Daniel Woolls
EU running out of time as Greece nears the exit
ATHENS, Greece (AP) — European leaders insist they want to keep Greece in the eurozone, but are putting off any agreement on how they hope to accomplish that. Greece says it, too, wants to stay in the eurozone, but until after elections it’s uncertain whether it can implement the austerity that Europe has set as a condition for doing so.
Essentially, both are playing for time — about a month. The question is whether financial markets will wait or force their hand.
Concerns that European leaders lack the political will — and wherewithal — to tackle the continent’s economic problems have worried the markets for weeks. Among the 17 countries that use the euro, seven are in recession. Business confidence is under pressure and banks are feeling the squeeze. The biggest fear is that if Greece cannot be kept in the euro, other larger economies — like Spain or Portugal — might face the same fate.
“The breakup of the eurozone will be a disaster. Greece could leave, and others could leave, and this would be a huge financial tsunami,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. “Europe is not doing enough, and the market may not wait for them.”
Greece has gone through round after round of massive spending cuts and tax hikes to slash its deficit and rein in its debt in exchange for the international bailout loans that help it pay the bills. But the country is now in its fifth year of recession, and many argue it cannot hope for a recovery if it sticks to the deal. And Greeks — though still keen to remain in the single currency club — are calling for better terms or, at least, for the pace of austerity to be slowed down.
In a general election this month, neither of Greece’s two main parties, both of which support the bailout deal, fared well. Instead, minor parties that are threatening to renege on those commitments saw their popularity surge. A new round of elections is set for June 17.
If the Greeks pick an anti-bailout government the second time round and renege on the terms of the bailout, the flow of funds will be stopped and the country could be forced into a messy exit from the euro bloc as it has no other choice but to print its own currency to pay its way.
That could cause a deeper fracture the euro — other debt-stricken eurozone members, such as Spain and Portugal, might also fall victim to market fears that they could be next in line for collapse — and rattle global financial markets.
There had been hope that this week’s Brussels summit would have seen a softening in the rest of the eurozone’s stance with Greece, extending, for example, the deadline for some of its reforms and cuts.
Some European countries are already hinting that Greece should be given better terms. Both the International Monetary Fund and the Organization for Economic Cooperation and Development, which monitors economic trends in developed economies, also are pushing for the demands on some countries to be eased.
However, as their summit in Brussels broke up early Thursday morning, the leaders failed to offer any reprieve to struggling Greece. Instead they reiterated that they continued to support Greece’s eurozone membership — provided it stuck to the terms of the bailout deal.
Manuel Barroso, President of the EU’s executive Commission, told a post-summit press conference: “We stand by Greece. We expect that Greece also stands by its commitments.”
European Council President Herman van Rumpoy echoed the sentiment: “Continuing the vital reforms to restore debt sustainability, foster private investment and reinforce its institutions is the best guarantee for a more prosperous future in the euro area.”
Some politicians have already begun to factor in a Greek exit, however. In a frank admission that Greece could wind up abandoning the euro, Luxembourg Prime Minister Jean-Claude Juncker told reporters that the eurozone countries “have to consider all kinds of events,” but insisted that “the working assumption” was that Greece would remain part of the euro.
The European leaders aim to have more concrete proposals for strengthening the region at their next summit on June 28-29, but before then Greece will have held its elections, by which time Europe’s financial system may have already been pushed to the brink.
French investment bank Credit Agricole’s research analysts said EU leaders had set the expectations bar very low for the summit “and yet they managed to disappoint nervous markets.”
Shares on the Athens Stock Exchange hit a new 22-year low Thursday, closing down 4.53 percent despite gains made elsewhere in Europe.
There are concerns among investors that uncertainty over Greece’s future in the eurozone could spark a run on the country’s banks, further destabilizing the already-shaky banking system and pushing the country even quicker towards a chaotic exit from the currency.
Greeks have been steadily withdrawing deposits in recent months. Bank of Greece figures show that total household and business deposits stood at about €165 billion ($207.2 billion) in March 2012, compared to €235 billion ($295.1 billion) in October 2009, just before the crisis broke. Meanwhile some €700 million ($879 million) were withdrawn in the week following the inconclusive May 6 election.
The summit also addressed the issue of whether the risk inherent in some countries holding so much debt should be spread across the entire eurozone — issuing so-called “eurobonds.” This would mean every country could borrow funds at the same rate, substantially lowering the costs for the more indebted countries. French President Francois Hollande wants the bonds to finance growth projects and ease concerns about weaker countries’ debt, but Germany’s Angela Merkel refuses to consider such an option.
“It would have been great news,” said Oscar Moreno of Madrid brokerage Renta4. “It would have been good if there had at least been agreement to study it. It would have calmed things down and been a very preliminary first step to the idea of a Eurobond. But we got nothing.”
