Greek riots start outside their Finance Ministry

They say one picture is worth a thousand words so look at this one taken yesterday in Athens outside the Greek Finance ministry of Greek riot police dealing with protesters.

As the weather hots up and as the full severity of the public sector cuts come through there will be more, bigger and more violent protests in Greece. Most significantly this story made the BBC Radio 4 8:00 am news.

Meanwhile the EU continues to procrastinate issuing vague bulletin like statements. The aid deal is almost complete, we expect it soon etc which goes down like a lead balloon in the markets.

Greece agrees 24 billion austerity package which will see a pay freeze and VAT rises is one of the paper headlines this morning. It puts Gordon and Dave's  6 bn VAT spat into context and Portugal says deficit cut may exceed 2010 goal. Its all part of an EU orchestrated attempt to convince the markets they are doing something. The markets have stabilised but I think this is just a breather, time will tell.

There are clear threats from the Greek unions of a mighty battle to come. Union officials said the International Monetary Fund asked Athens to raise sales taxes, scrap bonuses amounting to two extra months pay in the public sector, and accept a 3-year pay freeze.

"They want Greece to cut the deficit by 10 percentage points in 2010 and 2011 ... so that Greece can go back and borrow on markets in the third year of the programme," said a union official who requested anonymity.

Andreas Loverdos, social affairs minister, said pensions would be reformed. "There isn't much room for manoeuvre -- this is about saving the country from collapse," he told the FT.

This is what Gordon, Dave and Nick were not saying last night but its what is going to happen in the UK.


On UKIP matters I thought Farage's comments on BBC TV before the great debate to Huw Edwards on leaving the EU were very good as were his comments after the debate on the unanimous evasion of the immigration issue by all three LibLabCons. Its a pity he chooses to surround himself with such low grade colleagues.

Merkel demands faster Greek rescue but keeps her purse shut

The Euro has stabilised slightly this morning to 1.32 per US dollar. Greek bond spreads have come in from a staggering 10% to a not quite so staggering 8% so is the crisis on the mend, well I think not. The market has paused for breath and the hedgies etc will be taking some profits and eyeing up the next target. Merkel like St Augustine wants to do something but not quite yet.

The EC has produced its usual solution to its perceived problems with the rating agencies, more regulation! These nasty agencies must be made to think correctly. The announced aid package gets bigger, now €135 bn, but the details get scarcer. The EU does not do clarity, transparency and action. It prefers dither obfuscation and 'constructive' ambiguity. The EU is just a motley collection of squabbling mid Europeans.

I bet the German Bundestag loved being told yesterday by Frenchmen Trichet and Strauss-Kahn that it was up to them to get out the cheque book!

The British journos have been having a great time with their metaphors and hyperbole. Jeremy Warner has a big piece in today' Telegraph with quotes from EU people of cutting off the gangrenous Greek leg before it infects the rest of the Eurozone. Wake up, that has already happened! Everyone is concerned at a rerun of Lehmans and the amount of Greek debt held by German and French banks.

I don't see the latter as a big problem. Any banks that regularly participate in the ECB repo refinancing operations ie all the big Eurozone and British banks will hold a stock of Greek bonds to use as collateral in these operations as these are the cheapest bonds to buy. That is why Trichet saying the ECB will continue to take them as collateral at any credit rating was so important. It is only if the Greeks default these bonds banks will lose money. That is why the EU is in denial over any suggestion of a default but of course they cannot say anything else!

As Warner says, " Dithering is the worst thing you can do in a crisis but with so many moving parts to its name, the Eurozone takes the concept of long winded compromise and inadequate decision making to a whole new plane". Well its not new Jeremy for those who know how the EU does not work.

Many are exercised by the Greek disease spreading to the UK. I do not think it will directly but if the Eurzone economy collapses as a result we will of course be badly affected.

