News items from Greek newspapers.....
Troika sticks to its guns in austerity talks
Troika chiefs emerged wordless from a two-hour meeting with Finance Minister Yannis Stournaras, who simply noted the officials had sought clarifications on a 13.5-billion-euro austerity package proposed by the coalition government. A subsequent meeting between Prime Minister Antonis Samaras and troika chiefs finished in just 35 minutes, prompting speculation that the negotiations had stalled, reports that sources close to Samaras rebuffed. Kathimerini understands that Samaras telephoned European Commission chief Jose Manuel Barroso and European Council leader Herman Van Rompuy last night in a bid to start drumming up political support, reports that were also played down. Samaras is reportedly concerned about a rift between Germany and the International Monetary Fund regarding the problem of Greek debt. His aim is to wrap up the talks with the troika this week, which would allow Stournaras to present the agreement at next Monday’s Eurogroup in the hope that a decision can be taken on the release of a crucial 31.5-billion-euro rescue loan at the EU leaders’ summit on October 18. The fact that several sticking points remain in talks with the troika, including over the proposed suspension of 15,000 civil servants which the two junior partners in the coalition vehemently oppose, suggests that a deal within the next few days is unlikely, putting the whole process back. Kathimerini understands that the troika has queried the enforceability of some 2 billion euros in proposed measures -- chiefly cuts to the health, defense and local authority funding. The cuts in the draft budget for 2013 include 3.8 billion euros to pensions, 1.1 billion to civil servants’ salaries, around 800 million to social welfare benefits and 1.2 billion euros to state spending on health, defense and local authority spending. The draft, which will be significantly revised, foresees the economy contracting by 6.5 percent this year and 3.8 percent next year while unemployment is set to rise to 24.7 percent from 23.5 percent this year. It also predicts a primary surplus of 1.1 percent of gross domestic product next year following a row of deficits since 2002.
Credit Agricole to sweeten Emporiki deal with 550 mln euros for Alpha
France's third-largest bank said it was negotiating to sell Emporiki to Alpha, Greece's number three lender, for a symbolic one euro as it prepares to quit the country. The planned sale by Credit Agricole, which has injected about 10 billion euros into Emporiki since 2006, the year it acquired the Greek bank, is part of a retreat to its French retail business after a series of ill-fated expansion moves. Its willingness to pay Alpha to offload the subsidiary also underlines the dire state of Greek banks, which have been hit by bad debts due to the country's crisis. Credit Agricole shares were up 3.9 percent, outperforming the broader sector as it said the deal would help it to reach end-2013 solvency targets, bringing the stock's gains for the year to 27 percent. Greek government officials told Reuters on Monday that they expect the country's economy to shrink for a sixth straight year in 2013. "What's important is that Credit Agricole is hinting that the transaction may be core equity tier 1 enhancing for 2013,» said KBW analyst Jean-Pierre Lambert. «They don't give the numbers at this point, but it could be good news for them." Hoping to strengthen Emporiki further, Credit Agricole, founded 118 years ago as a federation of regional agricultural lenders, will boost a previously announced 2.3 billion-euro ($2.96 billion) recapitalisation by the 550 million. The move, which will convert into equity part of 4.6 billion euros in funding Credit Agricole had extended to Emporiki, will lead to a 2 billion euro hit to its third or fourth quarter earnings, analysts at Mediobanca said in a note, adding that this would translate into a 1 billion euro full-year loss. Credit Agricole will also buy 150 million euros in convertible bonds to be issued by Alpha Bank, which would become Greece's No. 2 bank after National Bank if the exclusive talks now underway result in a final agreement, said Paris Mantzavras, an analyst at Pantelakis Securities.
Alpha Bank had the lowest capital needs compared to other Greek lenders and with the acquisition of Emporiki, which is fully recapitalized, it can cover a big part of its funding needs on its own and remain in the private sector,» he said.
