Greek Parliament approves Austerity Package

While the Greek government surrendered to the IMF and World Bank demands for more spending cuts, the streets of Athens saw an increase in protests with thousands of citizens taking on police.

Associated Press
June 29, 2011

Greece’s lawmakers approved a key austerity bill Wednesday needed to avert default, despite a second day of rioting on the streets of Athens that left dozens of police and protesters injured.

The passage of the bill was a decisive step for the country to get the next batch of bailout loans from international creditors due from last year’s financial rescue. Another bill has to be passed Thursday for the government to secure the money.

The bill to cut spending and raise taxes by euro28 billion ($40 billion) over five years has provoked widespread outrage, coming after a year of deep cuts that have seen public sector salaries and pensions cut and unemployment rise to above 16 percent.

While deputies voted, stun grenades echoed across the square outside the Parliament building and acrid clouds of tear gas hung in the streets. Authorities and emergency services said 21 police and 15 protesters were injured and transferred to hospitals, while 26 people were detained.

The European Union and International Monetary Fund have demanded both bills pass before it releases euro12 billion of bailout funds — without the money, Greece was facing defaulting on its debts by the middle of next month, potentially triggering a banking crisis, particularly in Europe, and turmoil in global markets.

“We must avoid the country’s collapse with every effort,” Prime Minister George Papandreou said in his speech prior to the vote. “Outside, many are protesting. Some are truly suffering, other are losing they privileges. It is their democratic right. But they and no one else must never suffer the consequences and for their families of a collapse. We must do everything so that there is no freeze in payments.”

The Greek vote was greeted by a sense of relief in Europe’s capital cities, who have been fretting about the impact of a potential Greek default both on their banking systems and on the future of the euro currency itself.

“That’s really good news,” German Chancellor Angela Merkel said when told of the outcome of the vote on her way out of an economic forum in Berlin. Germany is Greece’s biggest creditor.

Equally, relief was the main response in markets too. Soon after the vote, the euro was trading at a fairly elevated level around the $1.44 mark while stock markets around the world were posting big gains.

In Greece, the main Athens stock market closed up 0.5 percent at 1,264, while borrowing costs eased some 80 basis points from a morning high, with the yield on 10-year bonds settling at the still high 16.55 percent.

“The fact that the Greek parliament has passed the government’s medium-term fiscal plan clearly reduces the chances of a near-term disaster,” said Ben May, European economist at Capital Economics.

The unpopular package of spending cuts and tax hikes passed by 155 votes to 138, with five opposition deputies voted “present” — a vote which backs neither side.

A sole deputy from the governing socialists, Panayotis Kouroublis, dissented over government plans to sell a further stake in Greece’s state electricity company and was soon expelled from the parliamentary group by Papandreou.

In a dramatic vote, socialist deputy Alexandros Athanassiadis, who had previously vowed to vote against the bill, overturned his decision at the last minute and backed the package, saying he had been swayed by the prime minister’s comments in parliament.

A conservative deputy broke ranks with her party’s line to also vote in favor, bolstering the government’s majority of five seats in the 300-member parliament.

In the run-up to the vote, violence engulfed the square outside for the second day, while services across the country ground to a halt in the last day of a 48-hour general strike. Riot police fired volleys of tear gas at swarms of young men who were hurling rocks and other debris as well as setting fire to trash containers.

After a lull in the fighting around the time of the vote, the riot started up again with intensity.

Protesters threw flares and orange and green smoke bombs, and a few sprayed fire extinguishers at police, who picked up rocks and tossed them back. Heavy clouds of tear gas wafted over the chaotic scene in front of parliament.

Greece may Collapse in August, Economist

CNBC

A restructuring of Greek debt could happen as soon as August, when the Balkan country is due to receive another tranche of funds

The collapse of the greeks may just have been delayed, not avoided.

from its lending agreement with the International Monetary Fund (IMF) and the European Union, according to Carl Weinberg.

“You can’t take a country that’s over-borrowed and make it more creditworthy by lending it more money,” he said. “They’re throwing Greece further and further and further in the hole by not addressing the problem directly and properly.”Asked when a Greek default could happen, Weinberg answered: “at High-Frequency, we are advising people to take their cell phones on their August vacation.” He said a Greek default would be “harsh” for the euro.