The most potent force at work long term however is the power of TV. Already British TV news is carrying footage of Greek street protests. Recall the effect that pictures of the huge queues tying to get their money out of Northern Rock had in blowing up that crisis. wait till the austerity measures start to bite in Greece and we see on our TV screens riots and burning effigies of the Eurocrats in Athens. Let us hope UKIP is still solvent to capitalise on the wave of EU concern this will generate in the UK but this presumes we get rid of the Pearson Farage Tory pressure group regime and get Nikki, Gerard or John Bufton in to lead UKIP as a proper political party.

Greek bond crisis spreads and threatens whole Eurozone

Tempted as I am to write on the latest lunatic public pronouncement of UKIP's leader Pearson advising UKIP members in Somerset to vote Tory I think the real damage to the EU is being inflicted in Greece which makes the ramblings of a useless UK peer irrelevant nonsense. The Greek bond crisis is now the leading item on all news bulletins and has eclipsed Clegover mania. Those interested in Lord P's latest effort for his Tory masters can read it by clicking this link

Greek 2 year bond rates rose to around 20% yesterday, credit card levels, and clearly unsustainable. Merkel continues to be caught in an electoral bind on 9th May in Westphalia that threatens to emasculate her government for the rest of its period in office. The German Volk think quite simply the Greeks cooked the books to get themselves into the Euro so why should their hard earned be used to bail out this shower of fraudsters.

So the EU have resorted to that favourite Gordon Brown tactic of obfuscation and delay, call an international summit on 10th May the day after the German election. That's called taking a tough decision in politics speak. Its exactly what the markets did not want and will lead to another feast of spin and inaction. Only the IMF are acting correctly with its head Strauss-Kahn addressing the Bundestag today to urge immediate action before markets worldwide go into free-fall and we have another banking crisis.

The ECB will also have to act immediately and introduce under their emergency powers a bond purchase scheme similar to our so called quantitative easing or money printing or risk Greek banks and then other European banks failing. The Greek collateral held by Greek domestic banks and other Eurozone banks, particularly the French can still, thanks to Trichet waiving the eligible collateral credit rating rules, be used in ECB repo refinancing operations but that can only be used at market price less a significant margin. Frankly I doubt if a decent liquid market exists for this Greek crap so you do not have a market price to value the collateral at and therefore how can you lend against an asset you cannot values?

This is how contagion spreads. A hole in a Greek bank's balance sheet quickly becomes a hole in a non-Greek banks balance sheet and the dominoes as we have seen with Lehmans, RBS etc start to fall.

The BBC also ran a report from the streets of Athens on a mass protest by the Greek people shadowed by a strong contingent of riot police. They feel they have lost control of their own country to the IMF, bad enough, but even worse to the Germans.

So the clash I predicted between domestic needs and politics and EU superstate ambitions is now with us on the streets of Athens and the ballot boxes of Westphalia. The EU been shown up as a stage only fit for third rate politicians to preen themselves and prance on.

Reuters today summarised the amounts and legal procedures each EU government will have to go through to release their funds to Greece. It looks fraught with difficulties to me. I list the major players below:



Greece needs to pay back 8.5 billion euros in maturing debt on May 19.

Below is an overview of how much donors would contribute, dependent on their shares in the capital of the European Central Bank, and the legal hurdles the loans face:

IMF - up to 15 billion euros; IMF officials have said the Europeans want IMF financing not to exceed a third of any total aid package.

When a member country seeks an IMF loan, the fund dispatches a mission to reach an agreement with the country on an economic programme. An IMF mission began talks in Athens last week. The IMF has declined to give an end date for the talks, but has said it can move quickly if needed.

Once a programme is agreed, IMF loans need the approval of the IMF management and board.

GERMANY - 8.4 billion euros. By adopting accelerated parliamentary proceedings, Germany could approve a law to bail out Greece on Friday, May 7, according to Finance Minister Wolfgang Schaeuble.

Schaeuble said on Monday he hoped talks in Athens between the European Commission, the IMF, the European Central Bank and the Greek authorities on a detailed austerity programme for 2011 and 2012 would be finished by the end of the week.

Any legislation for Greek aid would need a simple majority in a vote by the lower house of parliament. It may also require approval from the upper house, depending on what kind of bill the government drafts.

