bank

TT and Proton, victims of Greece’s economic crisis, were split into “good” and “bad” parts and are fully owned by the Hellenic Financial Stability Fund (HFSF), a capital backstop with 50 billion euros ($65 billion) of bailout money.

Greece agreed with its international lenders – the European Commission, the International Monetary Fund, and the European Central Bank – to sell the two banks by mid-July in order to get more bailout funds.

“Goldman is the sell-side adviser on Hellenic Postbank, Rothschild on Proton,” said one of the officials. The two were most likely to be bought by bigger Greek banks – Alpha , National or Eurobank, he said.

A senior Alpha Bank executive told Reuters on Friday Alpha would look into buying TT. “Yes, we are interested in Postbank,” he said.

Piraeus Bank has said it will not make any more acquistions in the near future after taking over Societe Generale’s and Millenium BCP’s Greek units and the local operations of three Cypriot banks.

“Eurobank is one of the possible buyers, a lot will depend on what the other banks do. The advisers will approach all of them,” a second banker said.

Authorities wound down TT in January after efforts to sell it failed. They stripped out bad loans from its portfolio and transferred less risky assets and deposits to a new entity called New Hellenic Postbank. The bad loans are being sold.

The HFSF pumped 4 billion euros into the bank to cover its funding gap – the difference between assets and liabilities – and a further 500 million to recapitalise it.

Like other Greek lenders, TT was hit by writedowns on Greek bonds and loan impairments as the country endures its sixth year of deep recession.

Eurobank, Alpha and National had expressed interest in the old TT but withdrew in January, leading authorities to wind it down.

The healthy TT has assets of 13.7 billion euros, deposits of 10.7 billion and a network of about 200 branches. Proton is a much smaller bank with deposits of one billion euros and 1.3 billion in assets.

Source: http://www.reuters.com/article/2013/06/28/greece-banks-idUSL5N0F428M20130628

Yet despite three-and-a-half years of debt and banking turmoil, with bailouts totaling more than 400 billion euros, northern euro zone taxpayers have not actually lost a cent.

What is more, governments in Germany, Finland, Austria, the Netherlands and France have saved billions of euros thanks to a sharp fall in how much they pay to raise money in financial markets since their borrowing costs have dropped steeply.

But that has not prevented the image taking root in voters’ minds of hard working northern Europeans putting money on the line to rescue profligate, work-shy southerners, fuelling resentment and undermining Europe’s unity.

In the run up to German elections in September, that resentment is only likely to grow, and Chancellor Angela Merkel, bidding for a third term in office, will have to reaffirm her commitment to protect voters from potential losses.

But the truth remains that German taxpayers, as well as those in Finland, the Netherlands and elsewhere, are no worse off at all, and their finance ministries have racked up savings.

“As an unintentional consequence of the crisis, Finland has benefited enormously,” said Martti Salmi, the head of international and EU affairs at Finland’s ministry of finance.

“We have not lost a cent so far,” he told Reuters. “The same as for Germany very much holds for Finland.”

In fact, German officials are well aware of their stronger financing position, the result of a more than two percentage point fall in borrowing costs, even as politicians continue to lament the risks being piled on German taxpayers.

When giving presentations in Germany, Klaus Regling, the German who heads the euro zone’s permanent bailout fund, often cites two studies that show that Berlin has reaped substantial savings as an unintended consequence of the crisis.

One study, by German insurance giant Allianz, has calculated that Berlin saved 10.2 billion euros in 2010-2012 because of lower borrowing costs, as yields on its 10-year bonds fell from 3.39 percent to 1.18 percent now.

The other study, by Jens Boysen-Hogrefe of the IfW economic institute, suggests that the German federal budget saved 8.6 billion euros in 2011 due to low ECB interest rates and the safe-haven impact of investors putting money into Germany.

Those savings rose to 9.6 billion in 2012 and the safe-haven effect will alone be worth 2 billion in 2013, IfW said.

“If we add up the interest rate advantages gained in the period 2010 to 2012 and those that Germany will benefit from in the years to come, we arrive at cumulative interest relief for the German budget of an estimated 67 billion euros,” Allianz said in a paper published last September.

