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Greece Prime Minister Calls "Crisis Meeting" Attacks E.U.

Politics / Eurozone Debt Crisis Feb 01, 2012 - 03:57 AM GMT

By: Mike_Shedlock

Politics

Best Financial Markets Analysis ArticleThings are going so well in Greece (just one step away from a deal for weeks on end), that Greek officials attack EU and IMF as debt talks stall

Greek officials launched a vociferous behind the scenes attack on European Union and International Monetary Fund negotiators as talks in Athens over the country's mounting debts appeared to stall.



Prime minister Lucas Papademos told aides that a crisis meeting of party leaders would be called as early as Thursday to thrash out a response to an increasingly intransigent negotiating team sent by Brussels, which is demanding severe austerity measures before sanctioning a further €130bn (£109bn) of bailout funds.

Papademos and his team of aides returned in sombre mood on Tuesday from a round of talks in Brussels and Frankfurt at the offices of the European Central Bank (ECB), despite relief that a German proposal to install an EU commissioner in Athens, with special oversight of Greek finances, had been quashed.

On the negotiations over the bailout funds, Greek MPs have objected to demands by the troika for further wage cuts and reductions in the minimum wage.

"The troika doesn't appear to be willing to accept any concessions whatsoever on reducing the minimum wage and scrapping bonuses," said the government aide. "No political party is willing to move either, saying wage cuts are a red line they are simply not going to cross. You tell me how this is going to be resolved. We have no idea and we're very worried."

Greece Must Pledge Tough Reforms for Debt Swap Deal

CNBC reports Greece Must Pledge Tough Reforms for Debt Swap Deal

"The debt swap agreement is ready, but it will not be announced before the end of the week and until the government has made certain commitments on reforms, labour issues and the pension system," said the banker, who declined to be named.

"By delaying the debt swap, European partners are putting pressure on the government and political leaders to make certain commitments."

Prime Minister Lucas Papademos on Tuesday confirmed that Athens was aiming for a definitive agreement on the debt swap by the end of this week -- roughly the same time it expects to conclude talks with lenders in Athens on its second bailout.

Papademos acknowledged that the main sticking points in talks with the so-called "troika" of foreign lenders - the European Central Bank, the EU and the International Monetary Fund -- revolved around spending cuts and labour reform.

On top of biting austerity measures already taken that regularly bring droves of angry protesters onto the streets, Greece's lenders have demanded it make extra spending cuts worth 1 percent of GDP - or just above 2 billion euros - this year, including big cuts in defence and health spending.

In a sign of the challenges the government faces in pushing those through, a Greek union official said the country's major unions were gearing up for more anti-austerity protests next month after an early grace period for Papademos's government.

The prospect of elections as early as April has further complicated the talks, with political leaders in Papademos's national unity coalition eager to distance themselves from any cuts that herald more pain for ordinary Greeks.

Increasingly exasperated by Athens' failure to live up to pledges on the reform front, European partners have demanded all Greek parties commit to measures agreed under the bailout irrespective of who wins the next elections.

Without a deal and a subsequent release of funds from the bailout plan, Greece would sink into an uncontrolled default that risks spreading turmoil across the euro zone and tipping the global economy back into recession.

Greece is Irrelevant

Let's dispense with the nonsense first. The world economy will not go into a recession over Greece. However, it is highly likely to go into recession regardless of what Greece does. At this point, Greece is irrelevant.

Pertinent Questions

  1. Does Germany want a deal?
  2. Is the proposal by Germany for Greece to cede budget sovereignty a ploy to win Greek concessions?
  3. Will Germany be overridden if it does not want a deal?

The answer to the first question should be clear. Germany has had enough. I wrote about it on Friday in Prepare for Greece to Leave Eurozone; German Government Calls for Greece to Cede Sovereignty Over Tax and Spending Decisions to Eurozone "Budget Commissioner"; Text of the German Demands .

German and IMF demands make meaningless any hint of a deal "soon". Germany has signaled it has had enough and will not throw another 130 billion euros down a rathole. The IMF signaled the same thing but not as emphatically.

Thus, if Germany does not back down and the IMF insists on a 10-page list of “prior actions” a Greek exit from the Eurozone is at hand.

Look for a "bank holiday" in Greece soon.

France Does Want a Deal

Complicating matters for Merkel, France does want a deal, and Sarkozy stepped in to support Greece.

Is this a game by Germany to extract concessions? I do not think so. This goes far beyond hardball. People do not understand the pressure on Merkel within her own party to end these nonsensical bailouts.

Merkel is fighting for her political life. She has no wining plays. In chess terms, she is in a Zugzwang position. Please see Political Zugzwang for a discussion of 4 losing options Merkel faces.

I believe she selected the best one from her perspective: Let Greece go, and fight another day.

Will Germany be Overridden?

The only question of relevance is "Will Germany be Overridden?"

If the EMU and EU leaders know what is good for them, they can take some pressure off Germany, by making demands so great that Greece will not accept them.

That may or may not be the state of the current game, but it sure is a possibility that explains a lot of things, especially the never-ending announcements that a "deal is at hand" and today's declaration of an emergency meeting by Papademos.

Insisting that "all Greek parties commit to measures agreed under the bailout irrespective of who wins the next elections" is an extremely bitter pill, especially given the demands Germany forced on Greece.

Does Germany want Greece to comply with those demands? I highly doubt it. Will Greece comply? I do not know.

Merkel's actions strongly suggest she is rooting this deal collapses in spite of obstacles by placed by Sarkozy who clearly does want a deal.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2012 Mike Shedlock, All Rights Reserved.


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