As Recovery Spreads, Greece Is Bypassed
0 views
Skip to first unread message
June Samaras
Nov 20, 2009, 8:40:38 PM11/20/09
to hellas-greece
As Recovery Spreads, Greece Is Bypassed
By MATTHEW SALTMARSH
Published: November 19, 2009
http://www.nytimes.com/2009/11/20/business/global/20drachma.html
One quip making the rounds in Athens is that the financial crisis is
arriving — but on Greek time.
Seasonal public sector employees demonstrate before the Greek
parliament earlier this month, demanding new measures to combat
unemployment.
The Greek economy started to slow down later than many of its peers,
and it appears to be stuck in recession for longer. It was still
contracting during the third quarter, putting it alongside the
laggards of the region, like Spain.
Now even as big banks elsewhere are returning to profit, new concerns
are being raised about Greek banks, which expanded in the Balkans
before the downturn. As credit dried up, they became reliant on ultra
cheap funds available from the European Central Bank, and used Greek
government bonds as collateral for the loans.
As the country’s budget deficit swells, its sovereign credit rating
has come under renewed threat. That has encouraged speculation that
Greek government bonds might soon no longer be accepted as collateral
by the E.C.B., or might only be eligible at a higher cost.
All of this has unsettled investors, who marked down the price of
Greek bank shares early this week and are again demanding a bigger
premium to hold the country’s debt.
“In the good old days, the market shrugged off Greece’s problems and
then went back to business as usual,” said David Schnautz, an interest
rate strategist at Commerzbank in Frankfurt. “This time, the
credibility blow seems to be sustained. The new government will have
to fix that, but it won’t be easy.”
The budget deficit has been above the limit of 3 percent of gross
domestic product for countries using the euro in all but one year
since Greece joined the bloc in 2001. But the new socialist government
shocked investors after the election in October by doubling its
forecast for this year’s deficit, to above 12 percent of G.D.P. It
accused the previous center-right administration of cooking the books.
At the end of October, the credit ratings service Moody’s put Greece
on notice for a possible downgrade, soon after a downgrade by Fitch.
Standard & Poor’s had already cut the sovereign rating one notch, to
A-, in January — the lowest level in the 16-nation euro zone.
Such moves have lessened the appetite of investors to buy Greek bonds,
which Athens must sell to fund the deficit.
The government was elected on a platform of taxing the rich,
stimulating the economy and taking steps to cut the deficit. But so
far it has failed to come up with a credible plan, even as tax
receipts weaken. There are murmurings among labor unions of a winter
of discontent if spending curbs are too aggressive. That is a concern
for many in the wake of the student unrest just over a year ago.
The Organization for Economic Cooperation and Development, a research
group in Paris, warned Thursday that unemployment in Greece would move
above 10 percent in 2010 and stay there in 2011.
The European Union’s economy commissioner, Joaquín Almunia, singled
out Greece’s “serious problems” last week as “a question of common
concern for the whole euro area.” His office has ordered Athens to
present regular budgetary progress reports. Eventually, Greece could
be fined if it does not take adequate action.
The government says it is trying to address the issue. An official
from the Ministry of Finance, who was not permitted to speak publicly,
said the Cabinet had agreed Wednesday on a new version of its draft
2010 budget, which will be forwarded to Parliament on Friday.
Under the draft, he said, the deficit would fall next year to 9
percent to 9.4 percent of G.D.P., from 12.7 percent this year, as
growth improves.
To finance this, the government will focus on spending, curbing pay
increases for civil servants, imposing a freeze on hiring of new
government employees and using retiring civil servants to temporarily
plug shortfalls.
Parliament is expected to vote on the draft by Christmas, the official
said, adding that the question of taxes will not be addressed until
next year.
In 2010, the government also plans to confront the issue of the
retirement age, which can be as low as 55.
Investors do not fear a sovereign default. They assume that the German
government’s signal in February, that euro members close to default
would be bailed out by their peers, remained valid.
But there are worries that the lack of faith from rating agencies
might further hamper lenders.
The E.C.B. is expected to begin winding down its special lending
operations soon — a December auction of funds for 12 months is likely
to be the last of its kind — potentially leaving Greek lenders
exposed. The Greek central bank said this week that a number of
domestic banks would need to “show restraint” at the coming tender “to
facilitate their exit from the extraordinary and temporary measures of
the euro-system when these measures are withdrawn.”
Some analysts, like Mr. Schnautz of Commerzbank, say the scale of the
threat has been exaggerated, given that Greek bonds would have to be
downgraded by three more notches to start encountering problems.
Other analysts said even in the event of more downgrades, the E.C.B.
was unlikely to abandon Greece and might adapt its rules if needed. An
E.C.B. spokeswoman declined to comment beyond emphasizing that all
banks must comply with the existing framework.
Still, investors are nervous. The Athens Stock Exchange general index
has fallen 3.5 percent so far this week, while the Dow Jones Euro
Stoxx 50 was down 0.8 percent.
The spread of yields between benchmark 10-year Greek bonds and their
German equivalents, which are considered extremely safe, was as wide
as 300 basis points in March, before narrowing to 108 basis points in
August. But it has been moving out again, rising to 170 basis points
Thursday. A basis point is one-hundredth of a percentage point.
