- Economic government: Wolfgang Schäuble, Germany's finance minister, has asked officials to prepare a plan in time for a summit of EU leaders on Thursday, according to reports in the German media. The options include either a loan from EU states or some sort of institutional EU response. Germany's apparent backing for a bail-out comes despite worries that it will lead to the breakdown of fiscal discipline across the Club Med region. It also raises troubling questions of fairness. Ireland has tackled its own crisis by slashing wages and going far beyond any measure so far offered by Greece, yet Dublin has not received help. Germany's dramatic shift in policy changes the character of the euro project. It follows weeks of soul-searching in Berlin, and after increasingly loud pleas from Brussels, Paris and southern capitals. The deciding factor was concern that letting Greece fail risked a "Lehman-style" run on Club Med debt, with systemic spill-over across Europe.
- European Finance Ministers under pressure: After European leaders made pledges of support for Greece last week that stopped short of committing public funds, investors are looking for greater detail, as well as clues to whether an agreement on Greece could also be applied to Portugal or Spain. Even as the risk premium on Greek debt fell last week on the prospect of European support, the euro weakened on concerns the plans may fall short.
- Greek risk exaggerated: European Central Bank council member Athanasios Orphanides said Greek bond spreads suggest investors may be exaggerating the risk of Greece defaulting on its debt. Orphanides, whose mother’s family hails from Greece, said he trusts the Greek government will do “whatever is necessary” to tackle its fiscal crisis. The statement by EU leaders was “very positive,” he said. Greece’s Prime Minister George Papandreou said he will freeze public workers’ wages, reduce benefits, crack down on tax evasion and raise the retirement age as he tries to convince investors of his country’s credit-worthiness. Strikes shut down schools, hospitals and flights on Feb. 10 as unions protested against the austerity measures. Another walkout is set for Feb. 24.
- Greek accounting tricks:A Greek government inquiry uncovered a series of swaps agreements with securities firms that may have allowed it to mask its growing debts. Greece used the swaps to defer interest repayments by several years, according to a Feb. 1 report commissioned by the Finance Ministry in Athens. Greek Prime Minister George Papandreou, who came to power in October after defeating two-term incumbent Kostas Karamanlis, more than tripled the 2009 deficit estimate to 12.7 percent. Greek officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic figures.
The Finance Ministry report blamed “political interference” for the collapse of credibility in Greece’s statistics. There were “serious weaknesses” in data collection, especially with spending figures, as information often came from second-hand sources, the report found.
- Wall Street role in hiding debt
Monday, February 15, 2010
I'll have more to say about the Greek bailout in the coming days but here is some reading material for now: