Greece fiscal crisis deepens amidst growing political chaos

Greece crisis has, perhaps, reached its highest peak as Alexis Tsipras, the newly elected head of the Syriza party (radical left), picked ‘growth’ over ‘austerity’ and ruled out coalition with the two main parties that suffered heavy defeat on Sunday’s election for adopting tight fiscal control. These two are the Socialists party and the conservative New Democracy party. This has prompted EU to mount pressure on Greece – either follow the bail-out terms or face expulsion from the exclusive circle of Eurozone. As the possibility of total economic collapse is intensifying in Greece, there is a growing fear that this would have a snow-balling effect on other debt-hit economies in the Eurozone, further endangering the ‘Euro.'

On Tuesday, the newly elected Syriza party leader, Alexis Tsipras, has asked for temporary stopping on the repayment of Greece debt. He has also expressed his desire to do away with austerity measures that are drawing criticism for the country’s economic collapse.

Germany is the biggest contributor of financial aid to Athens and has ruled out any scope for renegotiation. Germany has stated that for aid to flow, conditions of the bail out have to be met by Athens. As of now, a bill proposing a new spending cut is expected to go before the parliament next month. In exchange, Greece would receive international aid amounting to €11.5 billion in installment; otherwise, it faces default on its staggering €200 billion total debt.

The first family of Syria faces fresh EU sanctions

In a bid to end the relentless violence in Syria, The European Union (EU) has slapped a fresh sanction on the close family members of President Bashar-Al-Assad on Friday. The ban list which already includes the President and senior officials has now his British wife, Asma Assad, and 11 other family members on it. The latest EU sanction not only forbids them to travel to any EU nations, but has also frozen their assets throughout the 27 nation block. However, this does not restrict the London-born Asma Assad, an ex-banker and a style icon, from visiting her native country, i.e. Britain.

To break the unending crackdown on people in Syria and tighten fund availability before the regime, EU has slapped Syrian currency ban last year November. Right now, as many as 150 Syrian companies and individuals are facing EU-imposed asset freeze and visa ban. Besides European Union, countries like the United States, the Arab League, Japan and such others have already sanctioned against Syria.

In spite of ongoing efforts globally to address the Syria unrest, violence is going on uninterrupted in Syria. Not less than 54 Syrians are believed to be dead on Friday. It is being claimed that heavy security forces deployed in Damascus are firing live ammunition and tear gas on people.

As many as 9000 refugees have received blankets, mattresses and food from the International Red Cross. The UN-Arab League special ambassador, Kofi Annan, is scheduled for an official visit to Beijing and Moscow this weekend to discuss on Syria crisis.

Iran faces global economic isolation as SWIFT withdraws services

In an unprecedented move, Swift, a major world-wide communication network, has announced to pull out from Iran’s financial sector on Thursday. Around 30 financial institutions in Iran are going to be affected by the move which is going to take effect on Saturday. Once effective, it could severely hamper Iran’s ability to do international business electronically and isolate it from the global financial world.

The Society for Worldwide Interbank Financial Systems, in short, Swift has acknowledged that they are following the orders of the European Union (EU). Withdrawing communication services is a part of economic sanctions against Iran that European Union want to impose through Swift.

The Society for Worldwide Interbank Financial Systems is a Belgium-based consortium, governed by the European Union (EU) law. Iran regularly uses Swift to repatriate its huge proceeds from oil as well as other petroleum-based products.

As of now there is no reaction from Iranian authority. But they have been highly critical of western powers, mainly the United States and Europe, which they see as bullies, for imposing economic sanctions against oil-rich Iran. On the other hand, Europe and the United States are using the sanctions to pressurize Iran to stop its uranium-enrichment program. Enriched Uranium is useful for building nuclear weapons as well as for treatment in cancer therapy.

Proposed Greek bond swap finally gets creditors approval

Finally, the Greek debt restructuring program cleared its last hurdle on Friday after private bond holders agreed to exchange their existing old bonds for new securities. This clears the way for Greece to receive €130 billion in bail-out package from the International Monetary Fund (IMF) and European Union (EU).

The proposed new deal has found favor with 85% of the private holders of Greek bonds whose net worth is € 172 billion in bond amount. The rest 15 percent (equivalent to €25 billion) would be swept up through collective-action clauses. Together, these would add up to € 197 billion out of the total € 206 billion. The latest bond-swap deal expects its private bond holders to accept financial loss that could go as high as 75 percent.

