Obama, Hollande agree on much – but not Afghanistan

Posted on May 19, 2012 by admin

U.S. President Barack Obama (R) and French President Francois Hollande button their jackets following their bilateral meeting in the Oval Office of the White House in Washington May 18, 2012.

Credit: Reuters/Eric Feferberg/Pool

By Caren Bohan and Elizabeth Pineau

WASHINGTON |
Fri May 18, 2012 7:40pm EDT

(Reuters) – New French President Francois Hollande told President Barack Obama on Friday that he will stick by his pledge to withdraw France’s troops from Afghanistan at year’s end, a note of discord in an otherwise convivial first meeting between the two leaders.

“I reminded President Obama that I made a promise to the French people to the effect that our combat troops would be withdrawn from Afghanistan by the end of 2012,” Hollande said after Oval Office talks with Obama.

“That being said, we will continue to support Afghanistan in a different way,” he said.

Hollande’s remarks, while not a surprise, underscore the challenge Obama faces in keeping NATO allies on board as he tries to chart a gradual course out of Afghanistan. The alliance agreed two years ago to a 2014 deadline for withdrawing most of its combat troops.

The Afghan war will be the central topic when NATO leaders meet in Chicago, Obama’s home town, on Sunday and Monday.

The United States may seek at the NATO summit to nudge France to rethink its Afghanistan troop withdrawal timetable, which differs from the alliance’s 2014 timetable.

Hollande’s main foreign policy pledge is popular at home, even if French defense ministry officials believe it may prove technically complicated without putting troops in danger.

That may not be easy. “The exit is non-negotiable. The withdrawal of French combat troops is a French decision and it will be implemented,” Hollande said.

Hollande’s position on the war did nothing to dampen what appeared to be an instant rapport with Obama, and on the day’s other major topic – the health of the global economy – they agreed that budget austerity was not the sole remedy to Europe’s economic crisis.

Those weighty issues dominated the talks between the two, but they also joked about cheeseburgers and Hollande’s former habit of riding his scooter to work.

Obama has struck up few genuinely close personal relationships with foreign leaders during his more than three years in office.

Close ties between Obama and Hollande, fresh from a May 6 election victory from which he emerged as France’s first Socialist leader in 17 years, could have wider import. Both men favor a more balanced economic approach that includes measures to foster growth as well as cuts in national budgets.

When the French president and other NATO leaders meet in Chicago, Obama will be interested in Hollande’s views on the city’s burgers.

“I also warned him that now that he’s president he can no longer ride his scooter in Paris,” said Obama, who tends to bring a business-like style to his meetings with foreign leaders but appeared relaxed in Hollande’s presence.

FRIENDSHIP AND INDEPENDENCE

The bespectacled Hollande, whose low-key style contrasts with that of his flamboyant predecessor, Nicolas Sarkozy, spoke of U.S. friendship and France’s pride in its tendency to sometimes pursue an independent course.

Obama’s own re-election prospects in November could be in jeopardy if the euro zone crisis spins out of control and deals another blow to an already sluggish U.S. economic recovery.

He told reporters that he and Hollande spent a great deal of time discussing Europe’s currency woes.

The euro zone is a main topic for the two-day talks Obama will host at the Camp David retreat in Maryland. The G8 summit of leaders of the world’s leading economies will begin Friday evening.

Hollande, German Chancellor Angela Merkel and British Prime Minister David Cameron will be among the participants.

“We’re looking forward to a fruitful discussion later this evening and tomorrow with the other G8 leaders about how we can manage a responsible approach to fiscal consolidation that is coupled with a strong growth agenda,” Obama said.

The comment underscored his solidarity with Hollande on the view that measures to spur economic growth – and not just fiscal austerity – are needed to fix Europe’s economic woes.

Obama added that solving the euro zone crisis was of “extraordinary importance, not only to the people of Europe, but also to the world economy.”

Hollande told Obama that growth must be a priority and said the two leaders discussed their concerns about Greece. “We share the same views, the fact that Greece must stay in the eurozone and that all of us must do what we can to that effect,” he said.

Obama and other U.S. officials have repeatedly pressed European leaders to do more to spur economic growth.

Obama’s support for Hollande’s view could put pressure on Merkel, who has stressed the need for fiscal discipline to restore the health of the euro zone economies, even as voters have toppled belt-tightening governments.

(Additional reporting by Laura MacInnis. Editing by Warren Strobel and Christopher Wilson)

Reuters: World News

Spain beset by bank crisis, downgrades, bond pressure

Posted on May 18, 2012 by admin

Bankia bank small shareholders take part in an assembly to discuss actions to take against the bank in Madrid May 17, 2012. REUTERS/Susana Vera

By Carlos Ruano and Julien Toyer

MADRID |
Thu May 17, 2012 6:02pm EDT

(Reuters) – Spain’s borrowing costs shot up at a bond auction on Thursday and its troubled banks suffered a double blow, with shares in part-nationalized Bankia diving and 16 lenders – including the euro zone’s biggest – having their credit ratings cut.

Official data confirmed Spain was back in recession and a newspaper reported a big outflow of deposits from Bankia, but the government said it had taken a fundamental step to strengthen Spain’s credibility by agreeing big budget cuts with the country’s free-spending regions.

Moody’s Investors Service cut the long-term debt and deposit ratings of the 16 Spanish banks, including Banco Santander, the euro zone’s largest, saying the government’s ability to support some banks had weakened.

Spain’s banks, saddled with bad loans after a property boom collapsed, lie at the heart of the euro zone crisis as markets fear any major rescue would strain Madrid’s already stretched finances and possibly require an international bailout.

Gary Jenkins, credit analyst at Swordfish Research, said Spain had problems which went beyond the risk of contagion from the crisis in Greece, whose future in the euro is in doubt

“Whilst the attention of the world is on Greece, the fact is that Spain faces many challenges irrespective of how the Greek situation is finally resolved,” he wrote in a note.

Moody’s cut the rating of BBVA, Spain’s second largest lender, as well as Santander even though both are generally regarded as sound, unlike some of their smaller peers.

Nicholas Spiro of Spiro Sovereign Strategy said the government of Prime Minister Mariano Rajoy was not handling the crisis well. “Sentiment towards Spain is deteriorating with each passing day, mainly because of a loss of confidence in the Rajoy government’s approach to tackling the problems in the banking sector,” he said.

