the supranational lender.