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Eurozone crisis live: Dutch talk tough over Greek rescue package

De Jager pushes for ‘permanent Troika’ in Athens
All smiles as meeting begins
French finance minister offers Greece support
FTSE 100 hits seven-month high
Students protest in Athens
Today’s agenda

3.44pm: The start of this afternoon’s eurogroup session resembled a gathering of old friends rather than a crucial meeting that would decide the future path of the eurozone.

Here, Lucas Papademos and Wolfgang Schäuble shake hands and share a joke with Evangelos Venizelos, while Jean-Claude Juncker enbraces François Baroin.

Hard to believe that Schäuble was public enemy number one in Greece last week after saying that the country was a “bottomless pit”.

3.34pm: This afternoon’s crunch meeting in Brussels is well underway now. Looking at the photographs from the event, the key players were remarkably calm.

This picture shows Jean-Claude Juncker, head of the eurogroup, talking with Greece’s PM Lucas Papademos just before the meeting began.

There’s a definite contrast from the previous Eurogroup meeting, when ministers rebuffed Greece’s claims that they had reached an agreement and sent Evangelos Venizelos back home to find €325m of outstanding savings.

Of course, it’s not clear whether Papademos and Juncker had heard the Dutch proposal for a permanent Troika presence in Athens (see 3.06pm)

3.06pm: The Dutch finance minister has revealed that he wants a “permanent Troika presence” in Athens, in return for the second finance package.

Jan Kees de Jäger made the comments, which throw the Greek crisis into fresh uncertainty, before the talks began in Brussels. He appears to be insisting on the European Union, the European Central Bank and the International Monetary Fund having a fixed role within the Greek capital in the years ahead:

De Jager, Dutch fin min to me: I favour permanent Troika presence in Athens, escrow account…

— Faisal Islam (@faisalislam) February 20, 2012

Surely this is a step too far for the Greeks?

Faisal Islam also asked de Jager whether a hypothetical “permanent troika” would have the power to veto future Greek budgets. The reply is a classic:

De Jager: ” of course a country remains to some extent always sovereign…”

2.41pm: Another interesting quote from Brussels, via Faisal Islam of Channel Four News. He asked Belgium’s finance minister whether Greece has “done its homework” ready for today’s meeting. In reply:

Greeks have done their homework so far, but I think it’s crucial that they do their homework in the weeks and months to come.

But Dutch finance minister Jan Kees de Jager is more concerned with today’s assignment, warning reporters in Brussels that the second programme for Greece cannot be agreed until it has met “all its obligations”, adding:

There has to be rigid and very strict implementation by Greece of our demands.

Ed Conway, Sky’s economics editor, isn’t too impressed by de Jager’s tough talk:

Dutch finmin: “Greece must meet euro zone demands to the letter” Rings bit hollow given he’s signing off 2nd bail-out cos of missed demands

— Ed Conway (@EdConwaySky) February 20, 2012

2.34pm: Just in — the European Central Bank bought exactly zero government bonds last week, the first time that its securities markets programme has been inactive since last August.

During the heady days of November, the ECB was mopping up billions of dollars of peripheral eurozone debt in a week – in an effort to keep Italian and Spanish bond yields down. Those yields are much lower today – at 5.4% and 5.1% respectively – reflecting how both country’s debt has strengthened in recent weeks.

One reason for that is the nearly €500bn of cheap loans made by the ECB to European commercial banks last December. Another round of loans are due next week, and economists expect a repeat. No reason for the ECB to do both?

2.25pm: Wolfgang Münchau’s warning in the FT today that Greece must default (see 12.13pm) is attracting heavy attention in the Greek media today, where his grim predictions have found plenty of support.

Helena Smith, our Athens correspondent, says that Münchau’s analysis of what awaits Greece, even if the deal is done and dusted, has not been lost in translation. Skai news, the leading broadcaster, referred to the Financial Times’ commentator as being “extremely caustic about the intentions and actions of Germany regarding Greece.”

Helena continues:

More than ever Greeks know they are up against a wall – they have lost this war and something has to give. Salvation today will come at a heavy price. In the cradle of democracy the view I am hearing, more and more, is the price will be democracy itself as the country is gradually forced to give up any say in the running of its own affairs, instead turning to the besuited men and women brought in from abroad who will shortly be installed at each and every ministry with utlimate budgetary control. The French and Germans, I hear, are already fighting over which portfolios they will get.