“(That is) enough to slash around 3 percentage points off Germany’s government debt ratio,” which reaps further saving.

Finland, the Netherlands, Austria and France may not have gained as much as Germany, but have also seen a substantial decline in borrowing costs over the crisis period.

“Northern European countries are making a considerable profit out of these operations and they are not even redistributing these direct and indirect benefits,” said a senior official in Brussels.

MYTH-O-NOMICS

The heart of the misconception about taxpayers losses is the fact that in public discourse, the difference between lending and giving has ceased to exist.

And with anti-bailout sentiment so strong in much of northern Europe, there has been no willingness on the part of politicians to correct that misconception. The anti-EU True Finns party in Finland, for example, draws support from the belief that Finns are spending money on southern Europeans.

The situation is quite different. While Finland may be providing lots of guarantees to the eurozone’s bailout funds and has lent money to bailed out countries, the Finnish finance ministry has earned extra money from the crisis.

Last year, the Finnish central bank contributed 227 million euros to the Finnish budget as a result of profits made on the Greek, Spanish and Portuguese government bonds it holds, 40 million euros more than it made in 2011.

This year, the profit should rise to 360 million.

Source: http://www.reuters.com/article/2013/05/02/us-eurozone-bailouts-idUSBRE9410CG20130502

Repost from  FT Alphaville

Raise your hand if you didn’t first hear about the way in which the Dutch government took over ailing SNS Reaal on February 1st and think ‘oh, really now?’ along with an arched eyebrow.

The mechanics of the takeover are interesting indeed, but given that two of the four largest Dutch banks have been nationalised, we have a bigger picture question:

How much warning was there that SNS Reaal was on the brink?

Surely there would have been some worrying results in the European Banking Authority’s Capital Exercise from last autumn.

Umm, no, actually. (Probably saw that coming, didn’t you?)

SNS Bank reported 13.0 per cent Tier 1 capital as a percentage of risk-weighted assets as of June 2012. For comparison, ING had 13.4 per cent, Rabobank 16.9 per cent, and government-owned ABN Amro 12.5 per cent.

To back up a step, SNS was on the receiving end of €750m of aid in 2008. It hadn’t paid that back, so the government was still rather involved with the group, or at least one would hope so. As the Finance Minister Dijsselbloem outlined in the announcement of the nationalisation, the Dutch central bank (DNB) totally insisted on the formulation of plans. Like, for reals.

Plans are important, particularly when a bank has an underperforming real estate portfolio of some €8.55bn (without provisions) that constitutes a large amount of its total assets (€82.3bn balance sheet). And also it happens to be the fourth largest bank, third largest life insurer, and fifth largest non-life insurance company in the country while having 6,700 employees.

Right, the plan! We were talking about the plan! From 2008 (quoting from the finance minister’s letter on the nationalisation, emphasis ours):

DNB [the Dutch Central Bank] – in order to speed up the phasing-out effort initiated by SNS Bank – requested the firm to draw up exit plans for the international real estate portfolio showing how, when and at what loss this portfolio could be phased out.

Then there was some finger tapping. Then things got more serious:

In mid-2011, DNB repeated its request, this time regarding the phasing-out of the entire real estate portfolio. In 2011, DNB also asked SNS REAAL to formulate an action plan regarding the planned repayment of the government aid and the vulnerabilities identified.

Ja, doe maar! Get on with it already.

When this proved inadequate, DNB requested an additional action plan.

And then finally…

In December 2011, when it became plausible that the problems could not be fully resolved through private means, DNB and the Ministry of Finance set up a joint project group to analyse the possible scenarios and options (private, private-public and public) with regard to SNS REAAL and to set up an emergency safety net should the problems escalate and acute intervention would be required.

***SPOILER ALERT***

The project group failed when talks with banks and then also a private equity fund came to nothing. Those had been going on for quite some time, and once it was clear that an all-private solution wasn’t going to be forthcoming, the government had switched to a strategy of exploring a public-private solution (details of which in the letter).