ATTRACTING BUYERS

At Thursday’s debt auction, the Treasury had to pay around 5 percent to attract buyers of three- and four-year bonds. The latter sold with a yield of 5.106 percent, way above the 3.374 percent the last time it was auctioned.

“This … fits the pattern of recent sales, with the Spanish treasury successfully getting its supply away but at ever-higher yields,” said Richard McGuire, rate strategist at Rabobank in London. “This unfavorable trend looks set to remain firmly in place … Ultimately, this ratcheting up of yields will likely require some form of outside intervention.”

Spain officially slipped into recession in the first quarter this year, final figures confirmed on Thursday, leaving the country threatened with a prolonged slump as the turbulent euro zone struggles to balance austerity with growth.

The European Commission warned last week that high debts of the 17 regions, which account for about half of overall public spending, and the welfare system would prevent Spain meeting its goal of cutting the budget deficit to 5.3 percent of gross domestic product this year from 8.5 percent in 2011.

However, the government said the regions – most of which missed their deficit targets last year – had agreed to cut their spending by 13 billion euros and increase revenues by 5 billion euros.

After weeks of negotiations, Treasury Minister Cristobal Montoro approved the plans presented by every region except for the small northern one of Asturias, which will have to produce a new budget within 15 days. “We’ve taken a fundamental step for Spain’s credibility,” Montoro told a news conference.

Overspending by the regions caused Spain to miss its deficit reduction target badly last year. Moody’s agency downgraded on Thursday its ratings of four regions including two of the biggest, Catalonia and Andalucia.

Regions which meet their targets will get help from the state to cover their financing needs through a new mechanism which will be introduced by July. The government has been working for weeks on a new instrument called “hispanobonos” allowing the regions to issue debt underwritten by the Treasury.

WORRY LIST

Spain’s 10-year debt yields have risen back above 6 percent, which investors view as a pivot point that could accelerate a climb to 7 percent, a cost of borrowing widely seen as unaffordable even though Madrid has raised well over half its needs for this year.

Prime Minister Mariano Rajoy said on Wednesday his government could soon find it difficult to fund itself affordably on the bond market unless the pressure eases.

However, the government source said the Treasury could refinance itself at the current high yields for several months, although the country saw it aiss vital that funding costs fall.

Top of the country’s worry list is a banking sector beset by bad loans, the result of a property boom that bust in 2008.

El Mundo newspaper reported that customers at Bankia had taken out more than 1 billion euros, equivalent to around 1 percent of the lender’s retail and corporate deposits, over the past week. The government denied there had been an exit of funds, but the bank’s shares closed down 14 percent on Thursday on top of steep losses over the past week.

“It’s not true that there is an exit of deposits at this moment from Bankia,” said Economy Secretary Fernando Jimenez Latorre. Bankia itself said that deposit activity was normal.

The government last week took over Bankia, the fourth-largest lender which holds around 10 percent of Spanish deposits, in an attempt to dispel concerns over its ability to deal with losses related to the 2008 property crash.

“The majority of outflows came after the chairman resigned last week, but I think once the bank was taken over by the government, depositors calmed down a bit,” said one Madrid-based trader. “The share price fall has to do with disappointed retail investors dumping the stock.”

Some savers were reassured by the deposit guarantee fund which covers 100,000 euros per customer.

“I have two accounts with Bankia and up to now I have not closed them. I’m not even considering it,” said Jose Ignacio Gonzalez, 42. “It must be more secure with the backing of the state, it has a guarantee.”

The problem for Madrid is that the property losses which banks face are not yet quantifiable, as prices are likely to fall further.

The government told the banking sector last week to set aside another 30 billion euros in provisions, prompting some analysts to say much more would need to be done.

RECESSION AND CONTAGION

While Greece, facing fresh elections which could hasten its exit from the euro zone, has dominated headlines, uncertainty over the final cost of Spain’s banking reform has raised the prospect that it could also require an international bailout, a bill the euro zone would be stretched to cover.

Official data confirmed the Spanish economy shrank 0.3 percent in the first quarter, putting it back into recession. Unemployment is already running close to 25 percent, rising to around 50 percent among the young.

Even if it puts its house in order, Madrid faces the threat of contagion from Greece if it elects an anti-bailout government next month, a move which could hasten a hard default and exit from the euro zone.

“It’s not Greece leaving the euro that is the major issue,” said John Bearman, chief investment officer at Thomas Miller Investment, which manages roughly 3 billion pounds ($ 4.8 billion) of assets. “It’s the domino effect.”

(Additional reporting by Steve Slater, Nigel Davies, Andres Gonzalez, Blanca Rodriguez, Paul Day, Sonya Dowsett, Steven C. Johnson and Sarah White; Writing by Mike Peacock and David Stamp; Editing by Michael Roddy)

Reuters: World News

Insight: Greek exit could cost eurozone 100s of billions of euros

Posted on May 17, 2012 by admin

Greece’s newly appointed caretaker Prime Minister Panagiotis Pikrammenos (R) talks with President Karolos Papoulias during a swearing-in ceremony at the Presidential palace in Athens May 17, 2012. Greece put a senior judge in charge of an emergency government on Wednesday to lead the nation to new elections on June 17 and bankers tried to calm public fears after the president said political chaos risked causing panic and a run on deposits.

Credit: Reuters/John Kolesidis

By Paul Carrel

FRANKFURT |
Thu May 17, 2012 6:49am EDT

(Reuters) – A Greek exit from the euro zone could expose the European Central Bank and the currency bloc it seeks to protect to hundreds of billions of euros in losses, landing Germany and its partners with a crippling bill.

A Greek departure would take Europe into uncharted legal waters. The size of the burden other euro zone states could bear gives them a powerful incentive to keep Greece in the currency club.

With most of Greek’s private creditors having taken heavy writedowns as part of the country’s second, 130 billion euros bailout, it is estimated that the ECB, International Monetary Fund and euro zone nations hold approaching 200 billion of its debt.

“In the event of an exit, they (Greece) will default. And the loss given default will probably be very high, high enough to eliminate the ECB’s capital,” said Andrew Bosomworth, senior portfolio manager at asset manager Pimco.

“They might need recapitalization from governments, who are not exactly in the best position to provide additional capital.”

Those are not the only losses the ECB and its national shareholders might face as is explained in detail below.

