BLBG:Greece Back At Center Of Euro Crisis As Exit Talk Resumes
Greece retakes its position at the heart of the debt crisis this week when creditors assess how far off course the country is from bailout targets, as Spanish yields surged on concern its regions will need to be rescued.
Stocks and the euro fell before the arrival tomorrow in Athens of Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund. The officials will face down fresh doubts that the country can meet its commitments and reluctance among euro states to put up more funds should it fail.
“If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told broadcaster ARD yesterday, adding that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.”
After euro finance ministers failed to staunch a fresh low for the single currency with the approval of a 100 billion-euro ($122 billion) aid package for Spain last week, the troika will be tasked with determining the state of the nation where the crisis began almost three years ago. Greek Prime Minister Antonis Samaras yesterday compared his country’s economy after five years of contraction to the Great Depression of the 1930s.
The euro slipped below its lifetime average against the U.S. dollar and to the lowest level in more than 11 years against the yen today, dropping to $1.2085 at 8:27 a.m. in Frankfurt. Spain’s 10-year note yields surged above 7.5 percent.
The Stoxx Europe 600 Index dropped 1.5 percent at 8:45 a.m. in London.
IMF
The slump was compounded as Spanish Prime Minister Mariano Rajoy forecast a second year of recession and Spain’s regions lined up to seek bailout funds from the central government. With Spain’s regions confronted with about 15 billion euros of debt redemptions in the second half of this year, Catalonia, Spain’s most indebted region, followed Valencia in saying it will examine conditions of a central government aid mechanism.
Italian Prime Minister Mario Monti, his country also burdened under surging borrowing costs, said last week that unrest in Spain, where protesters derided the country’s new 65 billion-euro austerity package, added to euro concerns.
In Greece, officials have been struggling to stand by obligations tied to 240 billion euros of rescue funding over the past two years. The country is clamoring for more help as efforts to reduce its debt to 120 percent of gross domestic product by 2020 fall short.
’Our Great Depression’
The IMF, which indicated in March it won’t commit more money to Greece, will make a decision on its next disbursement in late August at the earliest based on the troika’s findings, two fund officials familiar with the situation in recent days.
The Washington-based IMF has signaled to European officials that it will stop paying further rescue aid to Greece, bringing the country closer to insolvency in September, Der Spiegel yesterday cited unidentified European Union officials as saying. It’s “already clear” to the troika that Greece won’t reach the 120 percent target, Spiegel said.
Missing the targets means Greece would need between 10 billion euros and 50 billion euros in additional aid, a potential outcome that the IMF and several unidentified euro- area states are not prepared to accept, Spiegel said.
Five years of recession “bring about bitter memories of the Great Depression in the United States,” Samaras said yesterday in comments to visiting former U.S. President Bill Clinton in Athens. “This is exactly what we are going through in Greece. It is our version of the Great Depression.”
More Cuts
Samaras’s three-way coalition, formed last month after a June 17 election ended a six-week political deadlock, has scrambled to assemble budget cuts to persuade troika officials to keep aid money flowing.
Finance Minister Yannis Stournaras has identified about 8 billion euros of spending cuts and savings for the next two years out of 11.5 billion euros in additional cuts required. Stournaras is fending off pressure to impose more reductions this year as the economy shrinks faster than originally forecast. He is scheduled to present his proposals to the troika on July 26.
The Greek government is also behind on state asset sales, having so far brought in 1.8 billion euros, a fraction of the 50 billion euros it aims to raise by 2020. The state is unlikely to generate more than 300 million euros this year, short of the about 3 billion euros targeted for 2012, according to the outgoing chief of the state’s asset-sales fund, Costas Mitropoulos.
Bond Payment
Mitropoulos announced his resignation from the Hellenic Republic Asset Development Fund last week, citing a lack of support from Samaras’s government.
Greece is due to make a 3.1 billion-euro bond payment, mostly to the ECB, in August, a challenge that euro-area officials have said won’t be an issue, while so far declining to specify how they’ll ensure the bond redemption gets paid.
German officials over the weekend torpedoed the possibility of renegotiating the terms of Greece’s agreement.
Foreign Minister Guido Westerwelle told the Hamburger Abendblatt that his Free Democratic Party, the junior partner in Chancellor Angela Merkel’s coalition government, won’t agree to any attempts by Greece to overhaul its bailout terms.
“That won’t work -- that’s a Rubicon we can’t cross,” Westerwelle told the newspaper. “It’s in Greece’s own hands to ensure it stays” in the euro, he said. Last month, Westerwelle said negotiators might consider giving Greece more time.
No Extension
That option also was rejected by Volker Kauder, the parliamentary caucus leader for Merkel’s Christian Democratic Union. He told party colleagues that “there will be no adjustment, also no more time,” according to WirtschaftsWoche.
“If there have been delays, Greece has to catch up,” Finance Minister Wolfgang Schaeuble told Bild today.
Once taboo, the possibility that Greece could exit the 17- member monetary union has been voiced by European officials this year who consider the fallout from such a scenario would be the lesser evil against a seemingly perpetual crisis.
Roesler, who is Germany’s economy minister as well as the Free Democratic chairman, told ARD that a curtailment of aid to Greece would lead to a sovereign default, which would in turn lead to “Greeks coming to the conclusion that it is probably wiser to leave the euro area.”
Spiegel reported that German officials were holding off on such a decision until the permanent bailout fund, the European Stability Mechanism, comes into operation in September. The 500 billion-euro ESM is on hold pending a decision by Germany’s Federal Constitutional Court, set for Sept. 12.
To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
