Greek problems could cloud Kenny-Merkel talksWednesday 12 December 2012 16.22 By Sean Whelan
By Economics Correspondent Seán Whelan @seanwhelanRTE
Just when you think you’re getting somewhere with the talks on Ireland’s bank debt burden, more Greek problems jump up and cause panic, like a horror-film monster that refuses to die.
First there is the news that even after big haircuts on private sector creditors, Greece’s national debt has still not stabilised, and is in worse shape than anyone imagined. It was meant to stabilise at 167% of GDP this year and decline to 120% by the end of the decade.
Yesterday it emerged the debt will hit 189% next year, and won’t peak till 2014 – at 192% of GDP!
Greece needs another €30 billion of debt relief urgently, and it looks like a combination of debt buybacks, interest rate cuts on official lending and a profit hit on the ECB’s holdings of Greek debt are being looked at. That seems to have been the subject for yesterday’s conference call between euro zone Finance Ministers.
Meanwhile in Greece itself, the government is really improving its image (not) by putting Costas Vaxevanis on trial today. He is the magazine editor who published a list of 2,000 prominent Greeks believed to have €1.5 billion in cash stashed away in a Swiss bank. He published the list on Sunday. On Tuesday he was arrested and charged with breach of privacy. Today he goes on trial.
The lightening speed of the government’s move against Vaxevanis contrasts with the pace of the investigation into possible tax evasion by those on the list, which was passed to the Greek authorities two years ago by the then French Finance Minister Christine Lagarde (now boss of the IMF). Quite simply, nothing happened. The list seems to have gotten “lost” in a ministerial in-tray and financial police appear not to have started any investigation. The list contains not only the usual wealthy business types, but a number of prominent politicians and even some journalists and publishers.
None of this helps the Greek case for outside help in dealing with the country’s financial problems, and is bound to stoke further domestic resentment of the political class, making it harder to administer the very tough measures needed.
Elsewhere in Europe we see the emergence of the bigger than usual pressures surrounding the EU’s seven year budget, which is up for renewal at a special summit later this month. Last night UK prime minster David Cameron suffered a very damaging defeat,when 50 of his own backbenchers crossed to floor and voted with a Labour motion calling for a real terms cut in the EU budget, rather than the real terms freeze Mr Cameron wants.
The Germans are also looking for cuts to the €1 trillion plus package the Commission and European Parliament wants, and Denmark is looking for €1 billion rebate. The French want to see cuts, but want to protect farm subsidies as well. And the Eastern states want to see a bigger share spent on cohesion funds, which they were expecting but which is jeopardised by the mood for cuts across the continent, as national budgets come under pressure.
The Commission and Parliament case, incidentally, is that a bigger EU budget can be used for pro-growth spending in areas like cross border electricity infrastructure and scientific research.
It’s a pretty poisonous atmosphere, with most states looking to put less into the Brussels pot, but get more out for themselves. If the summit this month fails, the issue could get kicked into the Irish presidency, becoming an unwelcome extra burden for the Taoiseach and his ministers.
When Enda Kenny meets Angela Merkel in Berlin this morning, the folks back home in Ireland may be thinking that our bank debt/sovereign debt issue is the main – if not only – thing on the agenda. But sadly no, it is not. The “deal” on the debt taken on to shore up the ”pillar banks” looks like it is parked for at least a year. The only possible area of change in the short term is a refinancing of the Promissory Notes for Anglo Irish Bank/Irish Nationwide – and that’s an Ireland/ ECB issue.
With the issue effectively boxed off, there is little to be gained by the Taoiseach annoying the Chancellor with a long winded discussion today – presumably that is what the phone calls were all about a fortnight ago.
EU business will dominate today – though we in Ireland tend to forget that Ireland’s debt case is inextricably bound up with wider EU politics – in particular making progress on the establishment of a pan-European bank regulator, something that will have to happen over the next twelve months if the markets are to keep faith with EU decision making.