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16-Feb-12 World View: Germany and Greece Trade Insults as Bailout Talks Stall

16-Feb-12 World View: Germany and Greece Trade Insults as Bailout Talks Stall

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This morning’s key headlines from GenerationalDynamics.com.

  • Iran’s Ahmadinejad announces nuclear breakthrough with great fanfare
  • Nicolas Sarkozy announces reelection campaign for president of France
  • German Chancellor Merkel to campaign for Sarkozy
  • Germany and Greece trade insults as bailout talks stall
  • Private sector involvement (PSI) deal at risk because of EU delays
  • Europeans studying contingency plans for Greece’s default

 

Iran’s Ahmadinejad announces nuclear breakthrough with great fanfare

Iran’s President Mahmoud Ahmadinejad trumpeted on Wednesday major advances in the country’s nuclear program in a live nationally televised press event. “I am grateful to the Almighty…for these great achievements we are offering to the people of Iran and all humanity,” he said. He announced that a “new generation of Iranian centrifuges” had been installed and put into operation at the country’s main uranium enrichment facility at Natanz in central Iran. He said this brought the number of Iran’s operating centrifuges for nuclear enrichment up to 9,000 from 6,000. However, with Parliamentary elections just a few weeks away, the U.S. State Department dismissed the announcements as “hype.” Ria Novosti and VOA

 

Germany and Greece trade insults as bailout talks stall

No discernable progress was made on Wednesday on the proposed second bailout of Greece, and the recriminations became increasingly bitter. Germany’s finance minister Wolfgang Schäuble said that, in case of a complete default by Greece, “we’re better prepared than two years ago.” His deputy, Steffen Kampeter, compared Greece to a “bottomless pit.” Greece’s President Karolos Papoulias, who is a World War II survivor and fought in the resistance against the Nazis, said,

“I don’t accept insults to my country by Mr. Schaeuble. I don’t accept it as a Greek. Who is Mr. Schaeuble to ridicule Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all of Europe.”


Equally bitter is Greece’s finance minister Evangelos Venizelos, who is blaming the European negotiators for the failure to reach a bailout agreement:

“We are continually faced with new terms. In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

Bloomberg

 

Private sector involvement (PSI) deal at risk because of EU delays

Greece’s politicians are not the only ones who have been delaying reaching crucial agreements necessary to avoid bankruptcy on March 20. Another part of the whole deal is the “haircut” that private investors (mostly banks) will take when the “voluntary” bond swap occurs — estimated at 75% by France’s BNP Paribas, meaning that investors will lose 75% of their original investment. This is known as the “private sector involvement” (PSI) part of the deal. However, this complex bond swap deal is in jeopardy because Europe’s interim bailout mechanism, the European Financial Stability Facility (EFSF), has to be ratified by the parliaments of the eurozone nations, and that process hasn’t even begun yet, even though it’s been known to be a requirement since last October. Without the EFSF ratification, the PSI deal cannot be consummated, and without the PSI, the “voluntary” bond swap can’t take place. Kathimerini

 

Europeans studying contingency plans for Greece’s default

Brussels is warning of “devastating” consequences, and the European commission and UK authorities are analyzing ways to mitigate the damage from a complete default on Greece’s debt. According to one scenario:

“[On] the day Greece defaults on its debts, the Aegean Sea is awash with small boats in which fleeing Greeks huddle with suitcases full of euros. Guards patrol the border in an attempt to prevent the flight of capital. Things get ugly and there are shootings, captured on film. Despite the best efforts of policymakers in Athens, Brussels and Frankfurt, it proves impossible to contain the panic, which spreads to Portugal and Ireland, the other two countries going through tough austerity programmes in return for bailouts from the EU and the IMF.”

The European Central Bank (ECB), concerned about a Greek domino effect, has flooded Europe’s banks with cheap money over the past two months. This is the ECB’s Long-Term Repo Operations (LTRO) program, which loaned unlimited amounts of euros to banks at 1% interest in December. The banks borrowed about half a trillion euros in December, and it’s thought that this money prevented bank failures since then. The ECB plans to open the LTRO floodgates again at the end of this month, and it’s possible that €1-2 trillion more cash will flow into banks’ portfolios. The LTRO has prevented bank collapses, but it’s failed at its principal objective of spurring economic growth, since the LTRO money is just being shuffled from one bank account to another, with little of it going to people or businesses. Guardian

 

Nicolas Sarkozy announces reelection campaign for president of France

 

Nicolas Sarkozy

Nicolas Sarkozy

Unsurprisingly, Nicolas Sarkozy announced that he plans to run for reelection as president of France. “Given the unprecedented crisis in which France and Europe find themselves, not to run would have been tantamount to abandoning my post,” he said. However, Sarkozy is polling far beyond his main rival, Socialist Party candidate François Hollande. Polls give 30% of the vote to Hollande, and 25% to Sarkozy. Two other candidates get most of the rest of the votes in the poll: 17% for Martine Le Pen of the far right National Front, and 12% for Centrist François Bayrou. If, as expected, no candidate gets a 50% majority, then there’ll be a runoff election. Polls show that Hollande would win a runoff with 57.5% of the vote, versus 42.5% for Sarkozy. Global Post

 

German Chancellor Merkel to campaign for Sarkozy

German Chancellor Angela Merkel has previously indicated through leaks that she would consider a Hollande victory to be a disaster. Hollande has promised to rollback Sarkozy’s pension reform that increased the retirement age to 62. In addition, he’s called for an EU fiscal union and using the European Central Bank as a lender of last resort – positions rejected by Merkel. Deutsche Presse-Agentur (DPA)


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