No joy though. It all came to a head when a deadline given to SNS by the central bank — on January 27th, which is plenty of time when closely monitoring a bank when one lives on a different planet maybe — was missed:

The continuing problems at SNS Property Finance forced DNB to conclude that SNS Bank required twice as much core capital as was available, the capital deficit. DNB had imposed a deadline of 31 January, 18:00 hrs, on SNS Bank to come up with a solution to remedy the funding deficit.

If the government hadn’t stepped in, a bankruptcy was considered inevitable, and they didn’t want to take the risk of causing financial instability by allowing SNS to go under.

Had SNS entered insolvency proceedings, it would have triggered the Netherlands’ Deposit Guarantee Scheme and the costs to that would have to be met by other banks, which the government feared would be too high a burden for them, causing downgrades, increased funding costs, and so on — all of which would ultimately increase the potential burden on the Dutch taxpayer.

Furthermore:

Moreover, recourse to the DGS would imply that over 1 million account holders would temporarily be prevented from using their payment accounts, which might put them in financial difficulty, possibly causing social unrest.

Hup Holland.

But why did it prove impossible to find a solution for SNS that didn’t involve full-up nationalisation? As the finance minister outlined, selling the better bits of the SNS Reaal group wasn’t as feasible as one would perhaps think:

…partly attributable to two problems: a) the double leverage and b) unit-linked insurance policies. Due to these two problems, the separate parts of SNS REAAL would not yield sufficient proceeds to strengthen SNS Bank’s or REAAL’s financial position. As a consequence of the double leverage, a part of the proceeds of the sale would have to be used to pay off loans entered into by the Holding.

That is, the property portfolio was causing the damage to the capital position as it deteriorated, but the double-leverage and unit-linked insurance issues made it impossible to raise money to plug said hole.

To explain “double-leverage” we’ll need a picture:

It’s where the holding company — SNS Reaal in the above — borrows money, and then uses it to buy equity in its subsidiaries, among them SNS Bank and also the insurance subsidiary Reaal. Total double leverage at the end of 2012 for the group was €909m. The consequence of this:

This means that if parts of the insurer are sold off, for instance, not all of the released funds may be used to solve the bank’s problems, because a part has to be used to redeem loans taken out by the holding.

Potverdorie! Shucks.

It’s not unique to SNS either, as per footnote six:

6 Such double leverage structures are often found in bank-insurance conglomerates. The underlying idea is that banks and insurers have strongly different risk profiles, so that pooling and sharing of risks at the holding level can reduce the overall risk level of the bank/insurer conglomerate. However, if both the bank and the insurer run into problems, as in 2008, when hard times hit both banks and insurers, the holding will a double problem to contend with. Since the 2008 crisis, therefore, supervisors and investors have looked askance at double leverage, which they regard as risky and like to see phased out.

As for unit-linked insurance policies, these insured investment products turned out to be overpriced, and banks are having to pay compensation to holders. It’s still uncertain what the final bill will be.

SNS was an accident waiting to happen. If anything, it’s a wonder it took that long.

But let’s finish on a high (foot)note, shall we?

5 According to the latest Overview of Financial Stability published by DNB (autumn 2012), the entire Dutch banking industry holds some €80 billion in domestic commercial real estate exposures. It also holds some €20 billion’s worth of foreign exposures. On a balance sheet total of about €2,200 billion, this adds up to an average exposure of some 4.5% of total assets for the Dutch banking sector. For the other systemic banks, the exposure is, in fact, slightly lower owing to the large size of SNS’s position.

Related links:
Dutch-bottomed bank bondholders – FT Alphaville
Netherlands rescues SNS in €3.7bn bailout - FT

 

http://ftalphaville.ft.com/2013/02/11/1380672/the-netherlands-adds-slow-motion-bank-wrecks-to-list-of-things-its-known-for-right-after-clogs-and-windmills/?

Cyprus has just 24 hours to find a solution to its funding gap before its banks are due to reopen following the dramatic no vote on Tuesday night, which failed to support a hastily renegotiated change to the original deal.

