The Greek government has stepped up the pressure on its eurozone paymasters by warning that unless a new bailout for the recession-hit country is agreed within the next three months it will be forced out of the single currency.
Pantelis Kapsis, a spokesman for the new coalition government led by former central bank chief Lucas Papademos, said negotiations with the "troika" of the International Monetary Fund, Brussels and the European Central Bank over the coming weeks would "determine everything".
Greece was promised a second emergency bailout worth €130bn (£108bn) in October after it became clear that the first rescue package, agreed in May 2010, was not enough to stabilise its debts.
But talks about this second deal, including a writedown for Greece's private-sector lenders, are still continuing. Kapsis told Greek television: "This famous loan agreement must be signed, otherwise we are outside the markets, out of the euro and things will become much worse."
Reports have emerged since the weekend that the troika could demand fresh austerity measures from Athens in exchange for a new loan to ensure that it meets its targets for reducing the deficit. But Kapsis also said imposing more cuts on a recession-hit nation could be very difficult.
"We will see what the shortfall is and it is very likely that measures will be required," he said. "I also don't believe it is easy to impose new taxes, but what does cutting spending mean? To close down the public sector? There is no easy solution."
Papademos's technocratic government took power after the resignation of George Papandreou, who had sent world financial markets into a tailspin in November by suggesting he could hold a referendum on whether the Greek people were prepared to accept more austerity as the price of staying in the eurozone.
The latest intervention from Athens came as eurozone leaders prepare for a punishing schedule of political summits in coming weeks. They are working towards a new "fiscal compact" to tighten tax and spending rules for the single currency and boost the firepower of their bailout fund from the International Monetary Fund.
Official figures released yesterday revealed the sharp contrast in fortunes between Germany, which remains the powerhouse of the eurozone, and crisis-hit Spain, whose government is battling to keep it out of bond investors' crosshairs.
German unemployment declined by a much larger than expected 22,000 to 2.89 million last month, taking the jobless rate to 6.8%. Anthony Cheung, of market analysts RANsquawk, said: "After a year which saw many eurozone economies stall, the German economic engine is purring on as smoothly as ever. In 2011 Germany created nearly half a million jobs, even while unemployment soared in the eurozone's periphery."
The continued strength of the Germany economy contrasted with the deteriorating situation in Spain, where unemployment rose for a fifth successive month in December, according to official figures, to hit a 15-year high of 4.42 million. On another measure, compiled by the National Statistics Institute, Spanish unemployment is now close to 5m, or 21.5% of the workforce, the highest of any major industrialised economy.
Spain's new government has already announced a series of austerity measures after revealing the budget deficit would be much worse than predicted, at 8%. Madrid is drawing up labour market reforms which it hopes will boost job creation.
However, there were signs yesterday that strains in Europe's banking sector may be easing slightly after the ECB poured €500bn into cash-strapped banks before Christmas. At the ECB's first one-week lending operation of the new year, banks reduced the amount they borrowed by €15bn, to €130.6bn.
The ECB also announced a shakeup in responsibilities on its board yesterday, as two new members arrived to replace Jürgen Stark, the German member who resigned amid controversy about the bank's role in the spiralling sovereign debt crisis, and Lorenzo Bini-Smaghi of Italy.
Peter Praet, a Belgian technocrat who was already a member of the ECB governing council, has been handed the role of chief economist previously held by the hawkish Axel Weber, who left last year after expressing scepticism about the ECB's bond-buying programme, which has helped to drive down Spanish and Italian borrowing costs.
Praet was given the job ahead of ECB newcomers Jörg Asmussen, from Germany, and Frenchman Bernard Coeure.
That decision avoids a potential controversy about whether a German or French number-cruncher should have the role, at a time when Paris and Berlin have different views about the ECB's responsibilities in tackling the sovereign debt crisis.
French president Nicolas Sarkozy has made clear he would like to see the ECB acting as a lender of last resort, a view shared by Britain; but German chancellor Angela Merkel has repeatedly rejected the idea, fearful it could unleash inflation.
