Andres Kudacki/Associated Press
News Analysis
For Europe, a Lost Decade Looms
By JACK EWING
Except for Germany, none of Europe’s biggest economies have returned to their pre-2008 level of output. In Spain, above, more than half of people aged 16 to 24 are jobless.
Finland is preparing for a break-up of the eurozone
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The German government stands by demands made by international creditors in return for Greece's bail-out, Angela Merkel's spokesman said on Wednesday.http://www.telegraph.co.uk/finance/financialcrisis/9480990/Finland-prepares-for-break-up-of-eurozone.html
9:00PM BST 16 Aug 2012
"The Nordic state is battening down the hatches for a full-blown currency crisis as tensions in the eurozone mount and has said it will not tolerate further bail-out creep or fiscal union by stealth.
“We have to face openly the possibility of a euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government.
“It is not something that anybody — even the True Finns [eurosceptic party] — are advocating in Finland, let alone the government. But we have to be prepared,” he told The Daily Telegraph.
“Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality.”
Mr Tuomioja’s intervention is the bluntest warning to date by a senior eurozone minister. As he discussed the crisis, the minister had a copy of the Economist on his desk. It had a picture of Angela Merkel, the German Chancellor, reading a fictitious report entitled “How to break up the euro”, with a caption: “Tempted, Angela?”
“This is what people are thinking about everywhere,” said Mr Tuomioja. “But there is a consensus that a eurozone break-up would cost more in the short-run or medium-run than managing the crisis. “But let me add that the break-up of the euro does not mean the end of the European Union. It could make the EU function better,” he said, describing the dash for monetary union in the 1990s as a vaulting political leap in defiance of economic gravity. Finland has emerged as the toughest member of the eurozone’s creditor bloc as it tries to hold together a motley coalition. It has insisted on collateral from both Greece and Spain in exchange for rescue loans.
The coalition government is on thin ice as voters peel away to eurosceptic parties. The True Finns shattered the political order in last year’s election with 19pc support. “Taxpayers here are extremely angry,” said Timo Soini, the True Finn leader.
“There are no rules on how to leave the euro but it is only a matter of time. Either the south or the north will break away because this currency straitjacket is causing misery for millions and destroying Europe’s future.
“It is a total catastrophe. We are going to run out of money the way we are going. But nobody in Europe wants to be first to get out of the euro and take all the blame,” he said.
Like other member states, Finland has a veto that could be used to block any new bail-out measures. However, unlike some states, its parliament would have to approve each future measure of the eurozone rescue, including a full bail-out of Spain.
The issue of euro break-up may come to a head in October as EU-IMF Troika inspectors report back on Greek bail-out compliance. Pleas from Athens for two extra years to stretch out its austerity regime have run into fierce resistance from creditor powers.
“It is up to Greeks whether they want to stay in the euro,” said Mr Tuomioja. “We cannot force Greece out. We can cut off lending and that would lead to a default. Then we could speculate whether that would entail getting out of the euro. Nobody knows if it could be contained,” he said. Mr Tuomioja said Finland would block attempts to strip the European Stability Mechanism (ESM) or bail-out fund of its senior status at the top of the credit ladder, a move that could greatly complicate efforts to lure investors back into Spanish and Italian bonds. “The ESM loans have priority. That is a red line for us. We are very concerned that the rules of the ESM seem to be changing.”
He voiced deep suspicion of plans by a “gang of four” EU insiders — including the European Central Bank’s Mario Draghi — to ensnare member states into some form of fiscal union. “I don’t trust these people,” he said.
Mr Draghi said two weeks ago that the issue of seniority would be “addressed” as part of his twin-pronged plan for the ECB and ESM to buy bonds in concert. A number of EU leaders and officials claimed there had been a deal on the ESM’s seniority status at an EU summit in late June. Finland, Holland, and Germany all deny this.
The warnings on the ESM were echoed by Miapetra Kumpula-Natri, chairman of the Finnish parliament’s Grand Committee on Europe, who said bail-out fatigue is nearing its limit.
“Our law passed this summer says the ESM has the same priority as the IMF. There was a clear understanding on this. Any change would require a new law passed by the whole parliament, and this would be very difficult because the risks would be much higher.”
The issue of EU senior status has become an extremely sensitive one for markets after the ECB and EU creditors refused to share losses from Greece’s debt restructuring, in which pension funds, insurers, and banks lost 75pc.
Critics say the Greek deal set a fatal precedent, triggering further capital flight from Spain and Italy.
Mrs Kumpula-Natri said Finland can be pushed only so far. “There is a feeling on the street that there has to be a limit. I can’t say whether it is 10pc of GDP, or what. It’s not written. But it is obvious that a small country can’t help big countries eternally.”"