Even once Greece had left the currency club, the costs to the rest of the euro zone would continue to mount as it would probably be compelled to avert a complete Greek collapse and wider contagion.

“Large-scale ECB intervention would be necessary to stabilize the system, along with intervention from Germany, the European Stability Mechanism (ESM), its predecessor the European Financial Stability Facility (EFSF) and the IMF, potentially costing hundreds of billions of euros,” said Georgios Tsapouris, investment strategist at Coutts.

The ECB, which has its own paid-in capital of 6.4 billion euros, is essentially a joint venture between the 17 euro zone national central banks (NCBs). Combined, the Eurosystem of euro zone central banks has capital and reserves of 86 billion euros.

The national central banks would divide up any losses between them according to the ‘capital key’ – the ECB’s measure of countries’ stakes in its financing based on economic size and population. Germany would bear the biggest loss, some 27 percent of the total.

France would take a big hit too.

A Greek exit from the euro zone could cost the French taxpayer up to 66.4 billion euros and saddle the country’s banking system with 20 billion euros in lost loans, according to a study published on Tuesday by the IESEG School of Management in Lille.

Smaller countries with less robust national central banks than the German Bundesbank would likely be still harder hit in relative terms.

“The ECB and some of the NCBs with little loss-absorbing capital and reserves relative to their share of how a loss would be allocated across the Eurosystem would potentially see their capital and revaluation reserves written off,” Bosomworth said.

However, with fresh Greek elections called for June 17 and an anti-bailout leftist party ahead in the polls, some within the EU’s corridors of power wonder whether the show is worth keeping on the road.

“It’s going to hurt, absolutely. But is it going to be lethal?” one EU diplomat said. “We have two bad choices, but one is worse than the other.”

TRIPLE WHAMMY

The ECB and national central banks are exposed to Greece in three main ways: via Greek sovereign bonds the ECB holds, via Greek collateral they hold in return for ECB loans and via Greece’s liabilities for transactions over the euro zone’s TARGET2 payments system.

The ECB has spent about 38 billion euros on Greek government debt with a face value of about 50 billion euros.

Under a scenario described in German weekly Der Spiegel, the euro zone’s EFSF bailout fund could be used in the event of a Greek default to continue funding Greece’s debt obligations to the ECB.

However, this would eat into the resources of the ‘firewall’, eroding its capacity to help other euro zone states which might well need to be protected if a Greek exit sparked contagion.

An alternative scenario could see the national central banks turning to their governments to recapitalize the ECB. But going cap in hand to politicians for money they are desperately short of risks undermining the ECB’s independence.

ECB loans to Greek banks are another way the central bank is exposed but in this case, although the ECB conducts these medium- and long-term lending operations (MROs and LTROs), the funds are distributed via the national central banks and carried on their balance sheets.

A Bank of Greece financial statement on its website showed that as of January 31 it had lent out some 15 billion euros in MROs and 58 billion euros in LTROs – a total of 73 billion.

It was holding 143 billion euros in assets eligible as collateral for euro zone monetary policy operations.

Berenberg Bank economist Christian Schulz said that in the event of a Greek exit these loans and most of the collateral may be converted into a new Greek currency.

“The ECB/Eurosystem would not bear the risk anymore,” he added, noting that the Bank of Greece would instead be left with the – likely devalued – loans and collateral.

TARGET RISK

But any funds Greek banks had taken using ECB loan operations that had subsequently found their way out of Greece could pose a problem. These would be added to the Bank of Greece’s liabilities under the TARGET2 payments system.

The Bank of Greece and other peripheral euro zone countries have built up liabilities within the euro zone’s cross-border payment system, TARGET2, due to a net outflow of payments to other countries in the bloc, a trend exacerbated by the debt crisis.

The Bank of Greece’s financial statement showed that as of January it was carrying TARGET2 liabilities of 107 billion euros – a sum that has likely remained around that level since and which represents a big potential problem for the other euro zone central banks.

“TARGET2 is the biggest risk if they really take that loss,” said Schulz, adding that a Bank of Greece collapse would leave central banks remaining in the euro zone with a loss.

“But it’s far from clear whether the full TARGET2 balance would be what Europe would lose,” he added.

The ECB could monetize any net TARGET2 loss in the event of a Greek euro exit by printing money but that would come with an inflationary effect unpalatable to policymakers in Germany, the bloc’s most powerful player.

Beyond the accounting implications for euro zone central banks is the systemic impact a Greek euro exit would have on the bloc’s banking system. Savers in other periphery countries are likely to take flight.

“If they see that Greek savers have seen their euro savings overnight being converted into drachma, which could depreciate by 50-70 percent, then it would be a fairly simple hedge strategy for them to take out some of their savings and put them into Luxembourg, or pounds sterling, or Swiss francs,” said Bosomworth.

Ultimately, Greece will decide whether it leaves the euro zone but the ECB can try to head off such a scenario.

ECB President Mario Draghi said on Wednesday that “our strong preference is that Greece will continue to stay in the euro zone”.

“What they can do is try to prevent contagion – where they have a very significant role – and they will probably also try to convince participants on all sides to keep Greece in the euro area,” said Citigroup economist Juergen Michels.

(Additional reporting by Sinead Cruise, writing by Paul Carrel, editing by Mike Peacock and Janet McBride)

Reuters: World News

Judge to lead Greece to fateful June 17 vote

Posted on May 16, 2012 by admin

Newly appointed caretaker Prime Minister Panagiotis Pikrammenos pauses as he talks with Greece's President Karolos Papoulias (not pictured) during their meeting in Athens May 16, 2012. REUTERS/John Kolesidis

By Harry Papachristou and Lefteris Papadimas

ATHENS |
Wed May 16, 2012 12:15pm EDT

(Reuters) – Greece put a senior judge in charge of an emergency government on Wednesday to lead it to new elections on June 17 and bankers sought to calm public fears after the president said political chaos risked causing panic and a run on deposits.

European leaders who once denied vociferously that they were fretting over Greece leaving their currency union have given up pretence. Asked if he was concerned about a Greek exit, European Central Bank chief Mario Draghi said simply: “No comment”.

Greeks have been withdrawing hundreds of millions of euros (dollars) from banks in recent days as the prospect of the country being forced out of the European Union’s common currency zone seems ever more real – although there has so far been no sign of a run on bank branches in Athens.

