A report on the Second Greek Bailout as of February 23, 2012
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Satyajit Das writes Why the Greek Bailout may not work, again! Greece may live to default another day. Other embattled European nations will be scrutinising the Athenian sub-plot extremely closely as to clues as to their future as they await the battles that lie ahead. A declaration of victory in the European debt wars would be premature.
Berlin says it does not want to discuss the merger of EFSF funds and the ESM; Angela Merkel does not want any complications that might get in the way of the Bundestag’s approval of the Greek programme.
FT reports Germany fights eurozone firewall moves that the German government is now digging in over demands to merge the EFSF and ESM. The article quotes Steffen Seibert, Angela Merkel’s spokesman, as saying that the German position had not changed on this issue, that it was not necessary to merge the two. The article says that Merkel fears a backlash in her own coalition, and in the country at large, over the €130bn Greek programme, as a result of which she has to be seen being tough on the question of raising Germany’s overall exposure. But the article also said that Germany may eventually change position on this, quoting an official as saying that Germany will commit to discussing the issue, as promise, at some point in March, but not necessary during the March 1/2 summit. The official also said that Germany wanted to avoid any subjects right now that would complicate the vote on the Greek programme. The Dutch have changed their position, and are now supporting the increase in the funds of the ESM.
CACs are approved by Greek parliamentary committee, and to be voted on by the full parliament later today.A parliamentary committee approved the collective action clauses (CACs), Kathimerini reports Race to pass bailout legislation reports. The CAC could be activated if Greece is unable to convince enough of its bondholders to take part in a voluntary swap. The bill, which was approved by coalition MPs but rejected by opposition deputies, is to be voted on by Parliament’s plenary session on Thursday. Several other pieces of legislation must be approved by the House in the next coming days, before eurozone finance ministers meet again next Wednesday or Thursday. Other legislation tabled in Parliament Wednesday sets out the €3.2bn in spending cuts that Greece will have to make this year.
Antonis Samaris invites ousted MPs back in if they support reform programme. New Democracy leader Antonis Samaras, likely to win the elections in April, invited those 21 MPs, who had been ousted from the party for voting against the terms of Greece’s new loan agreement earlier this month, to rejoin the conservatives if they back the bailout bills that will go before Parliament over the next few days,Kathimerini reports Samaras softens stance on ND rebels. Commentators see this as an attempt by the conservative leader to heal any open wounds before general elections and to obtain the widest support possible for the legislation that will be voted in Parliament in the days to come.
Wolfgang Proissl calls on Draghi and Weidman to repeat a Trichet-Weber type confrontation. Commenting in Financial Times Deutschland Wolfgang Proissl calls upon Jens Weidmann and Mario Draghi to work on avoiding another damaging confrontation as their predecessors Axel Weber and Jean-Claude Trichet had had. Proissl argues that the initially good relations between the presidents of the Bundesbank and the ECB risk turning sour because of a series of policy decisions the ECB has recently taken against the Weidmann’s will. Among them are the second surprise interest rate cut in December, the extremely generous conditions of the 3yLTRO’s, the imposition of a senior creditor status of the eurosystem for its Greek bonds and the attempts to earmark future profits from Greek bonds for governments so they can pass the money on to Greece. Weidmann has started to come out publicly against those decisions thus risking to put the Bundesbank back into the dissident role unable to form coalitions as was the case under Weber. Proissl calls on both central bankers to work out a mature relationship because working against each other damages the euro and the prospect for both to be successful on their respective jobs.
Nomura explains the broken monetary transmission channel. FT Alphaville reports How the ECB transmission mechanism is broken, which has a useful elementary discussion about the two most important channels of monetary policy, the interest rate channel and the bank lending channel. The first operates more direct, via money market interest rates, as ECB interest rate cuts (or increases) are passed on through the system to the end-borrower. The bank lending channel operates through the banks‘ balance sheets, and impacts the quantity of money banks are willing to lend.
Sebastian Dullien and Ulrike Guerot argue that the Germans are digging in over austerity, and the best way to co opt Germany is to advocate EU-level investment programmes, and a shift in taxation power to Brussels. In an ECFR paper, Sebastian Dullien and Ulrike Guerot take a closer look at the German position, in which they say that Berlin is determined to force a German solution to the crisis. They argue that Germany’s rigidity is not just about simple national interest and the psychological scars of Weimar-era hyperinflation. It is about a broadly-held belief in the foundations for economic success, as shown by German historical success. Austerity is not just about teaching others a lesson: it is about building the foundations for sustainable economic growth. And attacking excessive austerity and demanding a renegotiation of the new fiscal treaty will simply fall on deaf ears. Instead, a more promising strategy might be to demand pan-European growth and investment programmes with more spending and taxation power shifted towards the EU level