After two elections and another two days of negotiations Greece finally has a democratically elected ruling government again. A coalition made up of New Democracy, PASOK and the Democratic Left has been formed allowing for Antonis Samaras to become Greece’s Prime Minister. Obviously it is easy to pick fault with the fact that two of the three ruling parties are the same parties that were in power throughout this entire crisis, but the major issue I see , at least at this point, is that they appear to be promising the undeliverable:
A conservative-led government took power in Greece on Wednesday promising to negotiate softer terms on its harsh international bailout, help the people regain their dignity and steer the country through its biggest crisis for four decades.
Antonis Samaras has said that the coalition will form a working party with the task to re-negotiate the terms of the Greek bailout with an aim to ratchet back the austerity measures. The leader of the Democrat Left part, Fotis Kouvelis, has stated that the country needs to:
gradually disengage from the terms of the bailout that has bled society.
The problem is that, although we have heard some talk about making small extensions to the program to re-adjust to the worsened economic conditions, this request appears completely disconnected from the reality of the situation. From the Bundesbank:
Greece must get its reform program back on track if the so-called troika of the European Union, IMF and European Central Bank judges that it has deviated from the plan, Bundesbank President Jens Weidmann was quoted as saying on Wednesday.
Weidmann told Germany’s manager magazine in an interview that Sunday’s Greek election, which the pro-bailout party New Democracy narrowly won, had not changed the fact that Greece needed to stick to the bailout plan to get further financial aid.
And then from the Bundestag:
Volker Kauder, 62, floor leader of the conservatives’ parliamentary group, rejected granting concessions to Athens, saying that the country has already wasted a lot of time due to the new elections. “In the case of Greece, time can mean a lot of money,” he said. “That’s why I can’t imagine that we could make changes in that regard.”
“It would be appropriate if the new (Greek) government were to say: Yes, we will try to make up for lost time,” Kauder said. The new government could, for example, try to speed up the pace of the privatization of state assets, he said.
Kauder implicitly criticized Westerwelle’s suggestion that the bailout terms could be relaxed. The German government shouldn’t “send any signal” that the agreed-upon austerity measures can be changed, he said.
As I mentioned yesterday, Jose Barosso’s performance aside, there appeared to be some confusion as to just what was decided at the G20 in terms of a strategy for Europe. There were quite a few rumours that Angela Merkel had capitulated and we were about to see a new grand plan containing direct bailouts for nation, a banking union and concrete steps towards shared issuances. This may still be the case but, as a recent interview from Wolfgang Schauble clearly states, it requires moves towards a tighter fiscal union as a first step. This isn’t new.
There are also rumours that we will see something “BIG” at the next EU summit led by Europe’s fabulous four, but at this point it would appear that nothing has changed at all:
The German government on Wednesday reaffirmed that the European bailout funds EFSF and ESM won’t be able to buy bonds of EMU member states on the secondary markets without these countries applying formally for such aid and accepting the conditions tied to it.
“Such secondary market purchases are foreseen as one of several instruments in the EFSF as well as in the future ESM,” government spokesman Georg Streiter said at a regular press conference here. “They are naturally tied to conditions and there won’t ever be any purchases without conditions.”
As I said early last week, it’s all in the documentation. But it isn’t just Germany that takes issue. Finland, which is due to vote on the ratification of the ESM tonight , is also against such proposals:
Finland, one of the few remaining triple-A rated countries in the euro zone, does not accept a proposal from Italian Prime Minister Mario Monti for the euro zone’s rescue funds to directly buy government bonds.
Italy, at a G20 summit in Mexico on Tuesday, proposed that the EU’s rescue funds, known as the EFSF and the ESM, buy bonds of countries such as Spain and Italy in the secondary market to help bring down bond yields and lower refinancing costs.
“These are instruments created to secure liquidity for countries in trouble, and the funds are not sufficient for purchases made in the secondary markets,” the country’s Prime Minister Jyrki Katainen said on Wednesday.
The ESM is also making waves in other ways with Angela Merkel being reprimanded by the German constitutional court over her handling of the mechanism:
The constitutional court in Germany has reprimanded chancellor Angela Merkel’s government for keeping the Bundestag in the dark about its response to the euro zone crisis.
The court in Karlsruhe agreed with a complaint by the opposition Green Party that the government had breached its constitutional obligation to inform MPs early and in depth about the European Stability Mechanism bailout fund and“Euro plus” competitiveness rules.
As a result, MPs were effectively presented with a fait accompli and unable to exercise their constitutional right to exert “early and effective influence” on the decision-making process and eventual outcome.
Yesterday’s ruling has no immediate effect on the ESM or fiscal treaty ahead of a Bundestag ratification vote next week.
Merkel, Hollande, Rajoy and Monti will be meeting in Rome on Friday to once again discuss what can be done about the rolling crisis. Mario Monti hopes to use the meeting to get consensus on how to boost growth in the Eurozone. Mariano Rajoy will obviously be pushing for some action as his country is now at the centre of the crisis and overnight the release of trade figures showed that his country’s economy continues to shrink. Spanish and Italian yields have improved in the last 24 hours with Spanish 10 year bonds falling back below 7%, but it is difficult to see this lasting without some more concrete action in the coming weeks.
Apart from the Finnish vote on the ESM we also have German, French and Eurozone flash PMI releases. Given other recent data my expectation is for continuing weakness.