If upper house approval is required, it could only delay the passage of the bill by calling for mediation to amend it. Were the amended bill to be rejected by the upper house again, the lower house could overrule the upper house.

The opposition Social Democrats (SPD) have threatened to hold up the fast-track process to permit further debate on the Greek aid, which most German voters are opposed to. However, the party is not opposed to aid for Greece in principle.

FRANCE - 6.3 billion euros. The package needs approval by both houses of parliament. The bill is set to be given fast-track treatment and the government hopes it will be passed into law by May 10. Some 3.9 billion euros can be mobilised in 2010. The rest would come later. President Nicolas Sarkozy's centre-right allies say they support the bill. Opposition leftist parties have said nothing, suggesting they won't create any problems.

ITALY - 5.5 billion euros. The contribution will be authorised by a government decree, which comes into force immediately after it is approved by the cabinet. The decree needs to be approved by both chambers of parliament within 60 days. An Italian Treasury official said last week the government was readying the decree but gave no details on the timeframe.

SPAIN - 3.7 billion euros. Needs to be approved in parliament to be disbursed although the government has not yet provided any date for when it will be presented for approval and Deputy Prime Minister Maria Teresa Fernandez de la Vega said last week the country was ready to release the money for Greece when needed.

NETHERLANDS - 1.8 billion euros. Approval is needed from the both houses of parliament, though a majority of MPs have already said they would back the aid plan. The finance ministry says it will notify parliament the aid is needed after the EU and IMF complete their review in Greece. As soon as the next day the government will submit a supplementary budget bill to parliament with the aid request. It is expected that parliament could act on the bill in as soon as a couple of days.

BELGIUM - 1.07 billion euros. The Belgian government has already approved a text of a draft law, which a government spokeswoman said could be passed by the parliament relatively quickly. However, because of a new government crisis other, unspecified options, may be explored, the spokeswoman said. Belgium expects to have approval for the disbursement of the money at the same time as other euro zone countries.

AUSTRIA - 858 million. Needs approval by both Austrian Finance Minister Josef Proell and Chancellor Werner Faymann. Proell told the Austrian press agency APA on Tuesday that Austria's contribution will be made available only after Greece fulfils every condition to aid as set out by the IMF and euro zone countries, and the entire 30 billion euros has been put together.

Meanwhile Market operators estimate the Euro could fall to $1.29 from a current $1.32. Portuguese Bund 10 year bond spreads are now 3.1%. The IMF will have to raise its contribution and act quickly because as Reuters says, 'The Greek crisis sweeps all before it', a bit like Icelandic banks sorry volcanoes.

Greek bond yields hit 12 year high on bail out fears

Thus reads today's headline in the DT business section. Not exactly what the EU wanted to hear but a rate they quote on Greek 10 year bonds of 9.39% is higher than before the Euro bonds hit the market and Greeks were trading on convergence trades. Dr Frau Merkel has pledged support for the aid package for the sake of Euro stability but said it was contingent on certain conditions being met. Not what the market wanted to hear. It wanted a clean done deal which this certainly is not!

The Greeks have satisfied the EU that it has done enough to cut its budget deficit by around 4% of GDP in 2010 but what comes after that? That is what the Germans and the market wants to know. As Barclays Capital put it this is 'a marathon not a sprint'. The proposed €45bn package is only enough for one year. At least that much again will be needed to cover subsequent years. Meantime fear of contagion stalks the market with Portuguese CDS at record highs yesterday.

Meanwhile Reuters reports the ECB is still blaming speculators. The measures taken by Greece to cut its budget deficit this year are "convincing and encouraging," but it has not been helped by market speculators and poor communication, European Central Bank Governing Council member Yves Mersch said in a Belgian newspaper yesterday. M Mersch then went on to say, "Unfortunately, the scope of this effort has suffered from a communication that I would not describe as optimal, neither from Greece nor from Europe. Markets have been disrupted by indiscriminate declarations at all levels. This is a lesson in what not to do."