==============================='
June Samaras
KALAMOS BOOKS
(For Books about Greece)
2020 Old Station Rd
Streetsville,Ontario
Canada L5M 2V1
Tel : 905-542-1877
E-mail : kalamo...@gmail.com
(or) kalam...@aol.com
www.kalamosbooks.com
By MATTHEW SALTMARSH
Published: November 19, 2009
http://www.nytimes.com/2009/11/20/business/global/20drachma.html
One quip making the rounds in Athens is that the financial crisis is
arriving — but on Greek time.
Seasonal public sector employees demonstrate before the Greek
parliament earlier this month, demanding new measures to combat
unemployment.
The Greek economy started to slow down later than many of its peers,
and it appears to be stuck in recession for longer. It was still
contracting during the third quarter, putting it alongside the
laggards of the region, like Spain.
Now even as big banks elsewhere are returning to profit, new concerns
are being raised about Greek banks, which expanded in the Balkans
before the downturn. As credit dried up, they became reliant on ultra
cheap funds available from the European Central Bank, and used Greek
government bonds as collateral for the loans.
As the country’s budget deficit swells, its sovereign credit rating
has come under renewed threat. That has encouraged speculation that
Greek government bonds might soon no longer be accepted as collateral
by the E.C.B., or might only be eligible at a higher cost.
All of this has unsettled investors, who marked down the price of
Greek bank shares early this week and are again demanding a bigger
premium to hold the country’s debt.
“In the good old days, the market shrugged off Greece’s problems and
then went back to business as usual,” said David Schnautz, an interest
rate strategist at Commerzbank in Frankfurt. “This time, the
credibility blow seems to be sustained. The new government will have
to fix that, but it won’t be easy.”
The budget deficit has been above the limit of 3 percent of gross
domestic product for countries using the euro in all but one year
since Greece joined the bloc in 2001. But the new socialist government
shocked investors after the election in October by doubling its
forecast for this year’s deficit, to above 12 percent of G.D.P. It
accused the previous center-right administration of cooking the books.
At the end of October, the credit ratings service Moody’s put Greece
on notice for a possible downgrade, soon after a downgrade by Fitch.
Standard & Poor’s had already cut the sovereign rating one notch, to
A-, in January — the lowest level in the 16-nation euro zone.
Such moves have lessened the appetite of investors to buy Greek bonds,
which Athens must sell to fund the deficit.
The government was elected on a platform of taxing the rich,
stimulating the economy and taking steps to cut the deficit. But so
far it has failed to come up with a credible plan, even as tax
receipts weaken. There are murmurings among labor unions of a winter
of discontent if spending curbs are too aggressive. That is a concern
for many in the wake of the student unrest just over a year ago.
The Organization for Economic Cooperation and Development, a research
group in Paris, warned Thursday that unemployment in Greece would move
above 10 percent in 2010 and stay there in 2011.
The European Union’s economy commissioner, Joaquín Almunia, singled
out Greece’s “serious problems” last week as “a question of common
concern for the whole euro area.” His office has ordered Athens to
present regular budgetary progress reports. Eventually, Greece could
be fined if it does not take adequate action.
The government says it is trying to address the issue. An official
from the Ministry of Finance, who was not permitted to speak publicly,
said the Cabinet had agreed Wednesday on a new version of its draft
2010 budget, which will be forwarded to Parliament on Friday.
Under the draft, he said, the deficit would fall next year to 9
percent to 9.4 percent of G.D.P., from 12.7 percent this year, as
growth improves.
To finance this, the government will focus on spending, curbing pay
increases for civil servants, imposing a freeze on hiring of new
government employees and using retiring civil servants to temporarily
plug shortfalls.
Parliament is expected to vote on the draft by Christmas, the official
said, adding that the question of taxes will not be addressed until
next year.
In 2010, the government also plans to confront the issue of the
retirement age, which can be as low as 55.
Investors do not fear a sovereign default. They assume that the German
government’s signal in February, that euro members close to default
would be bailed out by their peers, remained valid.
But there are worries that the lack of faith from rating agencies
might further hamper lenders.
The E.C.B. is expected to begin winding down its special lending
operations soon — a December auction of funds for 12 months is likely
to be the last of its kind — potentially leaving Greek lenders
exposed. The Greek central bank said this week that a number of
domestic banks would need to “show restraint” at the coming tender “to
facilitate their exit from the extraordinary and temporary measures of
the euro-system when these measures are withdrawn.”
Some analysts, like Mr. Schnautz of Commerzbank, say the scale of the
threat has been exaggerated, given that Greek bonds would have to be
downgraded by three more notches to start encountering problems.
Other analysts said even in the event of more downgrades, the E.C.B.
was unlikely to abandon Greece and might adapt its rules if needed. An
E.C.B. spokeswoman declined to comment beyond emphasizing that all
banks must comply with the existing framework.
Still, investors are nervous. The Athens Stock Exchange general index
has fallen 3.5 percent so far this week, while the Dow Jones Euro
Stoxx 50 was down 0.8 percent.
The spread of yields between benchmark 10-year Greek bonds and their
German equivalents, which are considered extremely safe, was as wide
as 300 basis points in March, before narrowing to 108 basis points in
August. But it has been moving out again, rising to 170 basis points
Thursday. A basis point is one-hundredth of a percentage point.
==============================='
June Samaras
KALAMOS BOOKS
(For Books about Greece)
2020 Old Station Rd
Streetsville,Ontario
Canada L5M 2V1
Tel : 905-542-1877
E-mail : kalamo...@gmail.com
(or) kalam...@aol.com
www.kalamosbooks.com
Reply all
Reply to author
Forward
0 new messages