Comments
3 January 2012 8:33PM
Greece needs money, now - as in NOW!? Surprise, Surprise...
Well, blackmailing is not "die feine englische Art", as we call it in Germany...
3 January 2012 8:41PM
How is it that the ECB follows practices that seem to benefit certain countries of the core year after year but never responds adequately to the needs of the ailing South European economies?
First they remained hawkish and raised interest rates when recession engulfed the South. Now they are avoiding being a lender of last resort as the South economies are sinking in trouble and unemployment is rising.
Really, what is the role of the central bank but to support a healthy development in all regions?
3 January 2012 8:43PM
Germany is doing great when everyone else is ailing.
Surprise surprise!!
3 January 2012 8:51PM
Well how much attention should be paid to this? I suspect little.
When the idiotic referendum was announced there was something of a run on Greek banks. If Greece looks like leaving the Euro for sure then their banking system would collapse. The Greeks could introduce a new drachma for use within Greece but who would accept it for imports? None would lend, not now and not in 10 yeasr time and like Argentina might find vulture funds dragging them through US courts for years arguing over the fine print of loans already made.
Capital controls would have to be introduced and with them restrictions on movement. Could Greece remain in the EU if the free movement of its citizens is restricted?
Many people cite the example of Iceland as a way out of debts. But their debts were bank debts not sovereign debts. The Icelanders simply didn't bail out their banks basically. The Greeks have sovereign debt obligations.
3 January 2012 8:51PM
everyone? so Holland, Sweden, Luxemburg,......all do bad?
3 January 2012 9:00PM
This step is prudent and appropriate since (for example) youth unemployment in Greece is at crushing levels and since the austerity policies imposed thus far have only served to exacerbate the debt problem by driving down economic output and therefore tax revenues.
The creditors' unwillingness to accept losses does not change the fact that there is no feasible way for the debt to be repaid in full.
The sooner the resolution, the lower the losses will be for France and Germany.
3 January 2012 9:02PM
You can't have a European project where, in half the continent, unemployment is massive, wages are bottom low, healthcare and education are badly beaten and the economy is dying a slow death. While in the other half (or third for that matter), the opposite happens. This is a totally unbalanced situation that is going to create an explosive mix in the years to come as further unemployment and poverty is going to add more burden on populations and societies.
For how long can you persuade people to accept austerity before they say 'enough is enough' and demand a better life for themselves and their families?
For how long can you deny people essential services like schools and hospitals before the society comes apart at the seams? And what happens then?
3 January 2012 9:04PM
So the first carriage actually finishes crashing? If so
The 16 will make sure Greece suffers a lot so no other laggard is tempted to jump.
And the Euro will rise a bit after a while, causing further grief to the bottom of the pile. And so the crash magnifies slightly, just wait till the second carriage goes...
3 January 2012 9:05PM
Prepare yourself for an onslaught of comments blaming Greece and Greeks, instead of the corrupt bankers who got everyone in this mess.
See the award-winning documentary, Inside Job.
And see Max Keiser's report on the scam of Hypothecation:
http://www.youtube.com/watch?v=lK7BaSBG5bY
Both will make your hair stand on end.
3 January 2012 9:06PM
Belgium
Spain
Italy
Ireland
Portugal
Greece
Austria (see: exposure to Hungarian debt)
Hungary
France (more trouble predicted in 2012)
Latvia
Estonia
England
among others
3 January 2012 9:10PM
You said in your first post ALL. Thats a differnt.
3 January 2012 9:11PM
Is it any surprise this giant ponzi scheme is going to crash at some point.
3 January 2012 9:11PM
As far as I know, the Netherlands is on the brink of another recession.
3 January 2012 9:13PM
I would like to make all BANK's which need money, statebanks like our Sparkasse.
But EU and in front, im sry, British goverment want that our statebanks get private.
Yes it is true that not all statebanks are debt free. But compared to the privatebank's they look better.