With the crisis escalating, an RAF flight carrying €1m (£850,000) in low denomination notes set off for Cyprus to provide cash for 3,000 British service personnel based on the Mediterranean island.

The banks have been shut since Friday and electronic transactions halted, although cash machines are still working and the Ministry of Defence said the euros were being flown in as “contingency measure”.

About 2,000 of the military staff, who typically serve out 18- to 24-month postings to the island, have their salaries paid into local accounts. The MoD said it was “approaching personnel to ask if they want their March, and future months’ salaries paid into UK bank accounts, rather than Cypriot accounts”.

Even before the no vote was announced, the euro had already slumped to its lowest level in four months after speculation that the Cypriot finance minister, Michalis Sarris, had resigned.

Sarris, who was in Moscow ahead of his meeting with his Russian counterpart on Wednesday, was forced to text-message Reuters to deny the quick-spreading rumours that he had quit.

There were also reports that the banking arm of the Russian energy company Gazprom might pump cash into Laiki, Cyprus’s second largest bank, which is in urgent need of a capital injection. Gazprom officials insisted this was not being planned.

Russia has already lent €2.5bn to Cyprus and has close ties to the country after its nationals flooded the island’s banks with cash to take advantage of high interest rates and a lax approach to account vetting.

The 56-member Cypriot parliament rejected the bank tax by 36 votes with 19 abstentions (one MP was absent) even after the proposal had been tweaked during the day to remove any levy on savings below €20,000.

Accounts holding €20,000 to €100,000 still faced a 6.75% levy, and any account with more than €100,000 a tax of 9.9%, despite calls by Cyprus’s eurozone partners not to tax accounts below €100,000 – the level at which a European Union-wide guarantee kicks in if an EU bank goes bust.

In return for the levy, savers would be given shares in Cyprus’s banks and possibly a share in the nation’s gas reserves – once the country is back on its feet.

Cypriot MPs had called the levy blackmail and a disaster for Cyprus and the president, Nicos Anastasiades, had been promising to discuss a possible plan B even before the no vote, which had appeared inevitable ever since the bailout terms were revealed on Saturday.

“It would have been a very weird thing to legitimise confiscation of savings; it has never happened anywhere in the world and would set a dangerous precedent for Europe,” an MP from the Cyprus opposition communist party, Akel, told Sky News.

Before the vote, hundreds of demonstrators gathered outside the Nicosia parliament chanting “No” and holding banners such as “Cyprus today, who’s next tomorrow?” in reference to eurozone partners such as Spain and Italy.

Officials in Brussels insist the Cyprus savings tax will be a one-off and the guarantee stands across the rest of the EU.

The conservative ruling party aligned to Anastasiades had attempted to postpone the bill for another day but opposition MPs insisted a vote went ahead. The 19 members of the president’s party abstained even though the government had signed up to Saturday’s bailout to release €10bn of eurozone funds and raise €7bn through a combination of the bank levy and a fresh round of austerity measures.

Russia has expressed its anger about the levy, which would hit its nationals, some 30 of whom are reported to have been granted Cypriot citizenship after depositing at least €17m into local banks, making investments of €30m or registering businesses on the island.

Vladimir Chizov, Russia’s envoy to EU, likened the levy to a “forceful expropriation” that could wreck Cyprus’s financial system. “When the banks open, people will rush to withdraw their deposits – that’s another threat – and then the whole banking system can collapse,” Chizov said.

Russian officials also moved to avert concerns that its own banks could face difficulty if the taps remained turned off in Cyprus. The ratings agency Moody’s estimated that Russian banks had extended up to $40bn in loans to companies in Cyprus.

The markets will now be looking to the European Central Bank to provide crucial liquidity lifelines to the Cypriot banking sector, which has expanded to eight times the size of the nation’s €17bn economy as a result of the Russian cash deposits.

An ECB spokesperson said: “The ECB takes note of the decision of the Cypriot parliament and is in contact with its troika partners [the European Union and the International Monetary Fund].”