Political leaders failed to form a government following an inconclusive parliamentary election on May 6, leaving the state with its coffers almost empty and no elected cabinet in place to satisfy lenders it deserves the money needed to stay afloat.

President Karolos Papoulias, whose powers as head of state are limited, named supreme administrative court head Panagiotis Pikrammenos as caretaker prime minister. He will have no power to take political decisions, only to carry Greece into the vote.

The parliament that was elected on May 6 will convene on Thursday and be immediately dissolved, a presidency source said.

The interim leader is little known outside legal circles. State television said he was born in 1945 in Patras, western Greece and studied law in Athens and Paris. A court source said he would name a cabinet that would be as small as possible.

“Thank you for your trust, and I believe that I am worthy of this mission,” Pikrammenos said at a meeting with the president. “This is purely a caretaker government. However, it escapes no one that our country is going through difficult times.”

He repeated a joke he said he had read in the press, that his own name, which translates to “embittered” in English, made him suited to be the last prime minister of a political era.

LEFTISTS LEAD

A new poll confirmed what other surveys have shown: that radical leftists who reject a bailout agreed with the European Union and International Monetary Fund are poised for victory, and the two establishment parties that agreed the rescue are sinking further after an historic wipeout 10 days ago.

The leftists argue they can tear up the bailout and keep the euro, but European leaders say if Greece fails to meet promises to them, lenders will pull the plug on financing, driving Athens to bankruptcy and a swift exit from the EU single currency.

On Monday, according to an official account, the president told party chiefs that figures collated by the central bank headed by George Provopoulos showed savers withdrew at least 700 million euros ($ 890 million) from banks.

“Provopoulos told me there was no panic, but there was great fear that could develop into a panic,” the president was quoted as saying in minutes of a meeting that failed to yield agreement on a cabinet, condemning Greeks to vote again next month.

“Withdrawals and outflows by 4 p.m. when I called him exceeded 600 million euros and reached 700 million euros,” he said. “He expects total outflows of about 800 million euros, including conversions into German Bunds and other such things.”

Several banking sources told Reuters similar amounts had also been withdrawn on Tuesday. Nevertheless, there was no sign of panic or queues at bank branches in Athens on Wednesday. Bankers dismissed suggestions that a bank run was looming.

A senior executive at a large Greek bank told Reuters: “There is no bank run, no queues or panic. The situation is better than I expected. The amount of deposit withdrawals the president mentioned referred to three days, not one.”

Still, some were taking no risks. A 60-year-old textiles store owner who gave his name only as Nasos said he had transferred 10,000 euros over the phone to a bank in fellow eurozone state Cyprus on Tuesday afternoon.

“Any way you see it, things are difficult. If they call elections on June 17 – a Sunday – then everyone will take their money out on the Friday.” That June 17 date was later confirmed.

BANK WITHDRAWALS

Greeks have already been withdrawing their savings from banks at a sharp clip – nearly a third of bank deposits were withdrawn between January 2010 and March 2012, reducing total Greek household and business deposits to 165 billion euros.

A senior bank executive said there had been withdrawals in recent days but there was no sign yet of a panic, as had happened in April 2010 when 8 billion euros were withdrawn just before Greece obtained its first foreign bailout.

Analysts predicted Greece would avoid a bank run, if only because so many people have pulled out their savings already.

“We have witnessed periods of tension before when the banks experienced large outflows. In my view, the majority of people with these concerns would have done so by now,” said Alex Tsirigotis, Greek banks analyst at Mediobanca.

Greek banks have made up for vanishing deposits on their balance sheets by accepting costlier European Central Bank financing through the Greek central bank.

The spectre of Greece quitting the single currency sent the euro and European shares to a fresh four-month low on Wednesday and raised the yields on Spanish and Italian debt, reflecting the risk that other European countries will be hurt.

Greece’s two wounded establishment parties hope to persuade voters that the election will be a referendum on the euro, which nearly 80 percent of Greeks say they want to keep. The view from Brussels is clearly that Greek euro membership is now at stake.

“It is important that the Greek people now take a decision fully informed about the consequences,” European Commission President Jose Manuel Barroso told a news conference.

“The ultimate resolve to stay in the euro area must come from Greece itself,” Barroso said. “We must tell the people that the program for Greece is the least difficult of all the difficult alternatives.” ($ 1 = 0.7828 euros)

(This story has been corrected to change day of convening of parliament to Thursday from Wednesday in paragraph 6)

(Additional reporting by George Georgiopoulos and Karolina Tagaris in Athens, and Luke Baker in Brussels; Writing by Peter Graff; Editing by Alastair Macdonald)

Reuters: World News

Greece calls new elections after talks collapse

Posted on May 15, 2012 by admin

Leader of the Independent Greeks party Panos Kammenos (2nd from R) accompanied by party officials, arrives at the Presidential palace for a meeting with other political leaders and the Greek President in Athens May 15, 2012. REUTERS/John Kolesidis

By Lefteris Papadimas and Dina Kyriakidou

ATHENS |
Tue May 15, 2012 5:02pm EDT

(Reuters) – Greece abandoned a nine-day hunt for a government on Tuesday and called a new election that may hand victory to leftists who might cut the nation’s financial lifeline, pushing it closer to bankruptcy and out of the euro zone.

After six rounds of fruitless wrangling, party leaders emerged from a final session at the presidential mansion to gloomily declare that deep divisions over a 130-billion-euro foreign bailout package had killed any hope of a coalition deal.

“We shouldn’t have reached this point,” said Socialist leader Evangelos Venizelos, who personally negotiated the rescue package from the European Union and IMF which the hard left says has imposed too harsh an austerity regime. “For God’s sake, let’s move towards something better and not something worse.”

Reviled for imposing deep wage and spending cuts but vital to keep the country running, the bailout worth $ 166 billion prompted Greeks to elect the most fragmented parliament in decades on May 6, giving no party or bloc a clear mandate.

A second election is expected to produce a similarly divided legislature, but the balance of power is seen tipping towards opponents of the EU/IMF rescue and raising the likelihood of a coalition that reneges on the deal keeping Greece afloat.

That would almost certainly mean the end to aid from foreign lenders, leaving Greece without cash as early as next month and paving the way for its eventual exit from the euro zone.

Greeks who showed their fury against spending cuts by humiliating the long-dominant Socialist and conservative parties earlier this month must now choose between the pain of austerity and an even more painful return to the drachma currency.