3 January 2012 9:17PM
There's a solution. Michel Rocard (French Prime Minister under Mitterand) and Pierre Larrouturou (an economist) just published a tribune in Le Monde where they make the very reasonable point that there is something very badly wrong with a system where the US Fed Reserve managed to secretly print 1200 billion of money for the Banking system at 0.01% interest, whereas governments like Greece have to pay 600 times more.
For those who can't manage French, I've done a translation of their piece here.
Actually, they got their numbers wrong. Greece is currently having to pay 1800 times the interest rate that was charged by the Fed.
They also don't mention the fact that Mario Draghi, the newly appointed head of the European Central Bank (and ex-European Director of Goldman Sachs) just printed 489 billion euros for European banks at the slightly less ridiculous rate of 1% over 3 years. The feeding frenzy for the banks on the 21st December in which 523 banks scrambled to get their hands on the unlimited sums provided by Draghi is supposed to be repeated again on February 29th.
Rocard and Larrouturou point out, as I have done, that there is absolutely nothing in the Treaty of Lisbon that prevents the ECB lending to "state owned credit institutions". It's specifically written in paragraph 2 of article 123
When will people stop believing the lie that says that there is no way for the ECB to provide funding for governments, and that providing mountains of freshly printed money exclusively to banks is the only solution? If Greece paid the same interest rates as banks, instead of the 18% rate charged by the bond market loan sharks, the eurocrisis would soon be finished.
3 January 2012 9:24PM
If Greece crashes, others will follow.
First, their banks are too fragile to bear a Greek collapse, second, they will see the benefits of exiting the euro and reestablishing their economies and competitiveness.
A possible euro split is protectionism at its best. The euro will overvalue and act as a tariff in itself.
Economics 101: protectionism is the best way to protect an extremely weak or 'infant' economy. Ta-ta!
There is light at the end of the tunnel.
3 January 2012 9:29PM
You say "benefits of exiting". I dont see one. Could you explain?
3 January 2012 9:31PM
Why not? It works in Britain.
3 January 2012 9:33PM
I can guarantee the benefits will be non-existent in the first instance and disguised by the 16 if ever emerging. Most of the damage will be internal, follow the money.............................
3 January 2012 9:42PM
Cheap exports
low cost services
high prices on imports to insulate local production
less imports sparks need for further local production
imports bought at competitive prices (if any)/price shopping
capital stays in the country for reinvestment
How do these sound?
3 January 2012 9:42PM
Absolute fantasy. The sub-prime crisis is over, the USA is well away from this. Any recession after such a boom will out malignant elements.
The sovereign debt crisis is the result of massive unviable government spending. Greece has been doing this before any sub-prime bankers were born.
The UK domestic banking crisis was also triggered by sub-prime but not caused by.
It is high time you stop blaming the same villains as you will let the next lot off. Time to move on. Forget the GR theory they just advised the Greeks on doing what the rest did, cook the books, pretty well sums up the Greeks though
3 January 2012 9:48PM
And the German and French banks that financed all this government spending were asleep on the wheel I guess so they could not bear any responsibility!
3 January 2012 9:49PM
You don't know much about Greece.
Exports what exports.
Tourism is 15% GDP, given the backdrop of massive civil unrest, no banking system and dreadul PR- will be a lag
Imports will sky rocket. Oil is a massive need for the fleet especially
What capital, holdings will be trashed, remember 50% of bonds are home owned
3 January 2012 9:49PM
And so the world's most terrifying and boring crisis rumbles on.
Time for Eurozone to break up and the bond markets told where to shove it.
Great post by SimonThorpe above.
3 January 2012 9:56PM
Cheap export. The stuff to export will be the same, with the differnt that they get less income because cheaper.
low cost services.....ppl get paid bad? at least it mean the life standart will fall...so no win.
ok. they have, correct me when im wrong, no car industry. so everyone who want to buy a car will spend much much much much much more money. ok possible good for clima.
capital stays in the country. it did already run away after first time got ask if possible in future it could be that.....who will lend greece any mony? and if for sure for intrestrates much much higher then atm.