Economists say eurozone leaders have to find another way to increase its defenses than offering bailout after bailout to its debt-stricken memebers. Javier Diaz-Gimenez, a professor of economics at IESE Business School in Madrid, said that the eurozone needs a fundamental redesign.
“The solution has to be some change in design,” Diez-Jimenez said. “Something that says, ‘OK, these were the things that were missing.
“Just staggering on, that is not going to work. If you keep staggering on, you are eventually going to fall.”
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Woolls and Ciaran Giles contributed to this report from Madrid.
Stradivarius cello broken in accident in Spain
MADRID (AP) — A Stradivarius cello housed at the Spanish Royal Palace was broken in an accident, an official said Monday. The instrument could be worth more than $20 million.
A National Heritage official declined to specify what went wrong. She refused to comment on an El Mundo newspaper report that the instrument fell off a table during a photo session. She confirmed it happened about three weeks ago. The official spoke on condition of anonymity in line with department policy.
The damage sustained: a piece that joins the neck of the 17th-century instrument to the body of it broke and fell off the rest of the cello. That piece was not original but rather a replacement installed in the 19th century.
The official said the cello can and will be repaired.
The heritage official declined to say how much the cello was worth. She said it was part of a set of instruments — two violins and a viola were the others — that were known as “the Quartet.” They got this name because they were commissioned at the same time.
However, Tim Ingles, head of the musical instrument department at Sotheby’s auction house in London, said he believed the Spanish cello was worth $20 million (€15.4 million) or more.
Leaders fall in Europe crisis: Sarkozy next?
MADRID (AP) — French President Nicolas Sarkozy is widely expected to be kicked out of office in elections Sunday. If he goes, he’ll be in good company: Almost every crisis-hit European country that has held an election since disaster struck in 2009 has thrown out its leader.
Here’s a look at countries where political cadavers litter the landscape.
— SPAIN: A burst real estate bubble also deflates faith in a Socialist government, which is nonetheless reluctant to admit Spain has problems. Blips of good economic news are seized upon as “green shoots” pointing to recovery. Wrong. Stimulus measures are enacted, then crushing austerity. Unemployment soars. The Socialists of Jose Luis Rodriguez Zapatero are wiped off the map in November 2011 elections; Mariano Rajoy’s conservatives take over.
Continue Reading CloseSpain lawyer denies plea bargain for royal in-law
MADRID (AP) — A lawyer for the king of Spain’s son-in-law denied media reports that he is negotiating a plea bargain for his client with prosecutors over a corruption case that is making the monarchy look terrible at a time when everyday people are enduring acute economic woes.
Inaki Urdangarin, the 44-year-old in-law, has not been charged with a crime. But he has been named a formal criminal suspect and has undergone questioning by a judge in Palma on the Mediterranean island of Mallorca. Urdangarin is the husband of King Juan Carlos and Queen Sofia’s second daughter, Princess Cristina.
Continue Reading CloseSpain back in recession as economy contracts in Q1
MADRID (AP) — Spain slipped back into recession as the country’s economy contracted for the second quarter in a row, the central bank said Monday.
A Bank of Spain monthly report recorded that economic output shrank 0.4 percent in the first quarter of the year, following a 0.3 percent decline in the last quarter of 2011. A technical recession is commonly defined as two consecutive quarters of economic contraction.
The news of recession comes as no surprise, however — the new conservative government has previously warned the economy is shrinking and forecasts it will contract 1.7 percent this year.
Continue Reading CloseSpaniards livid over king’s elephant hunt
File - In this Dec. 27, 2011 file photo, Spain's King Juan Carlos leaves after the official opening of Parliament, in Madrid. No one's a stranger to having their face glow bright red with embarrassment, for some reason. But can anyone be cringing with it more right now than Spain's king? As his country floundered amid economic woe and worry last week, with fears of a bailout mounting and everyday people braving 23 percent unemployment, the monarch slipped away for a hunting safari in a far-flung corner of southern Africa to hunt elephants. This particular trip only became public when the king stumbled and fell before dawn Friday April 13, 2012 at his bungalow in the country of Botswana and fractured his right hip, forcing an emergency flight home and surgery. (AP Photo/Daniel Ochoa de Olza, File)(Credit: AP) MADRID (AP) — In one fell swoop, King Juan Carlos of Spain has managed to unite right and left, young and old, those with jobs and those without in universal outrage over his tone-deaf African hunting safari.
As Spain foundered amid economic woes, what did the 74-year-old monarch do? He slipped away to hunt elephants in southern Africa. Let’s count the ways that miscalculation of elephantine proportions has turned into a public relations disaster.
— A lavish trip amid severe economic pain at home.
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