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EU Seeks to Keep Crisis Fight on Track After Greek Vote

By Patrick Donahue
November 12, 2012 3:30 AM EST 13 Comments
Greek Prime Minister Antonis Samaras.
Photographer: Chris Ratcliffe/Bloomberg
Greek Prime Minister Antonis Samaras.

Greek lawmakers’ midnight approval of a 2013 austerity budget put the onus on European finance ministers meeting later today to keep their three-year crisis fight on track.

The finance chiefs gathering at 5 p.m. in Brussels intend to prevent a 5 billion-euro ($6.4 billion) Greek bill redemption on Nov. 16 from triggering an accidental default, while they’re unlikely to ratify a 31.5 billion-euro payment to Greece that has been frozen since June, a European official said Nov. 9.

“We remain confident that European support will be agreed on by the end of November, or early in December,” Erik Nielsen, London-based chief global economist at UniCredit SpA, wrote in a note to clients yesterday.

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With the euro-area economic slowdown reaching Germany and stoking mounting public protests in France and Spain, German Chancellor Angela Merkel will travel to Lisbon today, following her trip last month to Athens. European Central Bank President Mario Draghi said last week the outlook for the euro area is worsening. The euro has fallen 0.8 percent against the U.S. dollar since Nov. 7.

The European ministers will assess whether the latest round of cuts that Greek Prime Minister Antonis Samaras squeezed through parliament with 153 of 300 votes, are sufficient to warrant further aid. Samaras today garnered the support of enough lawmakers from his three-party coalition to secure approval for the 2013 budget.

Playing for Time

Samaras has pressed for two extra years, until 2016, for Greece to meet deficit-reduction targets imposed by its creditors. That prospect opens a debate about how to plug the resulting financial hole, such as engineering a buyback of Greek debt.

European leaders’ current target is to reduce Greek debt to 120 percent of gross domestic product by 2020. The European Commission last week estimated the ratio in 2014 will rise to 188.9 percent from 176.7 percent this year.

Meanwhile, the ECB’s Draghi said last week that the central bank stands ready to unleash its bond-purchasing program, known as Outright Monetary Transactions. Investors are still waiting for Spain to seek such a program, which would entail an aid request to European bailout funds.

Without ECB help in refinancing the 5 billion-euro Treasury bill redemption this week, Greek Finance Minister Yannis Stournaras told lawmakers late yesterday, the country’s private sector faces “sudden death.”

Spanish Prime Minister Mariano Rajoy said Nov. 6 he needs to know how much the ECB would push down Spain’s borrowing costs before his government signs up to any conditions attached to aid. Draghi said last week that the decision must be taken by Spain and the ECB “can’t give any assurances ex ante.”

Spanish Yields

Yields on Spain’s 10-year bonds have fallen below 6 percent since the ECB’s plan emerged, down from a peak in July of 7.6 percent. They were at 5.82 percent at 9:05 a.m. in Madrid today..

“I would be surprised if a Spanish request will be realized this side of New Year,” UniCredit’s Nielsen said.

Merkel will meet with Portuguese Prime Minister Pedro Passos Coelho in Lisbon today. Portugal, which is receiving bailout aid, has been given more time to narrow its budget shortfall after tax revenues fell short of forecasts.

Merkel last week stuck to her austerity-first agenda, saying that the only way to win back confidence in the markets was through competition-enhancing measures and lower debt.

“Investor confidence will be absent, therefore the reduction of debt is of utmost importance,” Merkel said in a Nov. 8 speech in Berlin.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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