Analysts will also be looking for evidence that Germany – the country that holds the eurozone purse strings – is willing to release more funds to Cyprus, which is the fifth eurozone nation to require a bailout, but the only one to force its savers to pick up part of the bill.

Alex White, analyst at JP Morgan Chase, said: “If it is not ultimately reversed, we think the treatment of Cyprus will come to look like a watershed for the region.

“The objective in this case is to remove the implied support for the Cypriot banking system, so that it can no longer function as a large offshore financial centre whilst receiving a European backstop.”

Yields – a measure of the cost of borrowing – on Italian government bonds edged above 5% on Tuesday, a sign of potential tensions in the eurozone while yields on British government bonds, gilts, fell to their lowest levels in 2013 of 1.82% as the UK appeared a relative safehaven. Brent crude dropped by $2 to €107.45.

Source: http://www.guardian.co.uk/world/2013/mar/19/cyprus-rejects-eurozone-bailout-savings-tax

European finance ministers have agreed an £8.7bn bailout for Cypruswhich includes all Cypriot bank customers handing over up to 10% of their savings.

Cyprus becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the eurozone for financial help amid the region’s debt crisis, but also faces a possible run on its banks as depositors try to avoid losing up to 10% of their savings.

The savers, half of whom are thought to be Russian, will raise almost €6bn. It is the first time a bailout has included such a measure.

“I wish I was not the minister to do this,” the Cypriot finance minister, Michael Sarris, said after 10 hours of late-night talks in which eurozone finance ministers agreed the package. “Much more money could have been lost in a bankruptcy of the banking system or indeed of the country.”

Without a rescue, Cyprus would default and threaten to unravel investor confidence in the eurozone, a renewed confidence fostered by the European Central Bank’s promise last year to do whatever it takes to support the euro.

However, on Cyprus, initial incredulity at the decision gave way to anger. Co-op credit societies, normally open on Saturdays, were shut for business in the coastal city of Larnaca as depositors started queuing early in the morning to withdraw their cash.

“I’m extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans,” said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.

“They call Sicily the island of the mafia. It’s not Sicily, it’s Cyprus. This is theft, pure and simple,” said a pensioner.

The bailout was smaller than initially expected and is mainly needed to recapitalise Cypriot banks hit by sovereign debt restructuring in Greece.

Cypriots with savings of under €100,000 will pay a one-off levy of 6.75%, which rises to 9.9% for those with larger deposits.

The levy on bank deposits will come into force on Tuesday, after a bank holiday on Monday. Cyprus will take immediate steps to prevent electronic money transfers over the weekend.

“As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders,” the Dutch finance minister, Jeroen Dijsselbloem, who chaired the meeting in Brussels, told reporters.

Such levies break the taboo of hitting bank depositors with losses, but Dijsselbloem said it would not have otherwise been possible to salvage its financial sector, which is around eight times the size of the economy.

“We are not penalising Cyprus … we are dealing with the problems in Cyprus,” Dijsselbloem said, adding that that under the programme, the island’s debt would fall to 100% of economic output by 2020.

In return for emergency loans, Cyprus agreed to increase its corporate tax rate by 2.5 percentage points to 12.5%.

This should boost Cypriot revenues, limiting the size of the loan needed from the eurozone and keep down public debt.

The International Monetary Fund managing director, Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout.

“We believe the proposal is sustainable for the Cyprus economy,” she said, “The IMF is considering proposing a contribution to the financing of the package … The exact amount is not yet specified.”

Cyprus, with a GDP of barely 0.2% of the EU bloc’s overall output, applied for financial aid last June, but negotiations were stalled by the complexity of the deal and the reluctance of the island’s previous president to sign.

Moscow, which has close ties with Nicosia, is likely to help by extending a €2.5bn loan to Cyprus by five years to 2021 and reducing the interest rate.

Source: http://www.guardian.co.uk/world/2013/mar/16/cyprus-eurozone-bailout-anger

LONDON — Last month, the European Commission’s top economic official in Brussels, Olli Rehn, received an intriguing e-mail.

