The EU/IMF deal will find a majority in the Greek parliament, but last night’s decision by Antonis Samaras, leader of the opposition New Democracy, to vote against the IMF/EU package destroys any hopes of a lasting consensus for reform, the Greek newspaper Kathimerini reports.
“We do not deny financial support, necessitated more, but we disagree with the policy that led us thus far and the government’s economic strategy to address the crisis.”
This signals a return to the politics as usual at a rather early stage in the adjustment process, and destroys any hope of a national consensus, which is so critical when it comes to the implementation of long-term adjustment programmes. The decision makes it very likely that Greece will not be able to maintain the commitments it made in its negotiations, except in the very short term.
The decision of the New Republic to vote against the funding agreement by the support mechanism in the euro area and the IMF announced late last night, the party president, Antonis Samaras.
“We do not deny financial support, necessitated more, but we disagree with the policy that led us thus far and the government’s economic strategy to address the crisis,” he said, according to Kathimerini.
After several hours of discussion and continuous consultations, Mr. Samaras finally leaned towards a “no”.
In a statement last night he explained the reasons for its decision;
“We disagree with the policy that led us thus far and the government’s economic strategy to address the crisis.”
He accused the government for wanting a vote of tolerance “for the record” and that it “seeks the complicity in a policy” which has led to mistakes, delays, bilingualism and the incredible escapades of the Greek government.
When it comes to impose the responsibilities for the use of IMF in handling of the government, he says that ” Greece certainly has a deficit problem, but similar to that which existed in many other countries in the euro zone.”
Mr. Samaras added, however, that the South West, regardless of its position, “will honor the money given juncture in Greece by the governments of our partners and the International Monetary Fund” and that “we are bound by contracts signed by the Greek state, even when we disagree, we will do everything we can so money can be returned as agreed in the contracts. “Greece has dignity,” he underlined.
In conclusion he said that “Greece is in urgent need of politicians who do not bow their heads, or runs out in protest, but makes room for view outlets, which at critical moments know how to withstand pressure, but also knows to resist populism and solvents phenomena.”
Prime Minister George Papandreou and the government are waiting to manifest the concern of the current unrest, but the outcome of the battle will be tomorrow when the House is set to pass the EU/IMF agreement and the package of measures, Kathimerini writes.
Equity markets had a rough day, southern European bond spreads were back up, as were CDS ratings of south European sovereigns, and the euro fell towards to $1.30, the weakest level in a year.
The latest rout was triggered by comments from Germany’s economics minister, who said that the finance package would last only 18 months, and by Germany’s finance minister, who warned the Greeks that a failure to meet the objectives would lead to bankruptcy.
This is not what the market wants to hear now. The Greek two-year yield subsequently rose by 4.2% to 14.5%.
Portugal And Spain Next In Line
The crisis is currently spreading to Portugal, the next candidate for a combined IMF/EU programme.
A bewildered Jose Luis Zapatero gave an angry response to press reports which alleged that he was preparing a €280bn rescue package for the Spanish economy, according to El Pais.
Pointing towards the (still) relatively low level of Spanish debt-to-GDP ratio, he said the speculation was without foundation.
Investors are probably aware of the Spanish public deficit- and debt numbers. but it is the private debt, and the liabilities of a state-guaranteed banking they are worried about.
In an editorial, El Pais makes the point that the problem for Spain is not so much the actual numbers, but the perception that the country is not reforming, especially in the labor market.
Tano Santos in Nada es Gratis writes in a commentary that Spain needs to reboot its entire economic strategy to survive this crisis, something that is not possible with the present government, and especially not with Zapatero.
He makes the points that Spain needs an increase in potential GDP growth through reforms, the courage to close down banks, and restrictions on the expenditure of municipalities.
Another Time Bomb About To Explode
Wolfgang Munchau says in his FT Deutschland column that he is not certain about the actual status of the loan to Greece, and criticizes the EU and the German government for failing to come clean on this matter, and clarify the implications.
The financial markets believe – probably correctly – that the debt is junior. After all, one of the main goals of the package had been to stabilize markets. But if the debt is junior – and given a non-trivial probability of debt restructuring down the line – it is virtually guaranteed that only parts of the loan will be paid back.
Munchau assumes that the German government is deliberately hiding this fact in order to facilitate passage of the legislation, as the country’s financially illiterate MPs are unlikely to get bogged down in questions about the seniority of debt.
But this game of smoke and mirrors is hugely dangerous gamble, and could lead to massive political and legal backlash, once people (and constitutional court justices) realize that this is a fiscal transfer after all, contrary to what Merkel has been saying.