“Much depends on whether the Greek people in this repeat election are going to vote with anger and passion or if they will cool off, reflect and see in effect what the real choices are,” said Theodore Couloumbis, analyst at the ELIAMEP think-tank. “The choice is between bad and worse.”

Financial markets, worried that a Greek euro exit could spread turmoil to bigger euro zone economies such as Spain and Italy, tumbled on the news. The euro fell to a four-month low against the dollar, while Italian and Spanish bond yields rose. Greek stocks fell 5 percent to a 20-year low before paring losses. They closed down 3.6 percent.

YES TO EURO, NO TO DEVASTATION

A compromise to produce a government that might save the country from further financial calamity proved elusive; the three biggest parties in the newly elected parliament each failed to form a coalition last week and three additional rounds of talks mediated by the president ended without result.

Dejection was visible on the faces of the five party leaders who sat down to talks on Tuesday. The far-right Golden Dawn was not invited, while the anti-euro Communists did not show up. A tense meeting ensued, sources from two parties said.

After barely two hours, the politicians threw in the towel. A spokesman for President Karolos Papoulias summoned reporters to announce a new election and plans to form a caretaker government on Wednesday. The vote is expected in mid-June.

Almost immediately, Greek party leaders were in front of cameras and supporters in spirited pre-election campaign mode.

Conservative leader Antonis Samaras, whose push for early elections backfired and left him without enough support to renew his pro-bailout coalition with the Socialists, appeared distraught as he made his appeal to voters to back him.

“The message you sent is clear: ‘Yes’ to the euro, ‘No’ to those policies which devastate the Greek people,” said Samaras.

Polls show the leftist SYRIZA party, which rejects the bailout and came second behind Samaras’s New Democracy, is now on course to win a new election, a result that would give it an automatic bonus of 50 seats in the 300-seat parliament.

The party’s charismatic 37-year-old leader, Alexis Tsipras, has soared in popularity by promising Greeks a future in the euro zone without the yoke of austerity – horrifying European leaders who say the country cannot have its cake and eat it too.

“If we have any hope today it is because all together we took a big step on May 6. Now it’s time to conclude it,” said Tsipras, a handsome, ex-Communist student leader who burst into the political mainstream after this month’s shock vote.

“The time has come to form a government of the Left, with wide support, and put an end to the these policies that destroy this country.”

“NO ALTERNATIVE”

The prospect of new elections has left European lenders which have bailed Greece out twice close to despair. Senior European Commission officials held urgent talks on Tuesday to work through the fallout from a second Greek election.

“We are really at a critical juncture,” one official taking part in the discussions said. “The decisions are really in Athens’ hands. But it doesn’t look good.”

As French President Francois Hollande flew to Berlin to meet German Chancellor Angela Merkel for crisis talks on the very day he was sworn in, Merkel’s foreign minister, Guido Westerwelle, called the failure in Athens a “bitter blow” to trust in Greece.

“What Greece needs now is dependability and the will to reform to help it get over the mountain, in close collaboration with its European partners,” he said. “The reforms to achieve this are hard and painful but they are the only way back to growth and competitiveness. There is no alternative.”

Even if European lenders were to cut Greece some slack on its austerity commitments, there is no government in place to negotiate a next tranche of aid – and no guarantee there will be one before Greek cash coffers run empty.

Greece’s predicament is hardly new. The country has lurched from one crisis to the next over the past two years and is now enduring its fifth year of recession. Nearly one Greek worker in five has no job. Protests, riots and highly public suicides have become commonplace in a sharply volatile social climate.

Initially exultant at having humbled their political class in this month’s vote, Greeks are now increasingly worried the country is on a path of no return.

“The country is finished,” said Panos Leonidas, 57, a travel agent. “From now on, you can only live here if you’re an animal.”

($ 1 = 0.7726 euros)

(Additional reporting by Renee Maltezou, Karolina Tagaris, Harry Papachristou and Ingrid Melander in Athens and Luke Baker in Brussels; Writing by Deepa Babington; Editing by Alastair Macdonald)

Reuters: World News

Greek leftists reject proposal for technocrat government

Posted on May 15, 2012 by admin

Greece's Finance Minister Filippos Sachinidis (R) awaits the start of an eurozone finance ministers meeting at the EU Council in Brussels May 14, 2012. REUTERS/Francois Lenoir

By George Georgiopoulos and Karolina Tagaris

ATHENS |
Mon May 14, 2012 6:04pm EDT

(Reuters) – Greece’s president will ask politicians on Tuesday to stand aside and let a government of technocrats steer the nation away from bankruptcy, but leftists have already rejected the proposal and look set to force a new election they reckon they can win.

Party leaders, deadlocked since a parliamentary vote nine days ago, will convene at the presidential palace at 2 p.m. (1100 GMT) but said they had little hope President Karolos Papoulias’s offer would resolve a political crisis that has fuelled speculation Greece’s days in the euro zone are numbered.

The multi-party political landscape has been in disarray since an inconclusive election on May 6 left parliament divided between supporters and opponents of a 130 billion-euro ($ 168-billion) EU/IMF bailout, with neither side able to form a coalition that would have a stable majority in the legislature.

If supporters and opponents of the bailout cannot agree a government, the head of state must call a new election in June.

The bailout’s main opponents – the surging radical leftist SYRIZA party which now leads opinion polls – said they saw the president’s plan for a government of non-partisan experts as nothing but a scheme to impose the harsh wage and pension cuts demanded by the foreign lenders but already rejected by voters.

“We will attend the meeting. But we are sticking to our position. We don’t want to consent to any kind of bailout policies, even if they are implemented by non-political personalities,” SYRIZA spokesman Panos Skourletis said.

The prospect that a future Greek government would renege on bailout pledges sent European shares sliding and Spanish and Italian bond yields higher on Monday. Investors fear a Greek exit from the euro would pile risks on other euro zone economies with debt problems.

Papoulias, 82, named a technocrat prime minister six months ago when Greece’s two biggest parties – the conservatives and socialists – joined forces to enact the bailout. But both of those parties were punished in last week’s election, and those which oppose the bailout now are stronger, angrier and in no mood to compromise.

HOPES DIM

Socialist leader Evangelos Venizelos, whose party commanded a majority in the outgoing parliament but was reduced to third place behind SYRIZA in last week’s electoral earthquake, backed the technocrat proposal but expressed doubt it would succeed.