The Greek debt restructuring program is supposed to bring some measure of relief for the participating investors. It is reported that about 15 percent of their holdings would be in good, short-term bonds and 31.5% in upcoming Greek bonds with 11 to 30 years of maturity period. In addition, they would also receive Greece GDP-growth linked security. This doesn’t look much encouraging considering Greece’s current financial woes.

For Greece, besides bringing down the public debt amount, the new bond swap would also reduce its yearly interest burden, starting this year. Last year, the interest itself was as high as €16.4 billion.

Greece set to get $172 Billion in second bailout

After more than 12-hour long meeting that stretched till Tuesday early hours, Eurogroup Finance ministers are all set to declare a whopping €130 billon (equivalent to 170 billion dollars) towards Greece’s second bailout. It is believed that the bailout amount would help Greece in avoiding short-term default and also bringing down its debt to sustainable 120.5 percent of GDP (gross domestic product) by 2020.

Though the final details of the deal is yet to be released, it has been reported that the private investors of Greek government bonds have finally accepted loss exceeding 50 percent (on face value). It is estimated that the loss on bond face value could go up to 53 percent, bringing total loss to up to 75 percent for private investors.

Currently the economy of Greece is into its five long years of recession. Its sovereign debt is at 160% of GDP. Since approving the latest austerity pact by the parliament, the country has seen some of the worst protests in recent months. While doubts still remain about how stringent rate cuts would address the long term issue of debt crisis, Eurozone leaders would be relieved that the money would help Greece in staving off immediate crisis.

Pressure mounts on EU to seal Greek bailout deal

Following last week’s bumpy starts over second bailout to Greece, Eurozone finance ministers are pressing ahead to give their final approval to the € 230 billion emergency fund. Time is of crucial factor as Greece has to make € 14.5 billion bond repayment before March 20th or face default. The final meeting that would decide the fate of Greece is scheduled to start at the EU headquarter 1430 GMT onwards on Monday.

Such is the desperation that Premier Lucas Papademos of Greece has already reached Brussels to hold talks with other European leaders. It is believed that the presence of the Greek Prime Minister would lend more weightage to the loan talk. Earlier, Germany had expressed its reluctance on the latest bail-out package to Greece.

The latest deal expects private sector government bond holders to swap their existing old bonds with new bonds. This would bring down the current bond value to about 30 percent. To make it compulsory, the government of Greece is set to pass a new bill this week which would force the bond holders to accept the rate cuts on bonds if they don’t agree volutarily to the new agreement. Besides, a string of other austerity cuts and reforms are waiting to be announced in Greece before the end of this month to appease the concern of its International financial backers.

EFSF rescue fund loses its highest rating

In a major move, global credit rating agency Standard and Poor has stripped the EFSF (European Financial Stability Facility) bail-out fund off its AAA status to a grade lower to AA+ status. Not that it is surprising considering that last week S&P has already lowered the ratings of nine eurozone nations, including that of France and Austria (two main EFSF’s guarantors). S&P has cited insufficient policy initiatives by European leaders as the cause of ratings downgrade.

The existing lending capacity of European bail-out fund is up to €440 billion, depending on contributions from its guarantor nations which are eurozone countries with triple-A ratings. After ratings downgrade of nine nations, only four nations remain with highest creditworthiness. These are Germany, Finland, Netherlands and Luxembourg.

Klaus Regling, the chief executive of EFSF fund has downplayed S&P’s latest move. Despite this, the reduced rating of EU rescue fund is seen as a big blow to those nations which are already reeling under European debt crisis. With six months still to go for ESM (European Stability Mechanism) fund to be effective, there is tremendous pressure on the existing top credit-worthy eurozone nations to step up cash flow to the EFSF rescue fund and also find a convincing solution to European debt crisis.

EU postpones its decision to save Greek government bonds

Fresh tension brewed in Europe when the three overseas money lenders (termed ‘troika’) deferred their plan to save Greek government bonds by writing off 50% of its debt. The decision was based on the inability of the Lucas Papademos’s interim government in implementing severe austerity measures in Greece, despite reaching an official agreement. The ‘troika’ included European officials representing the EU (European Union), the ECB (European Central Bank) and the IMF (International Monetary fund). They have cast a serious doubt on Greece’s ability and willingness to come out of debt crisis and may withhold the next aid installment due on March.

