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| Eurozone agrees to Greek bail-out, but doubts remain by Valentina Pop BRUSSELS - After a 14-hour meeting eurozone finance ministers and bankers have agreed on a second bail-out package for Greece with extra supervision and an "absolute priority" on paying back its debts. But doubts remain on whether the country will avoid default. "We have reached a far-reaching agreement on the new Greek programme with a very significant debt reduction. This will give Greece the time needed to follow a credible path of structural reforms and restore growth," Eurogroup chief Jean-Claude Juncker said at the end of the marathon meeting early Tuesday morning (21 February). The deal comprises loans to the tune of €130bn mainly from the eurozone bail-out fund (EFSF) - with a "significant contribution" from the International Monetary Fund to be decided in March. Following negotiations with bankers from the International Institute of Finance, Athens on Wednesday is set to launch a bond-swap offer for banks to take a 53.5 percent loss on their old Greek bonds. If this 'haircut' proves successful and all the structural reforms are implemented, eurozone ministers expect Greece's debt to be slashed from 160 percent to 120.5 percent of its gross domestic product by 2020. To achieve this target, extra help will come from national central banks foregoing their profits on Greek bonds and by lowering the interest rates on the first bail-out. As for Greece, "further major efforts" are expected to meet the "ambitious, but realistic fiscal consolidation targets", under extra supervision by the EU commission and member states, the final statement of eurozone ministers reads. A special account, sealed off to Greek authorities, will be set up especially to guarantee that Greece pays back its debt. The Greek government also pledged to introduce a legal provision ensuring "absolute priority" to debt repayments, Juncker said. However, a leaked EU-IMF analysis of Greece's debt developments in the coming years questions the feasibility of this programme. "The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline (scenario)," the document reads, citing problems in convincing trade unions in accepting further "wage flexibility" and resistance from "vested interests" in going ahead with market liberalisation. Recession, an inefficient bureaucracy and high unemployment are also mentioned in the worst case scenario, which warns that Greece would have "even less certain prospects" of returning to markets in the next years. "The debt trajectory is extremely sensitive to program delays, suggesting that the program could be accident prone, and calling into question sustainability," it says. Asked about this analysis, IMF chief Christine Lagarde admitted that the new Greek programme "is not an easy one" and still bears "downside risks." But she insisted that it could be done by focusing on the implementation of structural reforms and guaranteeing the political support of coalition leaders. Economists were sceptical this would work. “The Greek programme remains fragile and vulnerable. Based on what we have seen today, Greece will almost certainly need another bailout," Sony Kapoor from Re-Define, a think tank, said in an emailed statement. http://euobserver.com/19/115321 Europe Seals New Greek Bailout to Avert Default CNBC Euro zone finance ministers sealed a 130-billion-euro ($172 billion) bailout for Greece on Tuesday to avert a chaotic default in March after persuading private bondholders to take greater losses and Athens to commit to deep cuts. After 13 hours of talks, ministers finalised measures to cut Greece's debt to 120.5 percent of gross domestic product by 2020, a fraction above the target, to secure its second rescue in less than two years and meet a bond repayment next month. By agreeing that the European Central Bank would distribute its profits from bond buying and private bondholders would take more losses, the ministers reduced the debt to a point that should secure funding from the International Monetary Fund and help shore up the 17-country currency bloc. But the austerity measures wrought from Greece are widely unpopular among the population and may hold difficulties for a country which is due to hold an election in April. Further protests could test politicians' commitment to cuts in wages, pensions and jobs. Every government in the currency union will also have to approve the package. Northern creditors, such as Germany, had pressed for even tougher measures to be placed on Greece, but Finance Minister Wolfgang Schaeuble said he was very confident a majority in parliament would approve the package. "We have reached a far-reaching agreement on Greece's new programme and private sector involvement that would lead to a significant debt reduction for Greece ... to secure Greece's future in the euro area," Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference. The euro gained in Asia after the bailout was agreed. Some economists say there are still questions over whether Greece can pay off even a reduced debt burden. A return to economic growth could take as much as a decade, a prospect that brought thousands of Greeks onto the streets to protest on Sunday. The cuts will deepen a recession already in its fifth year, hurting government revenues. "We sowed the wind, now we reap the whirlwind," said Vassilis Korkidis, head of the Greek Commerce Confederation. "The new bailout is selling us time and hope at a very high price, while it doggedly continues to impose harsh austerity measures that keep us in a long and deep recession." Extra Relief A report prepared by experts from the European