“It’s not normal to have a government by technocrats or personalities but when you are in such a crisis, in such a dead end, we have to accept this as well.”

He added: “Things are very difficult. I’m not optimistic.”

The leader of the moderate Democratic Left party, which has enough seats to offer the pro-bailout parties a majority but has refused to join a coalition without SYRIZA, said he opposed the president’s suggestion.

“I told the president that a government by technocrats or personalities would suggest the failure of politics, and raised my objection,” Fotis Kouvelis said.

Euro zone finance ministers and officials met in Brussels on Monday, where they were asked repeatedly about whether Greece could keep using the euro or might receive softer bailout terms.

Euro group president Jean-Claude Juncker said a new Greek government could potentially raise the question of extending deadlines to meet some of its austerity targets, as long as it was still firmly committed to them.

“The Greek government would have to make clear it is fully committed to the program, and then if there were exceptional circumstances we wouldn’t exclude discussing this issue,” he said. “Anyway, there wouldn’t be any substantive changes involved.”

Juncker spoke strongly against the prospect of a Greek exit from the euro: “I don’t envisage, not for one second, Greece leaving the euro area. This is nonsense. This is propaganda.”

But even as they strongly resist suggestions Greece might have to give up the currency, EU officials have broken a taboo by openly discussing it, a sea-change in the mood in Brussels.

“We wish Greece will remain in the euro and we hope Greece will remain in the euro … but it must respect its commitments,” European Commission spokeswoman Pia Ahrenkilde Hansen told a regular news briefing in Brussels, responding to a question she would have probably avoided just weeks ago.

“Greece has its future in its own hands and it is really up to Greece to see what the response should be.”

($ 1 = 0.7726 euros)

(Additional reporting by Harry Papachristou and Renee Maltezou; Writing by Peter Graff; Editing by Alastair Macdonald)

Reuters: World News

Austerity blow for Merkel in German state election

Posted on May 14, 2012 by admin

German Chancellor Angela Merkel arrives for the German DFB Cup (DFB Pokal) final soccer match between Borussia Dortmund and Bayern Munich at the Olympic stadium in Berlin, May 12, 2012.

Credit: Reuters/Fabrizio Bensch

By Stephen Brown

DUESSELDORF, Germany |
Sun May 13, 2012 10:13pm EDT

(Reuters) – Chancellor Angela Merkel’s conservatives suffered a crushing defeat on Sunday in an election in Germany’s most populous state, a result which could embolden the left opposition to step up attacks on her European austerity policies.

The election in North Rhine-Westphalia (NRW), a western German state with a bigger population than the Netherlands and an economy the size of Turkey, was held 18 months before a national vote in which Merkel will be fighting for a third term.

While she remains popular at home because of the strength of the economy and her steady handling of the euro zone debt crisis, the sheer scale of the defeat in NRW leaves her vulnerable at a time when a backlash against her insistence on fiscal discipline is building across Europe.

According to first projections, the centre-left Social Democrats (SPD) won 38.9 percent of the vote and will have enough to form a stable majority with the Greens.

Merkel’s Christian Democrats (CDU) saw their support plunge to just 26.3 percent, down from nearly 35 percent in 2010, and the worst result in the state since World War Two.

“This is not a good evening for Merkel,” said Gero Neugebauer, a political scientist at Berlin’s Free University. “The SPD is strengthened by this election, which will stir things up in Berlin.”

Elections in NRW have a history of influencing national politics. Seven years ago, a humiliating loss for then-Chancellor Gerhard Schroeder’s SPD in the state prompted him to call an early election, which he lost to Merkel.

For the past two years, the SPD and the Greens have run a fragile minority government under the leadership of the SPD’s Hannelore Kraft, a tram-worker’s daughter with a common touch whose victory on Sunday could propel her to national prominence.

Sigmar Gabriel, national leader of the SPD, said the convincing win could prompt speculation that Kraft would take on Merkel in the federal vote next year, even though she has vowed to stay in NRW. The SPD is due to pick a challenger to Merkel by the end of the year.

“This is a clear signal to Berlin,” said Kraft, wiping tears from her eyes in a disco in the state capital Duesseldorf where jubilant SPD supporters held celebrations.

HOLLANDE VISIT

France’s new president, Socialist Francois Hollande, is due to visit Berlin shortly after he is sworn in on Tuesday to press Merkel to shift away from austerity and place more emphasis on growth-oriented measures in Europe.

Other big countries like Italy also want Merkel to take a more balanced approach to the debt crisis and an election in Greece last week showed massive public resistance to tough austerity that has pushed unemployment close to 25 percent.

A Socialist victory in France, coupled with the NRW result, will give the SPD, which trails Merkel in national opinion polls, new momentum before the federal vote in September 2013.

The chancellor needs the support of her centre-left rivals to pass a new “fiscal compact” that is meant to anchor budget discipline across the EU.

But the SPD is pressing her to delay a parliamentary vote on the pact, keen for the government to commit to new growth measures beforehand.

NRW, which shares a border with Belgium and the Netherlands, is one of Germany’s most diverse states.

It is home to one third of the country’s blue-chip companies but also some of its poorest cities. Coal and steel firms in the Ruhr region where Kraft grew up once fuelled Germany’s post-war economic miracle. Now many have been shuttered and unemployment in some areas is double the national average.

Many in Merkel’s party will blame the result on regional leader Norbert Roettgen, Germany’s environment minister, who bungled his campaign early on by refusing to commit to staying in the state in the event of a loss.

NRW is Germany’s most indebted state and Roettgen ran on a platform of budget consolidation. Kraft advocated a go-slowly approach to debt reduction, emphasizing the need to invest in cities, education and childcare.

The result will be seen by some as a double defeat for Merkel. Voters in NRW not only rejected her party but also the austerity measures that she has forced on struggling southern states like Greece, Spain and Portugal.

“The question arising from this election is whether people still follow Merkel’s way of doing politics in Germany,” said Erik Floegge, 26, a student and SPD supporter, who attended the party rally in Duesseldorf.

“People don’t want us to make hard cuts in social funding, what we want is a ‘New Deal’ where both the social welfare state and fighting debt will work.”

Opinion polls show, however, that a majority of Germans back Merkel’s focus on debt reduction and that many don’t want her to soften her stance towards struggling euro partners.

The Free Democrats (FDP), a pro-business party that rules in coalition with Merkel’s conservatives at the federal level, scored 8.3 percent to make it back into the state assembly.