Well I would second that but that is how things happen in the tower of Babel that is the EU.

Markets volatile as Greece is still in Limbo

Markets still need convincing with details of Greek rescue. They still remember the Argentinian $100bn debt default in 2001-2002 preceded by similar statements to Greece that they had no plans to default on their debt or restructure it.

Merkel as with all EU politicians speaks with a forked tongue, one story in the cosy hidden confines of the EU and another for the home market. Unfortunately for the Dr Frau there is a tricky election coming up in Rhine Westphalia where the EU/IMF bailout is about as popular as Gordon Brown. Hence the German finance minister, Herr Schauble, is making tough noises about the outcome being 'negative' and wanting to see tougher terms with strings imposed on the Aid package.

Worse, Merkel's coalition 'partners' are questioning the wisdom and legality of the proposed aid package with the leader of the CSU group suggesting Greece should leave Euroland. Every politician knows his real enemies and problems are not with the opposition in front of him but with his 'friends' behind him.

The package will eventually be forced through as necessary to 'defend the stability of the Euro' but would only happen legitimately in extremis. Its difficult to get a motley crew of mid Europeans to agree on anything until the water gets up round their necks.

Meanwhile the markets are not buying the latest soothing noises coming out of the EU/IMF. Each headline that sows even the slightest doubt in the mind's of investors that any plan to help Greece is delayed or insufficiently sized pushes the currency ever lower. Greek bond rates remain unaffordable. Bets are building against other European nations such as Spain and Portugal, particularly in the credit default swaps market, which offers protection against defaults or restructuring.

Portuguese yield spreads over Bunds have doubled during April to hit 200 basis points, while Italian and Spanish spreads were at their highest since February. Rising debt costs for the other weak links in the euro zone have raised the spectre of even more bailouts. The need for a Greek fix grows more urgent by the day but all the 'crats offer is even more waffle. A UK hung parliament on 7th May could be the trigger that sets of the next crisis.

Greek people versus the EU is a rerun of Athens versus Sparta c 500 BC

Athens is the home of democracy, a word derived from the Greek word for the people, demos and power, kratos. Athenian democracy was a direct democracy where the people voted themselves on the legislation and executive bills. Representatives i.e. corrupt politicians MPs and Peers were not elected or nominated. People spoke and voted themselves. Only adult male citizens who had done their military service and were not in debt to the state could vote, roughly 30000 people but they participated on a huge scale. The public opinion of voters was remarkably influenced by the political satire performed by the comic poets at the theatres, the mass media of the time. The Swiss system of referendums, military service and adult franchise comes closest of modern democracies to the original Athenian model.

I always feel humbled when I study other systems of government like Athens, the US and Switzerland how prescient their founding fathers who set up their constitutions were. The UK may have the mother of parliaments but cannot claim to have founded or carried the torch of real democracy. We have been, and still are, ruled by a political class of Old Etonians and other public schoolboys etc and Lords hereditary and nominated by the government. It is not my idea of democracy. I prefer the old Athenian model of Pericles and Solon.

There are still voices of common sense such as Herr Friedrich of the Bavarian CSU urging Greece to be ejected from the Euro. Its the best thing for the Greek people just as leaving the EMS in 1992 when the Germans refused to support us was the best thing for the UK and led us into prosperity until Gordon arrived.

The rabidly Europhile Financial Times writes in the Saturday leader of the Greek PM 'bravely putting an end to an excruciating sequence of face saving pretences"? And what was this brave act? To ask for a draw down on a loan to prop up the Euro system for a few more miserable months to save the faces of the faceless bureaucrats of Brussels and their delusions of worldwide grandeur. The system is bust and violent protest will erupt on the streets of Athens this summer.

So now in 2010 AD, 2500 years after Pericles, we see the same old conflict in Athens between the democratic will of Greek people and the non-democratic Sparta now reincarnated in the EU. Let us hope we get the same result as happened in 500 BC.