“What we are seeing is capitalism in motion at any cost,” says Theodore Pelagidis, professor of economics analysis at Pireaus University. “Forget about political dignity or human rights. We’ve gone back to the era of mercantilism where only profits count.”

As soon as Greece’s (unelected) prime minister Lucas Papademos returns from Brussels, he will begin the arduous process of passing scores of reforms. In one of his first moves pensions above €1,300 will be cut by a further 12%. But it won’t be easy. When all is said and done, workers will lose three out of 14* monthly salary payments they get per year, according to the financial daily Naftemporiki in a country where prices, like inflation, have remained stubbornly high.

“They want us to do what Pinochet did in Chile, fire civil servants and take very painful steps overnight,” a government official told me. “If we didn’t live in a democracy we could do that. The fact is people react, they will resist and that’s why we can’t do these things overnight. Our lenders know this and they should have given us more time to enact reforms. “

* – the 14 monthly payments includes the additional salaries currently paid at Christmas and Easter, which are now being abolished for many workers.

2.10pm: A few highlights from the ‘arrivals lounge’ in Brussels.

Christine Lagarde, head of the International Monetary Fund, was optimistic, saying that Greece has made “significant efforts”:

now we need to continue the work and that the entirety of the elements, particularly furnished by the other parties, are also put into place.

But Austrian finance minister Maria Fekter said there must be “intensive debate” about how Greece’s compliance will be monitored:

If Greece does not implement the measures we have asked for then it won’t be able to return to growth.

Fekter added:

It should not happen again, what happened in the past, that billions go to Greece and it is put into consumption and that no infrastructure, no modernisation of the state and no regional development is created.

Luxembourg finance minister Luc Frieden agreed that the issue of monitoring was important, saying Europe needed:

a system of supervision which ensures that, together with the Greeks, this programme is implemented after the elections.

1.52pm: Update from Athens — around 200 high school pupils held a protest outside the Greek parliament today, in protest at Greece’s austerity measures.

According to local reports, they blocked a road outside the parliament and briefly scuffled with a car driver.

1.41pm: Germany’s finance minister, Wolfgang Schäuble has told journalists in Brussels that he expects to reach an agreement on Greece’s second financing package (that’s via Reuters)….

1.25pm: The euro has gained almost a cent against the US dollar today, to .3265.

Ilya Spivak, currency strategist at DailyFX, reckons that the euro will strengthen if the Greek package is agreed today, but probably lose ground once the details emerge, and traders calculate the consequences for the rest of the eurozone periphery:

The long history of flawed fixes to the debt crisis unveiled over the past three years suggests that the very existence of an agreement is likely to prove initially supportive for risk appetite, largely regardless of its merits.

With that in mind, the chipper mood is likely to carry forward at least into tomorrow, when markets begin to pick apart the details for precedent-setting items that can be applied to other debt-strapped nations.

1.03pm: Jean-Claude Juncker, the prime minister of Luxembourg, is one of the first ministers to arrive at today’s meeting in Brussels.

Juncker, who also chairs the eurogroup, turned up clutching a thick bundle of documents. He spoke briefly to the assembled media, saying:

I am of the opinion that today we have to deliver, because we don’t have any more time.

Juncker added that no-one intends to “expel Greece from the eurozone”.

12.52pm: My colleague David Gow is covering the Eurogroup meeting this afternoon. He reports (as only he can) that:

It’s a gloriously sunny day in Brussels where, as in the rest of Catholic Europe, they’re celebrating carnival week and schools etc are closed…Not the Berlaymont, theEuropean Commission headquarters, where there’s a mood of genuine optimism that the eurogroup of 17 finance ministers will approve the €130bn second bailout for Greece when they meet later on today across the road at the Justus Lipsius building. (The council of ministers, including summits, are getting their own new building just down the rue de la Loi: no expense spared!)