Greece, under pressure from its European creditors, wanted to retire some of its debt by buying back its bonds at a deep discount to their face value. A senior executive at Deutsche Bank proposed that Europe take a tough negotiating stance toward private hedge funds that had bought Greek bonds. He urged officials to use a legal mechanism that would force the funds to sell at a lower price than they might voluntarily accept.

The move was “perfectly legal” and would not “upset the markets,” the executive, Hakan Wohlin, argued. And by forcing private investors to sell low — for 28 to 30 cents on the euro, instead of the 34 to 35 cents many hedge funds were aiming for — Greece could achieve significant debt reduction at a reasonable cost.

But in this latest showdown with private investors over Greece’s debt, Europe blinked first.

With litigious hedge funds and global finance’s most powerful lobbying group warning of a market crisis, European officials rejected the hard-line approach.

When the results were tallied on Dec. 12, Greece had reached its target of buying back enough bonds at a discount to retire 21 billion euros, or about $27 billion, of its debt. The bigger winners, though, were hedge funds, which pocketed higher profits than many had expected, in yet another Greek bailout financed by European taxpayers.

To some experts, this latest chapter in the long-running Greek drama is another reminder of how private investors have outmaneuvered European officials at various stages of the debt crisis. And they caution that each time it happens, future debt workouts in the euro zone will become even more costly.

“I just don’t understand why they did this,” said Mitu Gulati, a sovereign debt specialist at Duke University School of Law, who argues that Europe could have saved up to 2 billion euros. “This would have been an easy transaction to do, and still the hedge funds would have come out with a hefty profit.”

Opportunistic hedge funds have profited handsomely from the euro zone crisis, be it by speculating in Greek bonds or by buying up the senior debt of failed Spanish banks. They have successfully bet that Europe, ever fearful of Greek-style contagion, will prefer taxpayer-financed bailouts to forcing concessions from the private sector.

In Greece this year, so-called vulture funds like Dart Management were paid back in full after refusing to take the losses that most other private bondholders grudgingly accepted as part of the 100 billion euro Greek bailout that Athens and Europe agreed to in March.

The big winners this time, according to bankers and investors, were American and European hedge funds like Greylock Capital, Fir Tree, Brevan Howard and Third Point, all of which snapped up Greek debt last summer as warnings grew that Greece might leave the euro and default on its debt. Many have booked gains of 100 percent or higher.

They largely have the financial lobby to thank — in particular the Institute of International Finance, which is based in Washington and represents the interests of more than 450 banks, hedge funds and other financial institutions around the world. The institute played on fears in Brussels, Rome and Madrid that a hard-line approach to the hedge funds would create another round of market chaos.

The warning was blunt: If Athens set off legal mechanisms in the bond contracts known as collective action clauses, forcing bondholders to accept lower prices, investors would stop buying the bonds of struggling European countries. That would be bad news for Spain and Italy — to say nothing of Portugal and Ireland when they return to global bond markets in 2013.

Countering this pro-hedge-fund argument was a small circle of bankers, lawyers and policy advocates, the most prominent of whom was Mr. Wohlin, the Deutsche Bank executive who sent the e-mail. Another was Adam Lerrick, a former investment banker now affiliated with the American Enterprise Institute.

They argued that collective action clauses have a legitimate function: to help near-bankrupt countries reach debt restructuring agreements with a majority of their bondholders, with a minimum of legal fuss from investors holding out for a better deal. All euro zone countries that issue debt next year will have such clauses in their bond contracts, and proponents say there is scant evidence that they cause market turmoil.

“If you use these features within the rules, they should not cause any disruption,” said Jeromin Zettelmeyer, a sovereign debt specialist at the European Bank for Reconstruction and Development.

Mr. Wohlin, who was the lead financial adviser to Greece in the buyback, said he was not authorized to discuss communications with clients. That includes his e-mail to Mr. Rehn, the European Commission’s senior economic official, parts of which were reviewed by The New York Times.

He said that while he strongly believed that using collective action clauses in a buyback could achieve maximum debt reduction, such an effort would have required a financial commitment that Europe was not willing to make.