Greek rescue package, a few more details

Greek government sources have given some more details this morning of the aid package Greece will get. It will be for 3 years with €30bn from the EU at 5% and €10bn from the IMF at 3.75%. Yesterday danger signs were flashing on not only Greek bonds where the bund spread got near to 6%, Portugese CDS surging 50 bps to 270bps and Spanish CDS jumping to a fresh record of 175 bps. This contagion is what is putting pressure on the EU to act. The IMF has a wider perspective and can see the Greek contagion spreading to non-EU sovereign debt as well. Many countries have far to much public and private debt so conditions are ripe for a spread of this contagion.

Yesterdays panic was set off as I predicted by the revelation that the Greek budget deficit last year was larger than previously reported. There is still talk from Greece of debt restructuring. This would be very dangerous and is not a cheap solution in the longer term. The Russians defaulted in 1998 and had their debt restructured eventually by the London creditors club but have paid for it by being shut out of the capital markets until this week when they sold their first dollar bonds for over 11 years. Bond markets have long memories!

Civil unrest and strikes continue in Greece and the IMF have not yet started! The Parthenon was closed to visitors yesterday by a public sector strike.

In Germany the right wing Free Democrats called for Greece to 'voluntarily step out side the Eurozone' if it cannot comply with the austerity demands. "Any other way is frankly a placebo to calm the markets". How very true. The Germans as a whole are very wary. Its their money and future money they can see disappearing into a bottomless pit.

The semi-announced solution is not a done deal. I give below some analysts comments quoted on Reuters this morning:

SEAN MALONEY, RATE STRATEGIST, NOMURA

"I don't necessarily think we're out of the woods here because there's a fair bit of wrangling to go in terms of how much the package is going to be, and the terms that are going to be attached to it. I think the reaction we've seen so far is understandable but whether it extends another significant amount from here is another question.""

PHILIPPE GIJSELS, HEAD OF RESEARCH AT BNP PARIBAS FORTIS GLOBAL MARKETS, BRUSSELS

"It does not come as a surprise. Even if there is a short term solution there is still uncertainty. It still has to go through national parliament and we do not know what the reaction of Germany will be. Does this mean it stops here or will it spread to Portugal and Spain. I think it will still weigh on markets and it is not a done deal."

DARAGH MAHER, DEPUTY HEAD OF FX STRATEGY, CREDIT AGRICOLE CIB

"It's a positive development in the short term. The comments coming out of Germany suggest they won't be stonewalling Greece's request.

"In the longer-term, it's just a sticking plaster over the situation. The question remains how can Greece extract itself from its problems, and the situation remains highly uncertain.

"The euro has not seen a sizeable bounce. It shows investors remain uncomfortable with being bullish on the euro."

GERHARD SCHWARZ, HEAD OF GLOBAL EQUITY STRATEGY, UNICREDIT (Milan: UCG.MI - news)

"It (the aid package) is something that might help market sentiment in the short term because it could alleviate the fears that have arisen regarding a possible debt restructuring for Greece that was discussed in the markets lately. But at the end of the day it is nothing that will solve the fundamental problems of the Greek government."

PETER CHATWELL, STRATEGIST, CREDIT AGRICOLE CIB

"We aren't really much further into solving the problem - we need to know how much Greece will get and when, so uncertainty will continue to be a problem, hence no major reaction since the formal announcement."

BEN MAY, EUROPEAN ECONOMIST, CAPITAL ECONOMICS

"It is certainly no surprise; we have been feeling for a little bit now that it was inevitable that they were going to ask for it sooner rather than later. With the pressure on the markets in the last few days it really was inevitable.

"The yields have fallen back a bit but they are still incredibly high, which perhaps suggests that there are still doubts about whether the aid can be delivered fast enough. But I think there are probably ways around that ... I am sure the money will come to Greece sooner rather than later.

"But the bigger picture is still that there are huge issues in the medium term in terms of Greece getting its finances in order.

"This certainly does not mark the end of the crisis, there's still much further to go. They've still got the medium-term problems of getting their public finances in order, and obviously the issue of competitiveness."

Its not over until the fat Greek lady sings!