If the Greek debt/default saga is a series of marathons and we’re in the last mile of this one, as Olli Rehn’s spokesman put it earlier today, then we’re just about to enter the stadium for the final lap. There are, as always, one or two hurdles such as the ECB giving up some of its nominal profits on its holdings of Greek bonds, screwing the private bondholders a bit more and getting that nice Christine Lagarde to be less miserly in the IMF’s contributions to the bailout than she’s planned up to now. But, several sources have reassured me, the deal is all but done and dusted.

But…..

There is, of course, a wee problem: the package has to be ratified by the 17 countries, including by three parliaments, I’m told. They just happen to be…those of Germany, the Netherlands and Finland, the triple-A rated euro zone members and big-time payers, which have been hardest to win over. “They’ll vote for it in the end,” said one official, pointing out that the alternative – a Greek default causing a tsunami of runs on banks, company failures, recession, unemployment, including in those three countries – is even more unpalatable.

Later, the 17 euro zone finance ministers will be debating what to do with the two bailout funds, the current EFSF and the pending ESM, that lots of people have forgotten about – the rescue funds that were supposed to prevent contagion with a €1 trillion firewall but, combined, could amount to €650bn or a shade more. They’ll most likely leave that decision to next week’s summit…

12.41pm: The Jubilee Debt Campaign held a demonstration outside the European Commission’s office in London today, in protest at the terms of Greece’s second financial package.

The campaign, which was created to lobby for debt relief for the third world at the turn of the last millennium, argues that Europe now risks ‘enslaving’ Greece. Only the financial sector will benefit from the programme being discussed in Brussels today, argues campaign manager Jonathan Stevenson:

What is happening in Greece today mirrors what has been happening in the developing world for 30 years – unaccountable international institutions demanding a pound of the people’s flesh in exchange for bailing out banks and rewarding speculators.

This package only bail-outs the banks – indeed proposals on the table at the moment suggest that Greece will not even see most of this money – it will be paid to the ‘creditors’ through a separate account*. In this light, the austerity measures seem to be no more than a sadistic punishment which even some of those pushing it know very well will have only a detrimental impact on Greece’s economy.

* – the escrow account, which France and Germany are both pushing for (see 8.51am)

Jubilee in arguing for “debt cancellation in Europe, including transparent debt audits, steep and democratic write-down of debts, regulation of financial institutions and social control of banking”.

Were that to happen, though, the banking sector would be hit with huge truly writedowns – along with central banks and even the European Central Bank, who all hold large quantitites of government debt. Ultimately, those assets stand behind individual savings accounts and pensions.

12.13pm: Two articles on Bloomberg and the Financial Times take a very different view of Angela Merkel’s performance during the crisis.

For Bloomberg, Merkel is acting like a 21st century Margaret Thatcher. Dubbed “Europe’s Iron Lady,” the chancellor has rejected calls for Greece to leave the euro, or for Germany to provide more support:

Merkel may be homing in on her platform for the election next fall: enforcing the budget discipline that Germans want, while fending off the breakup of the euro area as too risky to contemplate for a country that has staked its post-World War II role in Europe on promoting consensus. She has quashed an anti- euro groundswell in her coalition, saying the solution is “more, not less, Europe.”

But in the FT, Wolfgang Münchau accused Germany of acting unethically by meddling in Greece’s political affairs, and attempting to dictate its future governance. To escape, Greece must default, he says:

When Wolfgang Schäuble proposed that Greece should postpone its elections as a condition for further help, I knew that the game would soon be up. We are at the point where success is no longer compatible with democracy.
The German finance minister wants to prevent a “wrong” democratic choice. Similar to this is the suggestion to let the elections go ahead, but to have a grand coalition irrespective of the outcome. The eurozone wants to impose its choice of government on Greece – the eurozone’s first colony.

11.53am: Evangelos Venizelos’s claim that Greece’s long period of uncertainty will end today (see 10.02am) may be optimistic, as there are several issues outstanding:

1) Is the package big enough? The Greek economy has deteriorated since it was agreed last autumn, meaning a €6bn gap has opened up. Greece now needs at least €136bn, and today’s meeting must bridge the gap.
The FT suggests this morning that the money could come from the European Central Bank, from the “profits” it has made on Greek debt. That only works, though, if the ECB gets the full face value of bonds it bought at distressed levels on the bond markets.

