IMF Chief Lagarde cautions against Greek exit fallout

Following Greek President Carolos Papoulias's decision to nominate a judge as the head of the interim government, the chief of International Monetary Fund (IMF) until the upcoming election, Christine Lagarde, called on prominent Greek leaders to show their commitment to stay with the euro zone on Wednesday. She stressed on the importance of sticking to the bailout agreement – not just for Greece’s own financial and political security but also for the entire euro zone. She also pointed out the possible consequences of such exit – which would be “hard and expensive, and not just for Greece”. Greece is set for a repeat general election on June 17.

What is adding to the fear and speculation in Europe is the rising popularity of political parties in Greece who are against European Union-IMF bailout deal. In the event that an anti-bailout party comes to power following the election, there is a chance that the bail-out deal might come apart and Greece would exit from euro zone.  There is also a fear of its cascading effect on other bigger but vulnerable economies in Europe, especially Spain and Italy.

Top EU officials have already warned Greece that complying with the terms of the bailout package is mandatory in order to receive international monetary aid.

Hopes dashed as Greece failed to form unity government

Despite President Carolos Papoulias’ repeated attempts to save Greece from further chaos, the front-line party heads have failed to form coalition government. This has happened as a result of the failure of the political parties to reach a consensus on the controversial Greece bail-out deal.

The meeting held at the Presidential mansion on Sunday was attended by three of the most prominent Greek leaders. They were the conservative leader Antonis Samaras, the extreme leftist Syriza chief Alexis Tsipras and the socialist Pasok leader Evangelos Venizelos.

The talk which was aimed at ironing out differences between major political parties on fiscal pact, soon reached an impasse as leaders started blaming each other on the highly controversial bailout agreement and stiff spending cuts. While, the 37-year old Alexis Tsipras riding high on ‘anti-austerity wave’ clearly and completely rejected any negotiations with pro-bailout leaders, Conservative leader Antonis Samaras accused Tsipras for the current standoff. It has also been reported that Tsipras has given the assurance of pulling out of the bail-out deal without giving up Euro.

As per the latest news, the President of Greece is expected to hold another round of fresh talks with the political parties on Monday. Though only a slim chance remains, but if Greece succeeds to form a new government before the Thursday deadline, it might be able to avoid a repeat election and, perhaps, stay in the euro zone.

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.

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.

Germany and Poland bury their past hatchets to save Eurozone

Mission to save Euro and Eurozone from the ongoing financial crisis has brought together a never-before coalition between Germany and Poland – known enemies whose past are fraught with animosity and war. As the leaders of other EU countries are struggling to reach a common consensus to tackle European debt crisis, leaders of the two countries have taken a united stand.

In a rare gesture, the Prime Minister of Poland, Donald Tusk, has given its full backing to German Chancellor Angela Merkel in her attempt to ask for full change in the treaty. Full and fundamental change in the European treaty is necessary to bring in severe budget cuts and centralized monitoring.

As an ally, Poland brings on the table several brownie points for Germany. Poland enjoys close relationships with countries that belonged to former Soviet Union and countries of northern Europe. Poland is also an enthusiastic supporter of unified Europe and hopes to join Euro in the future. Besides, the commanding position that Poland enjoys among nations outside eurozone also goes well with Germany.

The final clincher was the foreign minister of Poland, Radoslaw Sikorski’s recent comment that set the government and foreign policy departments of Berlin abuzz. “I fear German power less than I am beginning to fear German inactivity.” Radoslaw Sikorski also did not forget to hail Germany as indispensable to Europe.

Europe braces against the prospect of credit crunch deepening

Prospect of credit crunch deepens in Europe as markets witnessed massive selling of European government bonds by financial institutions around the globe. Such was the fear that not only new bond issues were shown the doors, but short term loans to reputed European banks were also cancelled.

Low investors’ confidence on European government bonds is believed to be linked with little information about the actual credit status of European banks and the way they are handled. Already Asian investors have started pulling out from European markets. Even Rabobank with AAA-credit rating, considered among the best European banks, had his loan cancelled by American institution, Vanguard.

On Friday, Mario Draghi, the newly appointed president of European Central Bank, has urged the countries affected by debit crisis to come to their own rescue instead of depending on the central bank.

It is feared that if selling pressure continues, higher borrowing costs, more cost cutting and slower growth would plague wider Europe. Euro zone banks are already in deep crisis trying to meet the rising borrowing costs. This is despite half a trillion cash inflow (in Euro currency) in debt from the European Central Bank. But this has little effect on the negative growth story in Europe so far. Already German bonds and Swedish bonds have started showing weakness. They are not strong as they used to be. Though they still are a safer bet than other European bonds – French, Spanish or Italian bonds.

Italy’s Mario Monti proposes big plan for reform and growth

After coming to power on Wednesday, Mario Monti’s new government on Thursday made public its plan to bring in stringent reforms to turn around country’s economy. The highlights of the measures proposed by the new Italian PM are ¬– budget cut, revenue hike, change in labor law and pension system and bringing down tax evasion.

From what appears to be a major shift since ex Italian Premier Silvio Berlusconi’s departure, the present Italian government has made its priorities clear and its intention sincere. Italy is not afraid to take on the challenge posed by debt crisis. Mario Monti urged that how fast and successfully Italy can come out of debt crisis would also have a positive and significant bearing on ‘Euro’ and the Euro zone. For that Italy needs to act fast and push for sweeping changes. Monti, the ex- EU commissioner, said that he is counting on the European Union to lend support to Italy.

On Thursday's confidence vote, the Italian Prime Minister has got thumping victory from his Senate. He is set for another confidence vote on Friday.