The situation further aggravated as negotiations between the Greek PM Lucas Papademos’s interim government and the Institute of International Finance (IIF) held on Friday met dead ends. The IIF that constituted members of private sector investors and banks had been engaged on a series of talks with the government on merits of accepting a “voluntarily” default in exchange for additional International aid. The intention was to force private holders of Greek government bonds to accept losses so as to bring down the country’s debt. But with the IIF officials backing out from absorbing losses, the possibility of uncontrolled Greek default is growing larger and so is its impact on Europe and other global economies.

Has the proposed oil ban by EU unsettled Iran?

In spite of the continuing war of words and defiant stand, has the proposed crude oil boycott by the European Union (EU) succeeded in softening Iran’s stand? Why else would Iran go on record on Thursday saying that the latest economic sanctions by the United States and the threat posed by the EU to stop nuclear program or face ban on oil export are equivalent to “an economic war”? Why would Iran waste time complaining when it could carry out its threat?

Again, “Iran threatening to take action against United States,” if an American aircraft carrier that left for Gulf of Oman via the Strait of Hormuz were to return to Persian Gulf – made news headline on Tuesday. Though there has been no report of United States making any changes to its military deployments at the Strait, no fresh tension has been reported in the Persian Gulf region till Thursday. What does it say?

Iran already has non-existent trade relationship with U.S. Its relationship with Britain is at an all time low. Currently 17 percent of Iran’s crude oil business comes from EU, which contributes a significant amount to Iran’s coffer. Under these circumstances, can Iran really afford fresh economic sanctions from EU? Is its economy in a position to continue with the nuclear program and suffer a new setback? Facts say otherwise, but only time would tell.

EU reaches a consensus about broader European treaty change

The seventeen member EU nations whose common currency is Euro has given their consent to a broader change in the European treaty Friday early morning. The new treaty has also got the approval of another six EU nations, while the trio nation – Sweden, the Czech Republic and Hungary – have given their verbal commitments. They assured that they would clear their positions after going over the plan with their respective parliaments. British Prime Minister David Cameron has distanced himself from the proposed treaty on the ground that it doesn’t serve Britain’s interest. The new accord is likely to come into effect from March 2012.

Britain has long misgivings about the proposed Tobin Tax or pan-European financial transaction tax. Britain fears that accepting Tobin Tax would be equivalent to giving up its sovereignty. By withdrawing itself from the proposed treaty, Britain faces the possibility of isolation in Europe.

Once effective, the new treaty would expect governments of member countries to be more ‘fiscally disciplined’ with their spending and burrowing. This would require member countries to place their national budgets before the European Commission for scrutiny. The Commission may ask for revision in the budget should they feel there is a scope for further budget cut. The new European treaty would also empower the European Court of Justice to penalize a member country with increased tax or budget cuts or with both incase the agreement is violated. Europe believes that through centralized monitoring and enforcing stricter discipline, it may come out of debt crisis more quickly and help boost Euro in turn.

EU countries divided on Euro before EU Summit

Before Friday’s crucial EU summit, EU countries were reported to be divided on several issues over the debt crisis. Difference of opinion emerged about the ways austerity measures would be ensured among member countries and execution of reform activities (within specific time frames) through a centralized monitoring.

Wednesday also saw Germany advocating for full and permanent change in the European treaty, creation of two separate bailout plans – one for short term and another for long term and extension of debt limits for the protection of Spain and Italy. Some other nations like France, however, want an immediate change in the treaty to deal with the euro crisis.

Since changing the entire European treaty may take up to two years, officials of European Union are exploring other ways to deal with it. Herman Van Rompuy, the euro zone and also the European Council president, proposed a quick fix way to ensure‘fiscal discipline’ and avoid delays of a full change in the European treaty. This requires changing a single protocol wherein leaders of respective nations would, under the directives of European Central Bank as well as European Parliament, enter into an obligation to stay within budget for that time frame. Herman Rompoy further elaborated that those nations who violate this rule could be punished with further economic sanctions and more tax burden or with both.

Experts are of the opinion that punishing offender countries that go over-budget would require full and fundamental changes in the treaty rather than changing just one of the protocols. European institutions must have absolute power to squash national budgets.