Yet another night in the European soap opera. If I had to name the episode I would have called it “the death of European democracy”, but I’m not particularly imaginative so maybe someone else can think of a better one. The news is moving very fast at the moment with lots of conflicting stories, so I thought I would take the time for a bit of re-cap to explain exactly what has occurred over the last week.
Last Wednesday, the EU summit finalised a new bailout package for Greece containing debt write-downs and new payments. I talked about some of the issues with this package in this post. After the announcement of the package the equity markets rose sharply, my assumption at the time was that no one had actually bothered to read the details. Those details were summed up nicely in the xtranormal video from yesterday:
“Where did they get all that money?”
“They haven’t got it”
The next day Italy held a debt auction which went very poorly signalling that rescue package hadn’t done enough and the markets became unnerved in the realisation that something was already wrong. Then on Tuesday the Greek PM, George Papandreou, announced that he was going to give the Greek people a say in their future with a referendum on whether to accept the terms of the latest packages because he could not get consensus from the Greek parliament. The markets took this very poorly and fell sharply, while other European leaders started announcing all sorts of warnings to Greece. On Thursday the IMF and EU started applying the blowtorch to Greece in an attempt to get Papandreou to back down:
A Greek referendum on its latest bailout package will hinder the next installment of aid funds from the International Monetary Fund and the European Union, Dutch Finance Minister Jan Kees de Jager said.
“This hinders the planning of the IMF and the euro zone. It creates a problem for the whole sixth tranche,” De Jager told parliament in The Hague late last night. “I can imagine that it will be very difficult for the IMF if there is uncertainty about the sustainability.”
Later in the day the Greek PM held yet another crisis meeting with the Angela Merkel and Nicolas Sarkozy while Papandreou turned up the heat by announcing that the referendum was not just about the bailout package but about staying in the Euro. What support Papandreou had in the Greek parliament began to crumble, down to 151 out of 300 seats. On the eve of the G20 the Greek finance minister, Evangelos Venizelos, released a statement that appeared to be an attack on the position of the PM stating that Greece needs the bailout and the decision can’t be left up to a referendum.
The Greek PM then summoned his ministers, and looked to be about to resign, until it appeared that under the weight of pressure or some form of deal the Greek opposition finally rolled-over in support of the bailout package and the referendum was called off. There is now some confusion over exactly what the terms of the deal made were or whether they were tied to Papandreou resigning. Either way, the Greek PM still has to survive a no-confidence vote tomorrow. If he does not survive then Greece will fall back onto a temporary government to accept the new package and its terms, but there will need to be an election shortly after. At least the Greek people will get to vote on something.
Greece, however, is not the only soap opera as Reuters reports:
Pressure mounted on Italy’s besieged premier Silvio Berlusconi to quit on Thursday, as six former parliamentary loyalists called for a new government and the squabbling cabinet failed to agree an urgent economic reform program.
The rebel deputies, three of whom have already left Berlusconi’s crumbling coalition, wrote to the premier saying Italy needed a “new political phase and a new government.”
“We are asking you to take an initiative which is appropriate to the situation,” the deputies wrote, according to the letter published in the daily Corriere della Sera.
Earlier this week Berlusconi called an emergency cabinet meeting in order to push through further austerity measure he had announced after his squabble with Merkel and Sarkozy. He wanted this done quickly so that he was able to arrive at the G20 appearing as if he was actively doing something. These measures that were supposed to be voted on were a watered-down version of Berlusconi’s initial promises, but what actually occurred was a complete break-down of parliament when Berlusconi and his economics minister, Giulio Tremonti, yet again started attacking each other over the proposals.
The changes were eventually adopted by the parliament, but not in the form that Berlusconi wanted. The entire episode demonstrated that Berlusconi’s grip on power is also slipping and it is unlikely that he is going to be able to survive for much longer before a new confidence vote occurs, which he is likely to lose.
It really isn’t any wonder the ECB cut rates last night. With this sort of disfunction occurring in the national parliaments of the two countries that have the potential to bring down Europe what choice did they have ? Europe continues to worsen, and once again no one is dealing with the actual problem.