Alpha has received 2 billion euros from Greece's bank support fund, the Hellenic Financial Stability Fund (HFSF). Alpha shares soared 7.8 percent. Greek banks are under pressure to consolidate to survive a crisis that has made them rely on their central bank for liquidity while fears of a Greek departure from the euro zone have prompted an outflow of deposits. Analysts say a sale of Emporiki to a Greek rival could start a long-awaited mergers and acquisition wave in the sector, with state-controlled Hellenic Postbank expected to be among the next targets. "The news about Emporiki and the deal between Credit Agricole and Alpha Bank is a sign that action is being taken towards the restructuring of the Greek banking sector,» said Takis Zamanis, head of trading at Beta Securities. National Bank and Eurobank had also been in the running for Emporiki. The HFSF had told Emporiki's potential buyers that it would approve a takeover only if the bank were recapitalized and fully funded before being sold. Emporiki, founded in 1907, has a network of 300 branches in Greece and about 4,100 employees. Credit Agricole is not the only French bank trying to cut its Greek exposure. Societe Generale is in talks to sell its Greek unit Geniki to Piraeus Bank. For Credit Agricole, tax issues which have yet to be determined could make a big difference in the deal's final impact. «The remaining question is the tax treatment of the equity losses,» Lambert said. «It's to be negotiated with the French Treasury, but could provide an upside if a full tax shield is agreed upon." The deal would also involve repayment in three installments of residual refinancing provided by Credit Agricole to Emporiki at the disposal date, the French bank said. "While this disposal is a relief for Credit Agricole SA, which lost some 10 billion euros in Emporiki, it is unlikely to trigger a recovery of the group's profitability,» the Mediobanca analysts said, adding that they viewed the bank as fairly valued. The deal is expected to be completed by the end of the year, added Credit Agricole, which has been advised by Nomura and law firm Clifford Chance in the talks. Alpha was advised by J.P. Morgan and Skadden, Arps, Slate Meagher & Flom.
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http://www.telegraph.co.uk/finance/debt-crisis-live/9580087/Debt-crisis-live.html
18.15 That's where we leave our live coverage this evening. Moody'sannounced today that it will complete its review of Spain this month. As always, we'll keep our eyes peeled for any more developments.
16.41 Mr Rajoy also adds that the government has agreed a fiscal consolidation path for next year with regional leaders, and discussed how to spread the burden between Madrid and the country's regions.
The agreement was unanimous, he adds.
16.37 Spanish PM Mariano Rajoy is holding a press conference following his meeting with the country's regional presidents.
He's immediately asked if a Spanish bail-out request is imminent. His reply?
No.
15.29 More rumours coming out of Greece, where reforming the country's labour market is top of the troika's agenda.
The Guardian's Helena Smith cites reports in the Greek media that European debt inspectors have demanded a radical overhaul of the labour market, while the government has signalled that it is willing to reduce the number of hours of rest between shifts from 12 hours to 11.
However, the two parties aren't singing from the same hymn sheet yet.
The troika reportedly also wants pensions over €1000 to be reduced by up to 15pc.
14.31 More on this "ring of fire". Mr Gross said:
To keep our debt/GDP ratio below the metaphorical combustion point of 212 degrees Fahrenheit, these studies (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. An 11% “fiscal gap” in terms of today’s economy speaks to a combination of spending cuts and taxes of $1.6 trillion per year! To put that into perspective, CBO has calculated that the expiration of the Bush tax cuts and other provisions would only reduce the deficit by a little more than $200 billion. As well, the failed attempt at a budget compromise by Congress and the President – the so-called Super Committee “Grand Bargain”– was a $4 trillion battle plan over 10 years worth $400 billion a year. These studies, and the updated chart “Ring of Fire – Part 2!” suggests close to four times that amount in order to douse the inferno.
And to draw, dear reader, what I think are critical relative comparisons, look at who’s in that ring of fire alongside the U.S. There’s Japan, Greece, the U.K., Spain and France, sort of a rogues’ gallery of debtors. Look as well at which countries have their budgets and fiscal gaps under relative control – Canada, Italy, Brazil, Mexico, China and a host of other developing (many not shown) as opposed to developed countries. As a rule of thumb, developing countries have less debt and more underdeveloped financial systems. The U.S. and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.
