Monthly Archives: July 2011

Greek finance minister Evangelos Venizelos visits the IMF in Washington earlier this week

In what appears to be an acknowledgement of the ongoing confusion in the financial markets over last week’s agreement on a €109bn Greek bail-out, the European Commission has just posted some very useful documents on its web page, which we highly recommend for those still trying to get their head around the deal.

Although they go a long way towards explaining things, the documents also reveal an interesting €7bn gap in the programme that’s worth highlighting. Our excavation of the missing €7bn is after the jump. 

Like most people who have been following the Greek debt crisis closely, we’ve been spending much of the last few days drilling down to figure out just what eurozone leaders agreed to Thursday night, since even market participants remain confused about certain elements of the deal.

For Brussels Blog, the key question was always the most straight forward one: how big is the hole, and how are you going to fill it? We found out how big the Greek hole was earlier this month, when the European Commission released a report that showed the gap in Greek financing between now and mid-2014 – a whopping €172bn.

But just how they are going to fill that hole has not been publicly acknowledged amidst the conflicting accounts of the plan’s details that emerged in the days since the summit ended. Thanks to a previously undisclosed document obtained by the Brussels Blog – and a little help from a big EU economic brain – we seem to have figured it out. 

Greek prime minister George Papandreou, at the end of Thursday's summit in Brussels

All eyes in Brussels will be watching the bond markets in the eurozone’s periphery this week,  particularly in Spain and Italy, where the danger of post-Greek deal contagion is most acute. After a brief relief rally after the bail-out package was agreed Thursday night, things have begun to look a bit shaky again.

Already, Moody’s this morning has joined Fitch in downgrading Greek bonds, citing the “substantial economic losses” Greek debt holders will incur under the plan. But it’s worth looking at a “special comment” Moody’s issued alongside the Greek downgrade, because there’s a bit of good news for European leaders in it. 

Enda Kenny, the Irish prime minister

Although the crisis summit is focused on Greece, there are signs that Portugal and Ireland may benefit from today’s deal, too. According to a senior European official, leaders are close to an agreement that would see lending rates on Lisbon’s and Dublin’s bail-out loans be cut – though no word on how much.

Currently, Portugal and Greece pay 200 basis points above the borrowing costs of the eurozone’s €440bn bail-out fund, while Ireland – because of an arcane dispute with France over corporate tax rates – still pays 300 basis points. There’s been some talk that this could be lowered to as little as 50 basis points for all three, but our source was mum on that point. 

Angela Merkel

Angela Merkel in Brussels on July 21.

Eurozone leaders have made their way into the council building in Brussels, and their comments – though still cautious – have turned upbeat. Here is a sample of the chatter, thanks to our door-stepping friends at Reuters.

Angela Merkel, the German chancellor, believes a decisive deal is at hand. “I expect that we will be able to seal a new Greece programme. That is an important signal. And with this programme we want to grasp the problems by their root,” Merkel said.

Asked whether a Franco-German agreement – which would likely push Greece into a selective default – had the support of its main critic, Jean-Claude Trichet, the European Central Bank president, she was more circumspect. “We spoke at length with ECB President Jean-Claude Trichet and listened to his arguments, too. For this reason, I hope that today will be a constructive day.” 

Josef Ackermann, CEO of Deutsche Bank

UPDATE: According to our crack team in Paris, Baudouin Prot, chief executive of BNP Paribas, is also in Brussels participating in the talks. 

Senior eurozone officials – including finance ministry negotiators in the “euro working group” and sherpas to all 17 presidents and prime ministers – have moved their pre-summit meeting in Brussels (originally scheduled for this evening) to 9am tomorrow, a sign they still need more time to hammer out a deal on a Greek bail-out ahead of Thursday’s much-anticipated emergency summit.

But as we reported in today’s paper, after the working group held a teleconference on Friday, the European Commission prepared a “policy options” paper outlining the possibilities they’re looking at (our worthy rivals at Reuters also got their hands on a copy).

As has become our practice, we thought we’d give Brussels Blog readers a bit more insight into what the leaked options paper had to say, after the jump. 

Greek taxis block Athens streets during a 48-hour strike. A similar Greek roadblock in Brussels?

If this morning’s media accounts are any indication, European leaders are still scrambling to come up with a deal on a second Greek bail-out ahead of Thursday’s emergency eurozone summit here in Brussels. 

Poul Thomsen, head of the IMF's misssion to Greece, during a visit to Athens in May

UPDATE: Here’s an interesting take on the same reports by our friends and rivals over at the Wall Street Journal.

As part of the Brussels Blog’s new mission to read brick-sized reports on eurozone bail-outs so you don’t have to, today we bring you the highlights of the 173-page International Monetary Fund review of the Greek crisis – which we reported on in today’s newspaper, but which has lots of other good details worth chewing over.

The first thing we like to turn to when getting these kinds of reports is the analysis of just how big the financing hole is for Greece – and how international lenders intend on filling it.

According to page 62 of the report (see the pdf here), the IMF has a slightly lower estimate of how big the Greek hole is than the European Commission: it believes Athens will need €103.4bn in new bail-out funds through 2014, while the Commission thinks it will be closer to €115bn.

Potentially more interesting, however, is how they propose to fill the hole. 

Italian economy and finance ministry

The Italian finance ministry. Image by Bloomberg.

Italy has been in the news for all the wrong reasons, and a look at World Bank indicators on how easy is to run a business there might explain a few things: It takes 1,210 days to enforce a contract in Italy and it costs around a third of the contract’s disputed amount in legal costs – for those hardy enough to attempt to navigate the byzantine court system.

Businesses not willing to wait forty months to get their money back might want to try setting up shop in Luxembourg instead, where courts will process claims in a far more reasonable 321 days – and at a lower cost, too.

Those World Bank figures highlight the difficulties facing the European Union’s single market. Though goods and services can flow nearly seamlessly through the EU’s 27 countries, the laws and regulations that apply to them remain very different.