[there's a good explainer on the ECB bond swap here, by Open Europe]

2) Will Greece’s private creditors agree to take part in the debt restructuring? The Private Sector Involvement (PSI) is scheduled to begin on Wednesday, and run for 10 days. There are fears that the voluntary process may not attract enough support, prompting rumours that Greece could retrofit ‘collective action clauses’ allowing them to force creditors into accepting losses.

3) Will eurozone governments agree? Once the Eurogroup declares that Greece has met the terms of the restructuring deal, it must be passed by national parliaments. The Bundestag is due to vote on 27 February.

4) How much support will the International Monetary Fund provide? There are reports that the IMF will only take a smaller share of the burden this time round – perhaps 10%, compared with 30% for Greece’s first package.

And overshadowing everything, the question of how Greece’s economy will perform this year, and beyond.

As Gary Jenkins of Swordfish Research commented:

The story does not end with the extension of the second bailout package as there is likely to be much closer monitoring of the Greek fiscal situation and who knows how the upcoming elections could change the landscape. This one will run and run….

Partly because, even if the financial package is agreed, Greece’s debt to GDP ratio is still not expected to fall to 120% by 2020, as targeted, but 129%.

11.26am: Developments in Brussels, where EU spokesman Amadeu Altafaj is briefing the media about this afternoon’s talks.

Altafaj said we have reached the “last mile” in covering the gap in Greece’s 2012 budget, and that the Athens government must explain how this shortfall has been covered.

(Over the weekend, Lucas Papademos’s cabinet agreed yet more austerity measures that, it says, makes up the €325m that was outstanding).

Interestingly, Altafaj also said that the eurogroup of finance ministers meeting in Brussels are preparing for Euro leaders to take a final decision on Greece’s rescue package on March 1.

Altafaj also attempted to quash fears that Portugal could follow Greece. He said that the performance of Lisbon government’s fiscal consolidation has been “satisfactory”, and that economic reforms are working. Portugal has hit the targets set by the Troika [IMF, ECB, EU], but its economy is suffering – with the unemployment rate hitting 14% last week.

11.05am: The Bundesbank has predicted that the German economy will make a rapid return to growth this year, despite the eurozone debt crisis.

Germany’s central bank said that the recent economic weakness (Germany shrank by 0.2% in the last quarter of 2011) was a short-lived issue. In its monthly report for February, it said:

The outlook for the German economy improved perceptibly towards the end of the reporting period, though risks relating to the sovereign debt crisis remain

The assumption underlying the Bundesbank’s economic forecast in December of a fairly rapid resumption of growth looks more likely to materialise at the present juncture.

10.31am: Here’s some City comment on the Eurogroup meeting today.

Lee McDarby, Investec Corporate Treasury:

The biggest fear of the market is nothing to do with the ability of the Greek government to honour the agreement or the size of the haircut private investors will be forced to take on their debt (even though both these issues will be discussed this afternoon), but whether an agreement will actually be passed.
The uncertainty of the outcome of any decisions taken today cannot be underestimated with the most extreme being measures taken to set the wheels in motion for an orderly default by Greece and consequently an orderly exit from the euro and return to the Drachma.

Jane Foley, Rabobank

There is plenty of optimism that Eurozone finance ministers will finally be able to rubber stamp Greece’s second bail-out package at this afternoon’s meeting in Brussels. There is less hope, however, that Greece will put in place all the austerity measures that have been asked of them suggesting that while there is a strong chance that Greece will avoid a messy default next month the problems that are facing the country will continue to play out potentially for years.
The key question for the EMU is thus to what extent have banks and other investors managed to protect themselves from further negative developments in Greece. Contagion risk is not as high as it what at the start of the Greek crisis but it is still a significant threat for EMU with Portugal, Ireland, Italy and Spain all still potentially vulnerable.

Elisabeth Afseth of Investec:

Opinion polls in Greece show low support for the two main parties, who are the only ones to have signed an agreement to stick with the terms of the bailout programme after the election. Given the uncertain political outlook, European leaders may feel uncomfortable with agreeing a second bailout, especially as large payments are needed upfront to facilitate the private sector debt exchange. Patience with Greece is running thin and euro area finance ministers will look to impose control measures to try to ensure closer adherence to the fiscal and economic reform programme. But these concerns will probably be outweighed by fear of the consequences of no agreement today. Pushing Greece to a disorderly default and likely exit from the euro would set a dangerous precedent. Without clear ring-fencing of the remaining countries (and we doubt euro leaders have been quietly working out a bullet proof plan to contain contagion should Greece leave) it would be very risky to delay this issue any further, though we are getting used to broken deadlines.