Greek officials did not respond to CNBC.com requests for comment.

On Thursday, Nassim Taleb, professor and author of the bestselling book “The Black Swan,” told CNBC that the economic situation today is drastically worse than a couple of years ago, and that the euro is doomed as a concept.

But famous investor Jim Rogers said now may be a time to buy the single European currency, as there are so many investors who are bearish about it that a rally may be in the making.

IMF and EU funds worth about 7.5 billion euros ($9 billion), crucial for Greece to be able to pay foreign debt, are due to be disbursed at the end of August, Weinberg said.

“Unless (Greeks) meet the quantified adjustment targets that they agreed to in the memorandum of understanding with the IMF, they won’t get this money,” he said, adding that his bet is that Greece will not meet the criteria.

EU Won’t Let Default Happen

Under the memorandum of understanding, performance criteria include ceilings on the budget deficit, cutting government and social security spending, as well as revamping key public companies.

However, other analysts say the implications of a Greek default on the euro zone’s financial institutions and economy are so great that the two institutions will disburse the funds even if the country does not fully meet the criteria.

“By alimenting Greece, we are also alimenting the European banking system,” Hans Redeker, global head of foreign exchange at BNP Paribas, told CNBC.

“It is going to be tried to be protected as long as possible, to be sure that this country is viable economically,” Redeker added.

A Greek debt restructuring, if it happens, would be an orderly one, to cause as little pain to the euro as possible, Weinberg said.

Watch the testimony from Economist Carl Weinberg.

Breaking News: Japan May Default says Japanese Prime Minister

Business Insider

When he was Japan’s finance minister, Naoto Kan advocated loose monetary policy to end two decades of deflation.

But since his sudden promotion to prime minister, Kan has been crying out about public debt levels. Today, he even used the signal word for austerity: Greece.

“Our country’s outstanding public debt is huge. Our public finances have become the worst of any developed country. We cannot sustain public finance that overly relies on issuing bonds. As we can see from the eurozone confusion that started in Greece, there is a risk of default if growing public debt is neglected and trust lost in the bond market.

No one knows if he can pull off the mythical trick of reducing government spending while stimulating private sector spending. Kan may be overplaying the similarity Greece to get people behind fiscal reform, a Credit Suisse Japan analyst tells The Guardian.

We are the next Greece has been the signal phrase for fiscal reform in California, Hungary, and America.

Greece explodes in protest to IMF, World Bank, assault

Yahoo News

A renewed selling frenzy gripped euro zone financial markets on Tuesday as concern mounted that a record EU/IMF bailout forgreek protestGreece would not stop a debt crisis spreading in the single currency area.

Spanish Prime Minister Jose Luis Rodriguez Zapatero dismissed as “complete madness” a market rumor that his country would soon ask for 280 billion euros in aid from the euro area.

The euro sank to a one-year low of beneath $1.31 and the risk premium on Greek, Portuguese and Spanish bonds soared amid jitters about a possible Greek debt restructuring and worries over the fiscal health of other southern European countries.

In Athens, striking public workers challenged Greece’s 110 billion euro ($146.5 billion) bailout-for-austerity deal, starting a 48-hour national strike that shut down ministries, tax offices, schools, hospitals and public services.

“There is no faith in what the EU and the IMF have proposed for Greece,” said Dean Popplewell, chief currency strategist at OANDA, a foreign exchange brokerage in Toronto.

“Capital markets are betting on a Greek default, as Greece’s own populace is not going to accept the terms of this rescue, and contagion is a real concern hurting the euro,” he said.

News that Greece has appointed debt restructuring specialists Lazard to provide “general financial advice” fueled speculation that some form of orderly rescheduling or payment moratorium may be likely, despite vehement official denials.

Finance Minister George Papaconstantinou told Reuters after news of the Lazard hire: “Any form of debt restructuring is out of the question.”

Lazard recently advised countries like Argentina, Ecuador and Ivory Coast on sovereign debt restructurings.

