German minister raises ‘orderly default’ for Greece

Philipp Roesler, Germany’s economy minister, said an “orderly default” for Greece could no longer be ruled out and branded the country’s deficit-reduction measures “insufficient”.

The warning is likely to spook financial markets further and comes despite Greece yesterday announcing a fresh €2bn (£1.7bn) of budget cuts and the introduction of a country-wide real estate tax.

Evangelos Venizelos, the finance minister, said the cuts and tax measure were necessary to allow Greece to meet obligations demanded by the European Union and IMF in exchange for bail-out funds.
Writing in the Die Welt newspaper, Mr Roesler said: “To stabilise the euro, we must not take anything off the table in the short run. That includes as a worst-case scenario an orderly default for Greece if the necessary instruments for it are available.”
He said such a default would mean “re-establishing the affected state’s ability to function, perhaps with a temporary restriction of its sovereign rights”.

Mr Roesler’s comments come as Germany’s Der Spiegel magazine said finance minister Wolfgang Schaeuble had ordered preparations be made for a Greek bankruptcy. The report claimed the German government is preparing for two eventualities under that scenario – Greece staying in the euro or the country exiting and reintroducing the drachma. Despite the speculation, the European Commission said it was sending a team to Athens “in the next few days” tasked with finalising the payment of a new tranche of loans for Greece by the end of the month.

EU economy commissioner Olli Rehn said the team – which represents the troika of the Commission, the European Central Bank and the IMF – would “provide technical support to the Greek authorities”. The previous team was pulled out of Athens earlier this month because of a lack of progress by the Greek government in reducing its deficit.

Mr Rehn on Sunday praised Greece’s new cuts, saying they would “go a long way to meeting the fiscal targets” for 2010 and 2011. “Greece needs to meet the agreed fiscal targets and implement the agreed structural reforms to fulfil the conditionality and ensure funding from its partners,” he said.

G7 finance ministers late on Friday vowed to “take all necessary actions to ensure the resilience of banking systems and financial markets”. However, underlining the difficulties facing German authorities, a survey showed 53pc of Germans oppose further aid for Greece and would not save the country from default should it fail to fulfil loan criteria.

Te Telegraph
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Bob Chapman on the Corbett report

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Report of $273.2 Billion EU Bank Hole Misleading: Lagarde

International Monetary Fund (IMF) chief Christine Lagarde said on Saturday that reports of a draft IMF document showing a $273.2 billlion shortfall in European banks' capital were misleading and the lender was still finalizing its study.

"There has been misreporting about the 200 billion euros, this number is tentative," Lagarde told a news conference after G7 and G8 finance talks in the southern French city of Marseille.

"This is not a stress test that the IMF conducts nor is it the global capital need for European banking institutions, that it is not, and we are currently in discussions with our European partners to assess the global methodology until we reach a tentative draft. It will be published before the end of September."

CNBC

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Euro no good for Greece

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German Finance Minister Prepares for Possible Greek Bankruptcy

German Finance Minister Wolfgang Schäuble, who is reportedly doubtful that the country can be saved from bankruptcy, is preparing for the possibility of Greek insolvency. Officials in his ministry are currently reviewing scenarios for handling such a situation, exploring what it might mean for the rest of the euro zone. Under the first scenario for a Greek bankruptcy, the country would remain in the euro zone. Under the other, Athens would abandon the common currency and reintroduce the drachma.

The European bailout mechanism, the European Financial Stability Facility (EFSF), is playing a key role in those considerations. Soon the EFSF is expected to be given new powers agreed to by European leaders at a special euro crisis summit in late July. Two instruments at the EFSF's disposal are at the forefront of the Finance Ministry's scenarios.

Bankruptcy Could Create Credit Crunch

One of these key instruments would be credit lines provided to countries like Spain or Italy if investors stop lending them money after a Greek bankruptcy. If banks were forced to write off the billions in Greek government bonds on their books, they could become reliant on billions in rescue fund aid in numerous euro-zone countries. Both developments are to be expected in a Greek insolvency, regardless of whether the country exits the euro or not.

Volker Bouffier, the governor of the state of Hesse, which is home to Germany's financial capital Frankfurt, is a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) party, as is Schäuble. Bouffier is now urging that the possibility for countries to leave the euro zone be created quickly. Current European Union treaties provide no provisions for a country to abandon the currency.

"If the savings and reform efforts of the Greek government aren't successful, then we need to ask the question of whether we need new rules to make it possible for a euro country to leave the currency union," Bouffier told SPIEGEL.

Read the full story on Monday on SPIEGEL ONLINE International.

dsl/SPIEGEL

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World Entering 'Dangerous New Phase': Lagarde

Christine Lagarde, the managing director of the International Monetary Fund, warned that the global economy is entering a "dangerous new phase" on Friday, ahead of the G7 summit in Marseilles, France.

French finance minister Christine Lagarde is seen as a front-runner to succeed Strauss-Kahn.
She warned that both advanced and emerging economies faced key economic challenges, and that governments must "act now" to stop further contagion.

"Policymakers should stand ready, as needed, to take more action to support the recovery, including through unconventional measures," Lagarde said.

"The world is collectively suffering from a crisis of confidence, in the face of a deteriorating economic outlook and rising concerns about the health of sovereigns and banks."

Her speech at Chatham House in London came after a turbulent week for the markets, with the focus on sovereign debt issues in the euro [EUR=X 1.3651 -0.023 (-1.66%) ] zone and job creation in the US.

