Friday, November 18, 2011

Europe Update

by Calculated Risk on 11/18/2011 09:45:00 PM

On the mess in Greece, from the Athens News: Troika back in town

Prime Minister Lucas Papademos ... must win pledges from the rival parties that they will do what it takes to meet bailout terms or Greece's lenders will withhold an 8bl euro aid tranche Athens needs to dodge default next month, plus longer-term financing later.

As part of that process, representatives from the "troika" of the International Monetary Fund, the European Union and European Central Bank met with [Finance minister] Venizelos and Papademos on Friday and it is expected that Pasok party leader George Papandreou will be meeting the troika at his office in Parliament at 10:30 on Saturday morning. ND leader, Antonis Samaras is also due to meet officials from troika on Saturday.

Tensions have risen between coalition partners, Pasok and ND, as the latter's leader, Antonis Samaras, has refused to sign the commitment sought by EU and IMF authorities.

Underscoring the pressure on Athens, the Dutch finance minister said the Greek parties had "to make a clear and unequivocal choice in writing" by signing a pledge. ... "Are they with us, or not? We don't have the luxury of patience any longer," Jan Kees de Jager said.

Samaras said on Thursday said he wanted to win an outright majority in the snap election to reverse the austerity measures he disagrees with.
Samaras may be correct about the austerity measures, but if he doesn't sign the agreement, I doubt the Troika will provide the 8 billion euro aid tranche - and Greece would then default in December.

From the NY Times: Europe Fears a Credit Squeeze as Investors Sell Bond Holdings
Financial institutions are dumping their vast holdings of European government debt and spurning new bond issues by countries like Spain and Italy. And many have decided not to renew short-term loans to European banks, which are needed to finance day-to-day operations.
...
The pullback — which is increasing almost daily — is driven by worries that some European countries may not be able to fully repay their bond borrowings, which in turn would damage banks that own large amounts of those bonds. It also increases the already rising pressure on the European Central Bank to take more aggressive action.

On Friday, the bank’s new president, Mario Draghi, put the onus on European leaders to deploy the long-awaited euro zone bailout fund to resolve the crisis, implicitly rejecting calls for the European Central Bank to step up and become the region’s “lender of last resort.”