“NOT FULLY DOUSED”

The main Greek public sector union, ADEDY, rallied thousands of protesters outside parliament to reject planned wage and pension cuts and demand that the rich foot the bill. Police fired teargas at a small group of protesters who threw rocks and bottles.

“We want an end to the freefall of our living standards,” said Spyros Papaspyros, the head of ADEDY, which represents about half a million workers in the Aegean nation of 11 million.

The cost of insuring Portuguese, Spanish and Irish debt against default jumped as contagion worries spread, Markit data showed. Investors sought a safe haven in U.S. Treasury bonds.

Greek bond yield spreads over benchmark German Bunds spiked above 600 basis points for the first time since Sunday’s euro zone rescue deal, and Greek bank shares plunged by 10 percent on the worsening economic outlook.

Jitters about whether the emergency loan package would be enough to stem the euro zone’s sovereign debt crisis also hammered Spanish stocks.

“This would suggest that contagion fears have not been fully doused, with the Greece rescue terms not allaying fears of states facing similar challenges,” Nomura rate strategist Sean Maloney said.

Worries that the aid package may be insufficient to meet Greece’s borrowing needs contributed to market concerns.

Economists at several European financial firms calculated those needs to the end of 2012 at 120 billion euros, based on latest IMF and Greek government figures. Germany’s Bild daily cited a government estimate of 150 billion euros given to the parliamentary finance committee.

European Commission officials said they expected Athens to be able to return to markets for funding in the second half of 2011 once it had won back credibility by implementing tough reforms.

But that remains a big “if,” given the grim economic outlook and the scale of public opposition.

More…

A Financial Conflagration of Immense Proportions

Fiat money buckling, an inflationary depression, years of reckless spending, Greek debt unpayable, Euro zone in jeopardy, a loss of integrity in US markets, criminal charges for Goldman Sachs, side pockets a new hedge fun trick, Banks on subprime offensive, Fed works the printing presses overtime…