She welcomed President Obama's new $450 billion jobs package, announced Thursday, but added "it remains critical for the United States to clarify its medium term plan."

The British government, including Chancellor of the Exchequer George Osborne, who also spoke, was warned that "risk levels are rising" in the UK and the government needs to have a "heightened readiness to respond."

However, Lagarde conceded that the government's response "remains appropriate."

When Lagarde called for the recapitalization of European banks at the Jackson Hole summit in the United States in August, a flight away from European banks resulted in the markets.

Osborne agreed that the situation is "more complex" than in 2008 but described his government's plan as a "rock of stability".

"The underlying cause is the same – excessive levels of debt," he said.

He backed Tim Geithner, the US Treasury Secretary, who wrote in the Financial Times on Friday that the three most important elements for boosting growth are: strengthening growth in the US, stronger actions in Europe to halt the debt crisis and emerging markets like China allowing their currencies to adjust to market forces.

One of the factors weighing down markets is the perception that the situation is worse than 2008, and that there are fewer policy options available to governments and central banks.

Osborne warned that "nothing would be more damaging" to the British economy than an increase in interest rates.

The Bank of England Thursday held its interest rate unchanged at 0.5 percent, a historic low, which has now been in place for two and a half years.

He also supported greater fiscal and institutional integration in the euro zone.

This stance is fast becoming popular, although there has not been any clear signal as to what greater integration would involve.

Stephen King, chief economist at HSBC, told CNBC.com after the speech on Friday that he believed a "fiscal club" would work for the euro zone.

"Countries that don't stick to the guidelines would have their memberships suspended, and if a country chooses not to sign up, it won't get the benefits other countries do and will be pushed to the edge of the euro zone," he said.

"It will not be a proper member of the euro zone."

"As time goes by, there's a danger of getting worse rather than better."

Friday's G7 meeting will include discussions on the risks facing the economy at the moment.

The changing landscape in the Middle East and North Africa following the Arab Spring, and how more advanced economies can help the countries which are transforming their governments, will also be on the agenda.
© 2011 CNBC.com






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Protest of Thousands in Cairo Turns Violent and attack Israel embasy

CAIRO — A demonstration that brought tens of thousands to this city’s central Tahrir Square turned violent on Friday, when thousands of people — led by a heavy contingent of soccer fans — tore down a protective wall around the Israeli Embassy, while others defaced the headquarters of the Egyptian Interior Ministry.

Egyptian protesters dismantled a concrete wall which was in front of the Israeli embassy in Cairo.

About 200 people were injured in clashes with the police at the Israeli Embassy and 31 were injured near the Interior Ministry, the Ministry of Health said late Friday night. Protesters scaled the walls of the Israeli Embassy to tear down its flag, broke into offices and tossed binders of documents into the streets.

Mustafa el Sayed, 28, said he had been among about 20 protesters who broke into the embassy. He showed a reporter video from a cellphone, of protesters rummaging through papers and ransacking an office, and he said they had briefly beaten up an Israeli employee they found inside, before Egyptian soldiers stopped them. The soldiers removed the protesters from the building, he said, but let them go free.

By 11:30 p.m., about 50 trucks had arrived with Egyptian riot police officers, who filled the surrounding streets with tear gas. Witnesses said that protesters had set a kiosk on fire in front of a security building near the embassy, and that the police had fired rubber bullets to disperse the crowd from both buildings. But at 3 a.m. Saturday, thousands of protesters were still battling thousands of riot police officers. Demonstrators threw rocks and gasoline bombs at the officers, sometimes forcing them to retreat, and the police fired back with tear gas. To celebrate an advance, protesters set off the flares that they typically use to cheer at soccer matches.

Egyptian airport officials said early Saturday that the Israeli ambassador was waiting for a military plane to leave the country, The Associated Press reported.

United States officials said Defense Minister Ehud Barak of Israel had called Defense Secretary Leon Panetta, who in turn asked the Egyptian military to try to restore order at the embassy.

In addition, a fire broke out in the basement of the Interior Ministry, but it appeared to have been started from the inside and not by the protesters surrounding the building. The fire was in a room believed to store criminal records.

The scale of the protests and the damage inflicted represented a departure from the previously peaceful character of the demonstrations staged periodically in Tahrir Square since the revolution in January and February.

Organizers of Friday’s demonstrations had said they would call for a list of familiar liberal goals, like retribution against former President Hosni Mubarak and an end to military trials of civilians. But thousands of people marched off from the square to express their anger over disparate recent events, including a recent dispute along the border with Israel and a brawl between soccer fans and the police at a match on Tuesday.

Thousands of hard-core soccer fans — known here as ultras — were for the first time a conspicuous presence in the protests and a dominant force in the violence. They led the attacks on the Interior Ministry and the security building near the Israeli Embassy, and they kept up the fight outside the embassy long after others had gone home. At the Interior Ministry, political activists tried to form human barriers to protect the building, urging protesters to retreat to the square and chanting, “Peacefully, peacefully.”

“Those who love Egypt should not destroy it!” they chanted.

The embassy, which has been the site of several previous demonstrations after the Israeli armed forces accidentally killed at least three Egyptian officers while chasing Palestinian militants near the border last month, was an early target on Friday. In response to almost daily protests since the shootings, the Egyptian authorities had built a concrete wall surrounding the embassy, and by early afternoon thousands of protesters, some equipped with hammers, were marching toward the building to try to tear down the wall.


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