The party ended a string of humiliating regional performances in a state vote in Schleswig-Holstein last week and it hailed the NRW result as proof of a renaissance after a slide in national polls over the past three years.

The upstart Pirates, a party that campaigns for internet freedom and shot onto the national stage last year, continued a strong run at regional level, making it into the fourth straight state parliament with 7.8 percent of the vote.

The Greens scored 11.8 percent. ($ 1 = 0.7726 euros)

(Reporting by Stephen Brown and Tom Kaeckenhoff in Duesseldorf; Writing by Noah Barkin, Madeline Chambers, Sarah Marsh in Berlin; Editing by Janet Lawrence)

Reuters: World News

Greek president makes last push to avert elections

Posted on May 13, 2012 by admin

Leader of the Socialists PASOK party Evangelos Venizelos (R) meets leader of Conservatives New Democracy party Antonis Samaras in Athens May 11, 2012. REUTERS/Yorgos Karahalis

By Karolina Tagaris and Lefteris Papadimas

ATHENS |
Sun May 13, 2012 6:08am EDT

(Reuters) – Greece’s president met party leaders on Sunday in a final bid to cobble together a coalition and avert a repeat election, but the veteran politician’s effort looked set to fail because of deep splits over an EU/IMF rescue plan.

Leaders of the three biggest parties, each of whom had failed to form a government in the past week, convened at the presidential mansion, where President Karolos Papoulias has a last opportunity to implore them to form a coalition before he must call a new election, probably in mid June.

Conservative leader Antonis Samaras, who placed first in the election last week but fell far short of a majority, expressed hope a deal could still be reached.

“We have a mandate to cooperate to change policies but at the same time remain in the euro. A mandate for a viable government, at least until the European elections (in 2014),” he said outside the presidential mansion.

A week ago voters humiliated the parties that have dominated Greece for generations – Samaras’s New Democracy and the PASOK party of former Finance Minister Evangelos Venizelos, who jointly negotiated a bailout that requires deep cuts in public spending.

Polls since the election show the balance of power tipping even further towards opponents of the bailout, who were divided among several small parties but now appear to be rallying behind Alexis Tsipras, a 37-year-old former Communist student leader.

If the vote is repeated, Tsipras’s SYRIZA party is tipped to place first, winning an automatic extra 50 seats at the expense of Samaras.

If the next government rejects the bailout, EU official say that would meant the end of loans that Athens needs to stave off bankruptcy and its ejection from the euro single currency.

Polls show an overwhelming majority of Greeks reject the bailout but want to keep the euro.

Samaras and Venizelos have offered a broad coalition that would include SYRIZA and try to renegotiate some bailout terms, but Tsipras rejects that.

“It is obvious that there is an effort to bring about a government that will implement the bailout. We are not participating in such a government,” SYRIZA spokesman Panos Skourletis said on Saturday.

Another small leftist party could provide enough seats to form a government with New Democracy and PASOK, but has said it will not do so unless the coalition also includes SYRIZA.

Greeks seem resigned to returning to the polls.

“Why would we believe they’ll agree on something? All they care about is being in power and we’re sitting here not even able to pay our electricity bills,” said Maria Kissou, 53, a corner shop owner in Athens. “Let us go to elections again.”

Kissou voted on May 6 for Tsipras.

“He’s young, I like him because at least he’s trying to renegotiate with the Europeans,” Kissou said.

Supporters of the two establishment parties will be hoping that if a new election is held, Greeks will be frightened of the prospect of leaving the euro and return to the fold.

RUSSIAN ROULETTE

“Country on a dangerous path,” conservative daily Kathimerini warned on its front page.

Papoulias will also meet leaders of parliament’s small parties, which for the first time include the far right Golden Dawn. In one of the unfolding drama’s many sub-plots, Greeks will watch with interest to see how the president, a revered 82-year-old veteran of the World War II anti-Nazi resistance, receives a group whose members give Nazi-style salutes.

The constitution sets no deadline for Papoulias to complete his search for a deal and he has given no indication how long he will spend trying before he calls a new election.

Centre-left daily Ethnos warned on the front page of its Sunday edition that politicians were playing “Russian roulette” with an economy in its fifth straight year of recession.

One in five Greeks – including more than half of the working aged youth – are unemployed, and the government’s coffers could be empty as soon as June if no fresh cash comes from the EU and IMF.

While most Greeks oppose the bailouts, they overwhelmingly back the euro. Some 78.1 percent want the new government to do whatever it takes to keep their country in the currency, a poll by Kappa Research for To Vima daily showed.

European leaders say Athens can remain in the euro only if it sticks to the pledges to clean up its finances that it made to secure the bailout. Opponents say those harsh terms are making the situation worse by strangling the economy.

Tsipras says EU leaders are bluffing, and will not push Greece out of the euro because of the damage this would cause to the rest of the single currency zone.

But officials in Brussels who once refused to discuss any country leaving the euro now talk about a Greek exit as a real, if painful, possibility. A prospect once seen as devastating for the continent’s financial system is viewed as more manageable since banks wrote off much of their Greek debt this year.

(Writing by Peter Graff; Editing by Giles Elgood)

Reuters: World News

Greece lurches towards new vote, hard left leads

Posted on May 12, 2012 by admin

By Lefteris Papadimas and Peter Graff

ATHENS |
Sat May 12, 2012 8:22am EDT

(Reuters) – Greek politicians abandoned their quest to form a government on Saturday, leaving the president with one final opportunity to avert new elections that could drive the debt-choked country out of the European single currency.

Greece’s political landscape is in disarray after voters humiliated the only parties backing a rescue plan tied to spending cuts, leaving no bloc with sufficient seats to form a government to secure the next tranche of financial aid.

Without aid from the EU and IMF, the country risks bankruptcy in weeks and – as European leaders now openly acknowledge – potential ejection from the euro zone.

On Saturday morning, Socialist leader Evangelos Venizelos met President Karolos Papoulias in the presidential mansion to formally confirm he had been unable to persuade other parties to form a broad coalition that would keep the bailout agreement but try to improve its terms.

The holdout was Alexis Tsipras, a charismatic 37-year-old radical leftist, who has emerged as the standard bearer for opponents of the bailout’s harsh austerity measures and has the most to gain from a new election.

Papoulias has one last chance to press all political leaders to form a coalition. If he fails, he must call a new election in June. In televised remarks during their meeting, Venizelos urged the president to lean on Tsipras to join an “ecumenical government”.

“I put this forth to Mr Tsipras. I haven’t received a positive response,” Venizelos said. “I believe that is where your efforts should be focused during the consultations.”

The president replied: “There are signs of optimism in what you are telling me and I hope I can contribute to the formation of a government – because things are rather difficult.”

Papoulias will meet the leaders of the country’s three biggest parties on Sunday at 0900 GMT, his office said in a statement. He will then hold individual meetings with the leaders of the smaller parties.

The lurch towards a new election has caused havoc in financial markets, both in Greece and across Europe, where the prospect of Athens leaving the euro is viewed as a risk for bank balance sheets and the credit ratings of other vulnerable countries, although the EU is better prepared than it was a few months ago.

On Friday, as politicians acknowledged their failure to agree a coalition, the euro sank to its lowest point since January near $ 1.29.

Opinion polls conducted in the week since the election show Tsipras’s SYRIZA coalition surging into first place – a prize that would give it an automatic bonus of 50 extra seats in the 300 seat house at the expense of the conservatives.

Tsipras says the bailout deal must be torn up, though like most Greeks he says he wants to keep the euro, a position seen in Brussels as untenable without the bailout.

“SEXY ALEXI”

Last Sunday’s election saw voters punish the two parties that dominated the country for generations – Venizelos’s PASOK and the conservative New Democracy party of Antonis Samaras.

The two, which usually account for around 80 percent of votes, saw their combined tally collapse to just 32 percent. The rest of the votes were cast for small parties that oppose the bailout, ranging from the Communists to the far right.

Polls conducted since then show the anti-bailout vote consolidating around Tsipras, whose good looks and self confident manner have helped make him a hero for young people.

Venizelos and Samaras say that without their bailout deal Greece would be headed for certain ejection from the euro and bankruptcy. If a second election does take place, they will be hoping that frightened voters return to the traditional parties.

But the momentum is clearly behind Tsipras, who has tapped into generational rage in a country where more than half of young people are unemployed and blame the narrow interests of the middle aged political class for squandering their future.

A cartoon on the front page of the Ta Nea newspaper showed the boyish Tsipras riding off with the ballot box on a toy horse. One of his supporters’ slogans on the internet rhymes: “Come on Alexi – for a Greece that’s sexy!”

A poll by Metron Analysis for the Epenenditis weekly published on Saturday showed SYRIZA would take 25.5 percent of votes – almost 9 points higher than its Sunday result. A poll earlier this week gave SYRIZA 27.7 percent. Such results would put it way ahead of New Democracy and PASOK.

The European Union/International Monetary Fund bailout requires Greece to cut wages, raise taxes, fire state employees, sell off state assets and reform labor laws. EU leaders say it is needed if Athens is ever to become solvent.

But opponents say the harsh medicine is self-defeating, making it impossible for Greece to grow its economy and emerge from the depths of the euro zone’s worst recession, which has ground on relentlessly for five years.

SYRIZA argues that Greece can abandon the bailout and that European leaders will not carry out their threats to withhold funding, because they cannot risk the damage to other EU countries that would be caused by a Greek collapse.

“They will be begging us to take the money,” SYRIZA deputy Dimitris Stratoulis said on Friday.

But European leaders say the next tranche of loans due in late June is in jeopardy if Greece does not emerge with a government committed to the bailout. In a second election, voters would face a stark choice, said Chris Williamson, chief economist at London-based research firm Markit.

“I think it is going to be increasingly presented as a vote to effectively leave the euro. That’s how it will be seen outside of Greece and the rhetoric will build up to ensure that voters are aware of the implications.”

(Additional reporting by Karolina Tagaris; Writing by Peter Graff; Editing by Andrew Osborn)

Reuters: World News

U.S. lawmakers want Haqqani named “terrorist” group

Posted on May 11, 2012 by admin

Jalaluddin Haqqani (R), the Taliban’s Minister for Tribal Affairs, points to a map of Afghanistan during a visit to Islamabad, Pakistan while his son Naziruddin (L) looks on in this October 19, 2001 file photograph.

Credit: Reuters/Stringer/Files

WASHINGTON |
Fri May 11, 2012 3:11pm EDT

(Reuters) – The leaders of congressional intelligence committees, who recently returned from a trip to Afghanistan, urged Secretary of State Hillary Clinton on Friday to immediately designate the militant Haqqani network as a “terrorist” group.

U.S. officials blame the al Qaeda-linked network for attacks in Afghanistan including assaults on embassies and the parliament in Kabul. The former chairman of the Joint Chiefs of Staff, Mike Mullen, called the Haqqani group a “veritable arm” of Pakistan’s intelligence service.

The top Republican and Democrat on the Senate and House of Representatives intelligence committees, in a letter to Clinton, said their trip to Afghanistan last week reaffirmed concerns about the network.

“It was clear that the Haqqani Network continues to launch sensational and indiscriminate attacks against U.S. interests in Afghanistan and the group poses a continuing threat to innocent men, women, and children in the region,” the letter said.

In the six months since the State Department said in November it was engaged in a final review, “the Haqqanis have continued to attack U.S. troops and the U.S. Embassy in Kabul,” the lawmakers wrote.

The letter said the administration may have been reluctant to designate the network as a “terrorist” group while trying to negotiate a reconciliation agreement with the Taliban. But U.S. Ambassador Ryan Crocker told the lawmakers last week there have been no such talks since late last year and Afghan President Hamid Karzai has opposed their continuation.

The letter, signed by senators Dianne Feinstein and Saxby Chambliss and Representatives Mike Rogers and C.A. “Dutch” Ruppersberger, said there was no reason not to move forward on the designation.

State Department spokeswoman Victoria Nuland said the lawmakers’ letter had been received, and that the review of the potential designation was still under way.

But she pointed out that many key Haqqani leaders had already been targeted by individual designations, freezing any U.S.-based assets they might have and barring any U.S. citizen from transactions with them.

“As we continue our review we consider it absolutely essential to designate individuals because that allows us to pursue the assets of individuals rather than have to sort of try to divine who might be covered by a blanket designation,” Nuland said.

(Reporting By Tabassum Zakaria; additional reporting by Andrew Quinn; Editing by Jim Loney)

Reuters: World News

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