International Forecaster

America and the world face a financial conflagration of immense proportions. The world of fiat money and massive credit is bucklingfinancial crisis under the pressure of unpayable debt. Each day the safe haven of gold and silver related assets become more attractive. We ask where else do you go for safety? A conflagration is a fire out of control and that is exactly the conditions the world faces today. The inflationary depression has smoldered for 14 months and it will soon accelerate.
For the last 15 years the world has lived far beyond its means especially the US, UK and Europe and as we all know that cannot continue indefinitely. The federal government continues to hire when it should be firing. Having lost 80% of our industrial base we struggle in a service economy that cannot service 300 million plus people, never mind supply exports to offset the cost of imports that we no longer manufacture. We now supply indefinite unemployment benefits, which in reality cannot go on forever. The fiscal debt spirals ever higher and the Fed creates money and credit with no end in sight, which devalues the dollar. Taxation on individuals and businesses continues relentlessly higher. This is the way of corporatist fascism. This is now the way of America.
Officially the destruction of America began on August 15, 1971 when the US abandoned the gold standard. The Council on Foreign Relations said years ago, that 2012 would be the year for the implementation of world government.
In Europe we see the manifestations of years of reckless spending in Greece., a nation that will have to be bailed out by the IMF and other European countries, especially by Germany that holds much of the worthless bonds issued by Greece. Greek bonds are now yielding 17%. Such a premium will not save the economy. The debt service is unpayable. Greece should leave the euro zone; reissue the drachma and default, now. Their position is untenable. We said this on Athens International, French International, BBC worldwide and Deutsch Welle radio a few weeks ago. The Greeks certainly are not blameless, but 80% of the blame lies with the bankers. The outcome is Inevitable, whether it’s now or 1-1/2 years from now. These problems affect all euro zone nations and all will suffer accordingly. For the time being most of the damage to the euro is over, but in time the euro will break up, probably in the next two years. As a result official EU unemployment will hit 14%.
We do not believe the powers that be want Greece to bite the dust just yet, as we pointed out previously. We believe they envision a simultaneous collapse of many nations and multilateral devaluation and debt default. This is their style. This way they believe they can control things and cover up one of the biggest transfers of wealth and power in history. The elitists expect to then usher in world government, as they create another world war.
Those who recognize what the elitist plays are can safeguard their assets and perhaps become very wealthy in that process. Those who ignore the signs and warnings are doomed to lose most everything. Political solutions won’t work now and they won’t work later.
The life of the euro zone and the EU, which consistently have been wrong, at least for now, are trying to make us believe all is well. All is not well. We are told over and over again the crisis won’t spread and it will spread and is spreading. Borrowing costs are already rising in Portugal, Spain, and Germany and throughout Europe.
The euro zone is in jeopardy as Greek contagion affects Portugal and Spain. Sovereign debt is the new subprime paper. We could perhaps see a domino effect as bond yields use in the weaker countries and eventually spread to the stronger European countries, and to the UK and US. The problem will eventually affect the entire world if it rolls out that way. Such a situation could cause a crisis of confidence, which would most certainly drive gold and silver prices higher. Bond markets would already have been affected and world stock markets would be falling. We are perhaps seeing that already with a topping in the US and European equities suffering their largest losses this year. In Europe, Greek bond losses are onerous. A bailout of Greece will probably come and their debt rescheduled. If the bailout doesn’t come watch out. The fallout of a Greek default, the exit from the euro, and the reintroduction of the drachma could force the other 18 nations in trouble to the edge if not into insolvency. These ideas are what we expressed this week in an interview with Greece’s largest newspaper. In addition we could see the dumping of PIIGS bonds and stocks. This could cause major losses and freeze markets. It could also lead to the demise of the euro zone and deeply damage the EU. Another unexpected outcome could be the withdrawal of Britain from the EU followed by the imposition of tariffs on goods and services by the UK, which would be followed by the US.
Another aspect to the Greek problem is that rating cuts are going to force Greek banks to post more collateral, which would force them into a liquidity trap and that could spread the contagion through the global financial system. If more collateral is not forthcoming the banks’ bonds would be downgraded. This also could cause Greek banks to sell assets, putting more pressure on an already weak system. Is it no wonder that gold and silver prices are rising?
In spite of all this the euro zone has the fiscal capacity to backstop banks within the region and to support the PIIGS. The question is will they? Germany seems to be in no hurry to do so. Greece needs loans or to float bonds in the amount of $350 billion over the next five years, which is a tall order. The present approach is to solve this year’s problems of some $80 billion, but bondholders are looking out five years. They are saying to themselves what is going to happen next year and up to five years from now. One good thing is if the Greeks stay in the euro zone they cannot monetize debt away and ruin bond values. Seventy percent of Greeks oppose dealing with the IMF, or accepting loans from the EU. We ask then what do they propose? This is why many investors are throwing their hands in the air and opting to buy gold throughout Europe. No matter which way Greece takes gold is really the only good hedge against a devaluing euro. Gold is not only a hedge against the euro, but also against commodity inflation. A recovery, if it did take place in Europe, would cause higher inflation as well. Causing conflict on the inflation issue is the ECB’s opinion that there is no inflation, when even officially there is. Germany had best not press Greece too hard, because if Greece leaves the euro it would rock global markets. We believe a deal will be done and that will temporarily solve the problem, perhaps for 1 or 1-1/2 years. That is when all the financial derelicts will be taken down together.
We in switching gears must look at the sovereign debt problems of many nations, the US as well. We see a fierce loss of integrity in US markets, due to the play unfolding in the US House and Senate via inquiry and actions by the SEC against Goldman Sachs and others. The US is not Greece, but it has many similar problems. These terrible events unfolding have to eventually reflect lower dollar values as well as a lower market, higher interest rates and higher gold and silver prices. It is apparent and transparent that Goldman has been charged civilly by the SEC in order to protect the firm and its employees from criminal charges, to divert attention away from the passage of a new financial regulatory bill that would make the Fed a despotic power and to make the administration and the Democrats look good going into the November election. Then there is the ongoing mortgage fallout and all the Fed and Treasury giveaways. Making matters worse is the refusal to answer important questions by the Fed for spurious reasons. Then worse yet the SEC told Goldman they were going to be charged two weeks before the announcement was made.  Sixty percent of the toxic waste was sold in Europe, mostly to Germans and they are not happy about that. We cannot understand why the Germans did not sue 2-1/2 years ago, and still haven’t.   More…