Union, European Central Bank and International Monetary Fund said Greece would need extra relief to cut its debts near to the official debt target given the worsening state of its economy. If Athens did not follow through on economic reforms and savings to make its economy more competitive, its debt could hit 160 percent by 2020, said the report, obtained by Reuters. "Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it," the nine-page confidential report said. The accord will enable Athens to launch a bond swap with private investors to help put it on a more stable financial footing and keep it inside the euro zone. About 100 billion euros of debt will be written off as banks and insurers swap bonds they hold for longer-dated securities that pay a lower coupon. Private sector holders of Greek debt will take losses of 53.5 percent on the nominal value of their bonds. They had agreed to a 50 percent nominal writedown, which equated to around a 70 percent loss on the net present value of the debt. Juncker said he expected a high participation rate in the deal, but some bondholders may balk at the new terms. Greece said it would pass legislation that would allow it to enforce losses on bondholders who will not take part. Euro zone central banks will also play their part in reducing the debt. A Eurogroup statement said the ECB would pass up profits it made from buying Greek bonds over the past two years to national central banks for their governments to pass on to Athens "to further improve the sustainability of Greece's public debt". The ECB has spent about 38 billion euros on Greek government debt that is now worth about 50 billion euros. The private creditor bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default. The vast majority of the funds in the 130-billion-euro programme will be used to finance the bond swap and ensure Greece's banking system remains stable; some 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalise Greek banks. A further 35 billion or so will allow Greece to finance the buying back of the bonds. Next to nothing will go directly to help the Greek economy. http://www.cnbc.com/id/46459122 Spain Protests Labor Reforms As Hundreds Of Thousands Take To Streets by Paul Day and Tomás Cobos MADRID, Feb 19 (Reuters) - Hundreds of thousands of people protested across Spain on Sunday against reforms to the labour market they fear will destroy workers' rights and spending cuts they say are destroying the welfare state. Organisers, including the two largest unions Comisiones Obreras and UGT, said as many as half a million people joined the protest in 57 towns and cities, although Spanish police gave no official estimate. In Madrid, one of the largest protests since the economic crisis began almost five years ago filled the wide boulevards from the Atocha train station up to the central Sol square with loud but peaceful marchers of all ages. "Contracts are getting worse every year. They say they want to invest in the future while cutting research budgets. They're not looking to the future but to the next election with cuts dictated from Brussels," university researcher Nacho Foche, 27, said. Spain's new conservative government began its four-year term in December with tax hikes and spending cuts worth around 15 billion euros ($19.74 billion) and must cut another around 40 billion to meet tough deficit targets set by the EU. It has also passed reforms in the financial sector, which force banks to recognise property sector losses, and the labour market, which grant companies greater hiring and firing power, in an effort to appease nervous markets. The euro zone's fourth largest economy has been in the eye of storm of the debt crisis since the Socialist government racked up one of the bloc's largest budget deficits, leaving investors concerned it had lost control of its finances. UNEMPLOYMENT The Socialists, trounced in November's election over their perceived mishandling of the crisis, made sweeping cuts and reforms while the economy reeled from the fallout of a burst property bubble and collapsed domestic demand. The conservative party says its own labour market reform, passed Feb. 10, will give struggling companies more room to recover from the economic crisis and create jobs in a country where almost half of all young people are unemployed. The reform has abolished severance pay worth 45 days for each year worked, a legal requirement that companies said made it prohibitively expensive to reduce the workforce in times of economic difficulties. "When we designed this reform we were thinking in the people who are out of work, who see no future," Prime Minister Mariano Rajoy told a party conference on Sunday. Spain has the highest unemployment rate in the developed world at 23 percent and many Spaniards fear granting businesses greater powers to lay off workers will prompt a wave of redundancies and new contracts without rights. Rajoy was caught on camera in Brussels last month saying to his Finnish counterpart that he believed the labour reform would cause a general strike and, although the unions have not called for industrial action, many at the march in Madrid thought more should be done. "There has to be a general strike. They said they were cutting workers rights to create more work. They've cut rights, but not said how they plan to create jobs," teacher Alberto Carrillo, 48, said. "Before we were privileged, but now we're having trouble even paying our gas bills." ($1 = 0.7597 euros) (Additional reporting by Inmaculada Sanz; Editing by Alison Williams) http://www.huffingtonpost.com/2012/02/19/spain-protests-labor-reforms_n_1287491.html#s708167 |
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