10.02am: Just in – the Greek finance minister, Evangelos Venizelos, has declared that Greece has met all the conditions set by its lenders, and its people have made the necessary sacrifices.

In a statement issued ahead of this afternoon’s meeting (viewable in Greek here) , Venizelos said:

We expect today to close a long period of uncertainty that has not been to the benefit of either the Greek economy or the euro area.

Venizelos, who has railed against those calling for Greece to default, said Europe must send a “clear message” today that the decision will be taken on the basis of rules that are “stable” and do not keep changing.

He added, though, that negotiations will continue until the last minute.

9.58am: The smell of teargas hung over the streets of central Athens last night as protesters gathered for an anti-austerity rally outside the Greek parliament.

This photo shows one demonstrator being detained by riot police.

9.43am: In Greece, the talk is that this could be a historic day in the country’s history, despite the political infighting and public anger over the terms of its financial rescue package.

News anchor Nikos Evangelatos confidently told the nation that:

By this time tomorrow our debt should have been reduced by €100bn and we will have €130bn in aid, which ultimately is more debt but debt that we will pay back on more favourable terms.

Helena Smith in Athens has more:

The next 10 days will be “the days that changed Greece”, pundits say, as the country races to enact reforms it has delayed implementing over the past two years in time for the first tranche of aid in March when Athens must redeem €14.5bn euro in debt.

Labour laws will change, public sector jobs for life will go, civil servants will be axed – in what will amount to a drastic overhaul of the inefficient modern Greek state.

“It sounds barbaric, almost impossible but it has to be done,” an economics analyst told a local radio station. “Everything about the way our country works is about to change because the troika [the EU, ECB and IMF] has made clear that without such reforms there can be no money and without the money bankruptcy lies ahead.”

9.21am: Greek flags were spotted on the streets of Madrid last weekend as part of the protests against Spain’s austerity programme.

The “We’re All Greek Now!” movement has called on people all over the world to show solidarity with Greece’s population.

This photo, published by Twitter user @soniabouzas, shows two Greek flags on display in Madrid on Sunday.

@northaura #19FTomaLaCalle Madrid ayer en Sol banderas con Grecia twitter.com/soniabouzas/st…

— Sonia (@soniabouzas) February 20, 2012

9.02am: News in from Athens, where Greek media is reporting that Lucas Papademos is “working feverishly” to avoid any let-up in the loan deal.

Our correspondent Helena Smith explains:

With so much hanging on the agreement – future aid but also the country’s fate as a eurozone member – the technocrat prime minister will hold back-to-back meetings ahead of euro group finance ministers assembling at 3:30PM CET (2.30PM GMT) to make their crucial decision.

“He will be holding meetings all day so there is no short-circuit,” said Flash news.

Among these will be a meeting with representatives of the Institute of International Finance (IIF) about the long-delayed debt restructuring also on the cards for Greece. Greek officials say the private sector bondswap, which will write off around €100bn from Greece’s €350bn debt pile, still awaits “finishing touches”.

Despite Papademos rushing through emergency legislation on pension and pay cuts ahead of the meeting – parliament is expected to vote on the bill this week – not everyone is convinced that Greece’s febrile political atmosphere will allow for spending cuts and structural reforms to be enacted. The former vice president of the European Central Bank will have to muster all of his expertise, persuasion and charm to convince hardier eurozone nations that this is not the case.

8.51am: The idea that Greece’s second bailout should be paid into an ‘escrow’ account is gaining ground this morning.

An Escrow account would means that although Greece would have been granted its funds, its access would be restricted. Miss its targets and the funding stream could run dry.

Austrian finance minister Maria Fekter has said that the eurogroup’s working group has been looking at escrow options in recent days.

That is being prepared on the technical level. The finance ministers will discuss this intensely at their meeting. I welcome such a special account.

French finance minister Francois Baroin also said this morning that he supported the idea of paying Greece’s funds into an escrow account.