http://www.athensnews.gr/portal/11/57707
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 By taking a loss on its Greek bond holdings, the European Central Bank could both help Athens and calm investors who fear they will take a hit from its new bond-buying plans, but a voluntary writedown faces fierce resistance from within. The country is far from meeting the terms of a second bailout, and while eurozone officials are growing impatient, they are also worried a Greek exit from the 17-member bloc would inflame market pressure on Spain and deepen the debt crisis. At a stroke, the ECB could ease the debt burden on Athens by taking a writedown on its Greek bond holdings, while addressing investors' concerns that when the ECB buys bonds, as it could do soon to ease funding pressure on Spain and Italy, other creditors get pushed down the pecking order. When private creditors took big writedowns from a restructuring of Greek debt earlier this year, the ECB didn't share their pain. Now they fear that in any future restructuring in the eurozone, they will again carry the can, while the ECB gets off scot-free. To show it really means business with its plans for a new programme to buy bonds - probably in Spain and Italy - the ECB could take losses on its Greek debt and forgo its 'senior' bondholder status, putting it on a level with private investors. Otherwise, the risk is that when the ECB piles in, private investors will head out, thereby neutering the central bank's efforts to bring down crippling borrowing costs. ECB President Mario Draghi pledged when announcing on August 2 that the bank may buy more sovereign bonds that "the concerns of private investors about seniority will be addressed". "It's good for Greece, it's good for intervention in the other countries," Deutsche Bank economist Gilles Moec said of the idea. "If you want to demonstrate to the market that you are not senior and at the same time you don't want to jeopardise the fire capacity of the EFSF/ESM (bailout funds), you take a loss on Greece as a show of goodwill," he said of the ECB. But ECB policymakers are loath to incur losses they fought to avoid, fearful of the bank being politicised if it directly influences fiscal policy. This could give rise to more creative options, both for dealing with Greece and the seniority issue. One scenario could see the bailout funds give the ECB guarantees for further bond purchases, providing insurance in the event of any losses. The downside is that this would focus attention on the funds' finite resources and throw up new questions about Europe's capacity to fight the crisis. HORRIBLE SITUATION Faced with what one senior eurozone official described as "horrible" figures on the Greek economy, European policymakers have been working on "last chance" options to reduce Greece's debts and keep it in the bloc, officials said late last month. With a target to cut its debt ratio to 120 percent of GDP by 2020 looking beyond Athens's reach, one option being studied aims to reduce Greece's debts by up to 100 billion euros - on top of big writedowns suffered by private creditors earlier this year. By taking a hit on its Greek bonds, the ECB could reduce the onerous repayments that hang like a sword of Damocles over Greece's eurozone membership and scale back the backdoor monetary financing to Athens that it is sanctioning. But ECB policymakers are reluctant to be pushed by governments into accepting writedowns now. The Frankfurt-based central bank has never taken losses on sovereign bond holdings. The ECB has spent about 38 billion euros on Greek sovereign bonds with a face value of 50 billion. Some of the eurozone's 17 national central banks - the ECB's stakeholders - also hold Greek bonds on their own accounts. It is not known exactly how much they hold, but estimates are around 12 billion euros. Waiving outstanding bond or loan repayments would "make us lose credibility", said one eurozone central bank official. By taking losses on its Greek bonds, the ECB would grant a benefit to taxpayers in Greece at the expense of taxpayers in other eurozone countries, which would need to recapitalise the ECB or, more likely, forgo dividends from the central bank for years to come to offset the cost of the writedown. If governments cajoled the ECB into such a deal, they would turn it into a burden-sharing mechanism and damage its independence, said former ECB economist Christian Schulz, now at Berenberg Bank, adding: "If the ECB agrees ... then critics would accuse the ECB of doing something on behalf of the governments." EURO FUDGE Greek Prime Minister Antonis Samaras will next week hold his first meetings with eurozone leaders since taking office, trying to assure them he will honour a pledge for more austerity and gauging whether they could grant him more time to do it. Privately, eurozone officials say some form of official sector involvement (OSI) will ultimately be needed to ease Greece's debt burden. The trick is how to design and present it. The ECB has already ceded some ground, agreeing in February to forgo the profits it will make on Greek bonds during Athens's second bailout programme, roughly 5 billion euros. It may give up profits that result from the 3-year programme too. The ECB has also indicated that eurozone national central banks may also waive profits on Greek bonds in their own investment portfolios. Going further and taking a loss on the principal may only cost the ECB a few billion euros as it bought the bonds at a discount, but the idea is still toxic. The principle would be hard to swallow, if not the bill. Draghi has repeatedly defended the ECB's insistence that it should not take part in the Greek PSI deal on the grounds that the bonds it holds were effectively bought with taxpayers' money. With the ECB poised to make large-scale purchases of Spanish and Italian bonds, eurozone insiders see little appetite for setting a precedent on taking losses that could later burden taxpayers with a bigger bill - even if it is via the ECB. Instead, Greek debt relief could involve changing Greece's debt profile by extending maturities on the bonds it owes the bank without the ECB taking a balance sheet loss. The ESM bailout fund could be used to reprofile or cut the debt burden. "I think the official sector will take a haircut, but they will try their best to hide that with accounting gimmicks," said Anna Gelpern, law professor at American University and a former U.S. Treasury official. "The debt held by the ECB could be moved outside the ECB - to the ESM or another vehicle - where the haircut would look more like a fiscal contribution rather than an ECB haircut ... Greece clearly needs debt relief. It's all about form." (Reuters/Athens News, LE)" | |||
Greece will be allowed to default and exit the Euro.
From there it is anyone's guess.
Regulation, management, ownership, entitlement, risk and public or private charity are the subjects of politics.
They deserve cool rational decision.
They are receiving religious passion and demagoguery.
Reconstruction appears to have failed.
.
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