13.41 Dozens of disabled Greeks blocked the main entrance to the labour ministry on Tuesday, heckling the troika representatives as they entered a ministry building to start discussions. Many chanted: "We won't let it pass!"
A protester sitting in a wheelchair waits for the troika inspectors from the European Commission, the International Monetary Fund and the European Central Bank to arrive for a meeting at the Labour ministry in Athens on Tuesday (Photo: Reuters).
13.32 European debt inspectors are in Greece for a second day to try to agree on how to implement €2bn of cuts needed to unlock the next tranche of its bail-out.
Greek website Capital.gr is reporting that officials from the ECB, IMF andEU want Greece to cut its minimum wage. In March, the IMF noted that Greece had a high minimum wage compared to other countries. It said:
The current minimum wage in Greece is 50 percent higher than in Portugal, 17 percent higher than in Spain, and 5-7 times higher than in Romania and Bulgaria.
Greece's government has already slashed the minimum wage by 22pc this year.
12.56 Following today's report on the EU banking sector, Michel Barnier, the commissioner responsible for internal market and services, has said that he will "put this report online for a period of public consultation, which will last six weeks".
After this period, the EC will fine-tune the report, he added. Speaking at a press conference with Mr Liikanen, Mr Barnier said:
This report will feed our reflections on the need for further action [...] I will now consider the next steps, in which the Commission will look at the impact of these recommendations both on growth and on the safety and integrity of financial services.
12.09 Mariano Rajoy has told his regional presidents that the country will not be asking for a bail-out in the coming days. The Spanish PM made the comments at a dinner on Monday evening in Genova, according to Europa Press.
Spain's King Carlos talks to PM Rajoy during a family photo session at the start of the Regional Presidents Conference in Madrid on Tuesday (Photo: Reuters).
11.41 Bank of Finland Governor Erkki Liikanen, who led the report, said:
The group has concluded that it is necessary to require legal separation of certain particularly risky financial activities from deposit taking banks within the banking group
The activities to be separated would include proprietary trading of securities and derivatives, and certain other activities closely linked with securities and derivatives markets.
11.37 Banks need bigger capital buffers to protect themselves against potential losses from property loans, and bonuses should be partly paid in bonds that would bear losses in the event of a bail-out, an EU advisory group has concluded.
The report on reforming the structure of the EU banking sector also supported the idea that banks should ringfence their retail arms to protect savers and shield taxpayers from further bail-outs. It recommended action in five areas:
• Mandatory separation of proprietary trading and other high-risk trading activities,
• Possible additional separation of activities conditional on the recovery and resolution plan,
• Possible amendments to the use of bail-in instruments as a resolution tool,
• A review of capital requirements on trading assets and real estate related loans, and
• A strengthening of the governance and control of banks.
The advisory group said that history had "shown that many systemic banking crises resulting in large commitments of public support have originated from excessive lending in real estate markets," and used the examples of Northern Rock and ABN Amro, which was bought by the Royal Bank of Scotland in 2007, to argue that the new euro-area supervisory authority "should make sure that capital adequacy framework includes sufficient safeguards against substantial property market stress." (Photo: Rex).
11.09 Portugal is “living in very difficult moments” but will meet the terms of its €78bn bail-out, according to the country's economy minister.
Alvaro Santos Pereira told a conference in Lisbon that the country could not afford to delay structural reforms.
Thousands took to the streets last weekend to protest against sweeping austerity measures agreed under the terms of its rescue package.
Demonstrators shouts during a protest by the General Confederation of the Portuguese Workers (CGTP) union in Lisbon on Saturday (Photo: Reuters).
09.55 The number of unemployed Spaniards rose to 4.7 million last month, according to the country's labour ministry. This takes Spain'sunemployment rate to 24.63pc - the highest in the industrialised world.