8.42am: French finance minister Francois Baroin says he will urge his eurozone counterparts to approve Greece’s bailout package today.

Baroin told Europe 1 Radio this morning that:

All the elements are in place…both with the bankers, private sector creditors, and public sector creditors, the states and central banks….

That is what I will plead for as minister of finance today. I think we should take account of everything that has been done in recent weeks by the Greek government, and by political parties both on the left and the right.

Baroin (who famously described the UK’s economic situation as “very worrying” last December) added that Greece could find itself in “bankruptcy” unless the deal is agreed in time for its €14.5bn debt repayment on 20 March.

8.33am: European stock markets have opened strongly this morning, on optimism that Greece’s bailout will be agreed.

The FTSE 100 is 34 points higher at 5938 – its highest level since last July.
The French CAC is also up 0.6%, with Germany’s DAX a little higher.

Michael Hewson, senior market analyst at CMC Markets, said traders are hopeful that a deal will come today, having driven shares higher over the last couple of weeks.

The markets certainly think that the odds are good, given the way they have front run a possible outcome over the last few days as the euro and equity markets have continued to rise.

Shares have been gaining ground for most of this year – the Footsie is 6.5% higher since 2012 began.

8.23am: There’s plenty of coverage of the Greek crisis in today’s Guardian:

David Gow reports that Lucas Papademos’s unexpected flight to Brussels came after Germany voiced new fears about Greece:

Wolfgang Schäuble, the German finance minister and focus of mounting Greek fury at austerity measures imposed on Greece, accused Athens of rejecting offers of help in rebuilding its shattered economy and of dragging its feet on reforms.

The German economic ministry, according to the paper Welt am Sonntag, has drawn up a “sobering” report on what it sees as Greece’s failure to make implementing reforms its priority, and has called for greater co-operation with Brussels as a pre-condition for approving the bailout.

Papademos is to be on hand to assure sceptics that his government can deliver on these planned reforms and iron out final technical details of the package.

From Athens, Helena Smith explained that the Greece cabinet has agreed new spending cuts:

The legislation is expected to include wage and pension cuts, and a supplement to the 2012 budget which already foresees €3.2bn in savings.

“It has been impossible not to cut pensions,” said Papademos, a former vice president of the European Central Bank, appointed to the post last November with the sole purpose of averting a potentially disastrous default by the eurozone member.

Ministers also worked to sign off reforms ahead of their submission to parliament this week.

Larry Elliott argues that the conflict over Greece’s bailout has Tolkienian overtones:

There’s a scene in The Lord of the Rings where the wizard Gandalf confronts the Balrog, a hellish monster, on a narrow bridge in the Mines of Moria. The battle ends with Gandalf smiting the bridge with his staff, sending the Balrog plunging into a fathomless abyss.

There’s a twist to the tail, however. As the monster falls, one last swish of its whip curls round Gandalf’s ankle and drags him down into the pit as well. Views may differ, in the context of the eurozone debt crisis, whether Greece is Gandalf or the Balrog, but one thing is for certain; the risks of mutually assured destruction are high.

And Julia Kollewe explains how Greece’s debt swap with its private creditors will work.

8.10am: The meeting of eurogroup finance ministers in Brussels is the main event on the agenda today. We’ll also learn how much the European Central Bank spent buying up government debt last week.

• Eurogroup meeting begins: 2:30pm GMT / 3.30pm CET
• ECB weekly bond-buying data: 2:30pm GMT / 3.30pm CET

France, the Netherlands and the UK are all selling government debt this morning…..

8.05am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

It’s decision time for Greece. Later today, eurozone finance ministers meeting in Brussels must decide whether the country has done enough to receive its second bailout package. The Greek prime minister Lucas Papademos has flown to Belgium to press the flesh and assure the Eurogroup that Greece will deliver on its pledges.

Over the weekend, Papademos’s cabinet approved further spending cuts demanded by his lenders. But there are rumours of discord within Europe, and concern that the €130bn package is no longer big enough to put Greece on a path to a sustainable future.

We’ll be tracking all the action in Brussels, as well as bringing you reaction and analysis from across Europe.

We’ll also keep an eye on Spain, where hundreds of thousands of people took to the streets on Sunday to demonstrate against austerity, spending cuts and labour reforms.

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