3 January 2012 9:57PM
Think you mean the people who own the bonds, if you don't I bet someone very close to you does
3 January 2012 10:00PM
My friend, Greece has been around for quite a while. How do you think they existed before the euro? What did they do before? Did they live on manna and thin air?
Of course, they have a host of industries but now, as their economy is beaten up, it looks that nothing is produced. This is what you get for belonging in the euro. Line ups in soup kitchens and clothes banks. Unemployment skyrocketing and life getting extremely expensive.
The same is true for a few other countries like Portugal, Ireland and Spain. Welcome to the eurozone.
3 January 2012 10:05PM
I was in Greece long before the euro, they survived through constant devaluation. Which is the way they will again but getting there means things will get a lot worse yet.
I live in Portugal it is going the same way, they are both insolvent, Greece de facto absolutely whilst Portugal just needs divine intervention.
Italy and Spain are the questions now.
3 January 2012 10:09PM
And Portuguese did not have to fight liberating wars to establish their country.
While Greeks went through a hell of a time to call that chunk of land home. Constantly in battle against all sort of invaders.
And move their country to the 21st century from the darkness.
3 January 2012 10:11PM
Think long term. Reviving an economy from such a hit won't be easy but it has to be on the right track.
3 January 2012 10:15PM
No one i know in greece even considers the seventies as relevant. Most want the euro, as most know oil would become a huge problem with a soft currency.
What about all pensions and savings disappearing?
3 January 2012 10:16PM
If Greece voluntarily exits the Euro, which would plunge the country back to the '50s, the common currency will collapse in a matter of weeks.
Not because of the exposure to the Greek government and corporates, but because of what people in the other weak economies will do.
Surplus and deficit economies, or put differently, very competitive and very uncompetitive economies are just different sides of the same coin in a currency union.
How the Euro-elites expected the Euro project to work without some sort of fiscal transfers or a lender of last resort is beyond me.
And if the Euro does go down, the Deutsch Mark will appreciate massively, which will kill off Germany's exports.
Germany needs to decide whether she actually wants a union or not.
3 January 2012 10:17PM
Utter tripe. The govts are in trouble because corrupt 'too big to fail' banks were bailed out by governments, using taxpayer money which would normally have been used to fund health, education and housing.
In addition, Goldman Sachs deliberately disguised Greece's debt so it could enter the Eurozone.
3 January 2012 10:19PM
Ok long term.
They have to change their system. If they not want, like nocolour said, to static devalue.
With Euro they get help. Without they have to do alone. Also they loose the punching bag and ppl see, its not euro or EU fail.....would be much harder time for greece goverment then now.
About German banks loosing money....to bail them out would have been cheaper then what we do now. I would like to let them fall but....
3 January 2012 10:24PM
They should never have been allowed to join, as a pro-european, the corruption in european politics disgusts me.
3 January 2012 10:27PM
Reading on Irish Times that the Irish construction boom was financed by German banks gave me the goosebumps. If the Greek 'profligacy', the Irish bubble and part of the Portuguese 'extravagance' were all financed by German banks, really, where is the difference between the sub prime mortgage banking crisis and this one?
3 January 2012 10:28PM
We had strong export with DM too. the 10years before euro, 100DM fall to value of 82DM. Now Euro did fall from 100€ to 81€. Also if so, that mean we can buy resources cheaper...and as we have nothing left and we need to import all ^^
I dont say we dont benefit from €. But so did every other nation too. Irland or Spain wouldnt have had the highs without the €.
The question is not, if economies are on same lvl. the question is, if you life with your means or if you have a party....
the stupid idea of "only growth" is good is ill. why is a year with 0 growth...where the firm still make 10billion bad? or a year where their income fall from 10 to 9.9? a bad year should be, when a firm get into red numbers and sell nothing. and a good if not.