The services sector was the hardest hit, with more than 85,000 job losses seen across the sector. The agriculture, construction and industry sectors saw fewer job losses last month.
09.43 Commenting on the data, Tim Moore, senior economist at Markit, said:
UK Construction PMI data for September presents another bleak assessment of business conditions in the sector. The current stretch of falling new orders is now the longest seen for three years, reflecting shrinking underlying demand alongside delays in spending from both public and private sector sources. A lack of new projects meant that confidence in the business outlook remains close to its lowest since the UK economy nosedived into recession during 2008.
09.35 Britain's construction sector continues to contract, according to latest survey data.
The Markit/CIPS UK construction PMI rose to 49.5 in September, from 49 in August. However, this is still below the 50 level that divides growth from contraction.
08.59 Over in Greece, despite data showing that the country is heading for a sixth year of recession, the country has managed to "unblock" €30m so it can build a motor racing circuit capable of hosting a Formula One Grand Prix. Here's more from The Telegraph's Andrew Trotman:
Greece has 'unblocked' €30m so it can build a motor racing circuit capable of hosting a Formula One Grand Prix.
Despite data showing Greece is heading for its sixth year of recession, the government is pushing ahead with constructing the track in Xalandritsa, near Patras.
The total cost of the project will be €94.6m (£75.6m) and it is hoped the circuit will be able to host a Formula One race in the future.
08.47 Markus Huber mentions that the markets are ruffled by that report from Moody's suggesting the capital needed by Spain's banks may be almost twice the official estimate. Here's a reminder of that story fromThe Telegraph's Philip Aldrick and Fiona Govan:
Moody’s rejected the official €59.3bn (£47bn) shortfall in bank capital calculated by financial consultancy Oliver Wyman. Based on the figure, Madrid said banks would only need to borrow €40bn from the eurozone – far below the maximum €100bn on offer.
The agency said banks would need between €70bn and €105bn “to maintain stability”. Separately, Banco Popular, the largest non-nationalised bank to fail a stress test, said it planned to raise €2.5bn to bolster its capital without taking international aid.
08.37 Yet more evidence of the pain in Spain. Unemployment data out this morning from Madrid's labour ministry showed that the number of people registering for jobless benefits rose 9,645 from August to 4.7m in September.
08.05 Spain is ready to request a eurozone bailout for its public finances as early as next weekend but Germany has signalled that it should hold off, Reuters reported overnight.
Despite all the fighting talk from Rajoy about not being prepared to give up Spain's sovereignity, a senior European source claims:
The Spanish were a bit hesitant but now they are ready to request aid.
It seems German Chancellor Angela Merkel is nervous about putting more individual bailouts for distressed eurozone countries an increasingly reluctant parliament.
A few weeks ago Die Spiegel announced her U-turn on Greece. Is this further evidence?
One of the most mind-boggling debates going on in euroland right now – only one of many, but particularly guaranteed to make the head spin, this one – is over the build-up of so-called “Target 2” claims and liabilities. Target 2 is the mechanism by which money is transferred around the euro area to ensure that each national central bank has sufficient euros to fund its banking system.
Accumulated cross border claims are now so extreme that they threaten to leave German taxpayers with huge losses should the euro break up, or any one of its members leaves.
What makes this debate of particular importance is that it is Germanopposition to debt pooling in the eurozone that is generally thought, at least among the periphery nations, to be the biggest barrier to crisis resolution.
If only the Germans would agree to treat Europe’s debts as one, rather than the separate responsibility of 17 different sovereign nations, then all this nastiness would go away. Well, through Target 2, it can reasonably be argued, these debts are already being shared, only many Germans don’t yet know it and it certainly hasn’t cured the crisis. The euro has stuffed the Germans just as much as the Spanish, Italians and Greeks.
The economist who has done the most to raise the profile of this issue is Hans-Werner Sinn, head of the Munich-based Ifo Institute. Germany would lose the thick end of a €1 trillion, he has written, should Greece, Ireland, Portugal, Spain and Italy leave the euro, or around a quarter of GDP.