3 January 2012 10:30PM
Who is losing the punching bag here? Are you kidding me? The Greeks have been struggling to get their economy back on track for two years now with the globe beating them as they moan.
3 January 2012 10:31PM
Can you explain why after the sub-prime and Brown meltdowns elsewhere. Portuguese and Greek banks had no worries other than watching the global banking fiasco and liquidity.
It was only when sovereign debt issues made their national bond yields to take off, that the banks assets started to look shaky.
The banks here BES, BANIF, BBVA and others then had to soak up new issues in other words the baks were bailing out the government. Ably assisted by the ECB.
If you buy a rotten apple you'll blame it on GS. You don't half live in a simplistic world the issues in Ireland and Spain; Greece and Portugal; USA; UK are totally different.
No taxpayer money used here amigo
3 January 2012 10:36PM
Greece imports oil but is also a producer. Oil, gas and renewable energies are still greatly undeveloped and a source of revenue.
Greece will be in a great shape if they don't have to make huge interest payments on their massive debt. These debt payments are crippling the country and suck all valuable income that can be used more productively for the benefit of the Greek people.
So they don't starve and line up in soup kitchens or have to give up their children to the state.
3 January 2012 10:38PM
aslong they in eu, the goverment can say "its all eu fault". if they have left the euro they cant. everyone is fighting against each other....i dont want to pay more, i dont want to get less, we need put money into econmy......but which? where?
i did read about a kinda "marschal plan". We lend them money for 0 intrest, for which they buy solarpanals from us and then they can sell us the current back. why such things dont in news or get forward?
3 January 2012 10:39PM
Greece Oil you are joking.......good night
3 January 2012 10:43PM
There are no winners in this. But without a wholesale restructuring of the global financial system, we condemn millions to penury with no end in sight.
It needs to start with immediate renationalization of banks and debt write-downs. Anything else is just throwing banknotes on the fire.
3 January 2012 10:50PM
If I was Greek I would be moving to Germany (which I would be perfectly able to do under current EU rules) to set up my family and establish myself in work. This would be far better for my childrens future I suspect.
I bet the Germans would soon act if they started to mass migration from Greece, Portugal, Spain etc into Germany....
3 January 2012 10:51PM
Ha ha ha! And you think these things happen independent of one another, amgio?
3 January 2012 10:55PM
We already have from Spain. Where Firms pay the possible workers the fly.....
As we have a Law, that no matter from where the worker comes, he have to get paid equal like any other worker in that job i dont see a problem.
3 January 2012 11:00PM
It was in the news.
Der Spiegel wrote extensively about it. About the fact that Greece is becoming an energy hub with wind farms on the islands, solar parks on the most sunny parts of Crete and Peloponnese (Megalopolis project is one of the largest solar energy producing parks in the world), oil survey and drilling in Ionian Sea and gas drilling south of Crete with a possibility of a gas pipeline in the South.
Drilling contracts are in works as we speak.
3 January 2012 11:02PM
well that's great to see. I hope you can accomodate several million families over the next couple of years....
3 January 2012 11:07PM
Who would abandon sunny beautiful Greece for the dark, gloomy, cold North? Money is not everything, you know. Greeks who worked in Germany in the 50s, 60s and 70s have most come back reestablishing themselves back in Greece. I met a taxi driver once in Thessaloniki who told me that he had lived and worked in Germany for 10 years. I asked him why he came back. He was silent, a very heavy silence... Sometimes, just cultures don't mix.
3 January 2012 11:12PM
they happen as they happen, you need to study the facts not feed your own bias.
Do you still think Adam is the cause of everything? Madoff was caused by sub-prime it was exposed by it as were bad companies, bankrupt people and bonkrupt nations. Any fool that survive in a boom. It is recessions were the weak are exposed.
A recession caused by a dirty bomb in NY or our City or a major pandemic would have caused all this.
I repeat the Portuguese banks bailed out the government, in vain may I add. Why must simple be true?