“The price Greece paid was a very fair one,” Mr. Wohlin said. “And kudos should go to the official sector, which executed a deal that was fair for the taxpayer and did not upset the market.”

For collective action clauses to kick in, two-thirds of investors must agree to the offer price, and European officials say there was no certainty that this would have happened. A buyback was only going to work if enough investors holding Greek bonds could be persuaded to sell — and in the early summer, when it looked as if a Greek default and departure from the euro zone might be imminent, that prospect seemed ludicrous.

But when Greek bonds trading on the open market hit a low of 12 to 13 cents on the euro over the summer, some investors started to ignore the doomsaying on Greece and scoop up the country’s debt on the cheap.

Among those investors was one of Citigroup’s in-house hedge funds, which piled into Greece even as the bank’s lead economist, Willem H. Buiter, was estimating a 90 percent probability of Greece leaving the euro.

By the fall, Greek bonds had become one of Europe’s most popular high-risk bets. But as demand sent the price soaring to 25 cents on the euro, some money managers began to worry about how they might leave their positions.

At the same time, it was becoming clear to Greece’s official European creditors that the country would miss debt-reduction targets set in its March bailout program. A quick solution was needed.

But there was a problem. Seventy-five percent of Greece’s debt was now owed to European governments, the International Monetary Fund and the European Central Bank — none of which would accept a loss.

So attention turned to the 62 billion euros of debt held by the private sector.

The conditions for a buyback seemed propitious: the debt was trading at a 75 percent discount, there was a pool of holders ready to sell and, most crucially, the bonds were blessed with collective action clauses expertly tailored by Lee C. Buchheit of Cleary Gottlieb, the foremost legal authority on how to reel recalcitrant bond investors into a restructuring deal.

In the face of stiff opposition, Germany embraced the concept. In his e-mail to Mr. Rehn, Mr. Wohlin of Deutsche Bank argued that there was nothing to fear in using collective action clauses.

On the contrary, he wrote, such clauses are used in most debt restructuring exercises, and investors “would expect Greece to use it.”

To some degree, Mr. Wohlin was right. As the hedge funds’ bond stakes grew, their lawyers prepared arguments to counter the strategy.

Also swinging into action was Charles H. Dallara, the departing managing director of the Institute of International Finance, the investors’ lobbying group. Mr. Dallara flew to Athens in mid-November to tell the government that invoking the clauses would be disastrous for Greece and the euro zone. He also made calls to, as he put it, “the highest levels in Europe.”

His warnings resonated.

There would be no use of collective action clauses, and bankers were told to fashion a voluntary plan. As word seeped out that the exchange would be a friendly one, hedge funds pressed their advantage.

“I won’t even answer the phone for anything less than 35 cents,” one large holder said in late November.

On Dec. 3, the terms of the buyback were announced.

To the market’s pleasant surprise, instead of the average price of 28 cents agreed to earlier, the offer was made at an average price of around 33 cents.

One week later, the deal was done.

Source:http://www.nytimes.com/2012/12/24/business/global/greek-bond-buyback-may-have-been-cheaper-under-collective-action-clause.html?pagewanted=2&_r=0&smid=tw-share

But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets.

The European bailout of 130 billion euros ($163.4 billion) that was supposed to buy time for Greece is mainly servicing only the interest on the country’s debt — while the Greek economy continues to struggle.

If that seems to make little sense economically, it has a certain logic in the politics of euro-finance. After all, the money dispensed by the troika — the European Central Bank, the International Monetary Fund and the European Commission — comes from European taxpayers, many of whom are increasingly wary of the political disarray that has afflicted Athens and clouded the future of the euro zone.

As they pay themselves, though, the troika members are also withholding other funds intended to keep the Greek government in operation.

Last week, the Athens office that tracks revenue said Greece could run out of money by July. If so, Greece could default on its debts — except those due to the central bank, the monetary fund and the European Union.

“Greece will not default on the troika because the troika is paying themselves,” said Thomas Mayer, a senior adviser at Deutsche Bank in Frankfurt.

In an elaborate payment system that began after the May 6 election that brought down the Greek government and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payments on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.

About three-quarters of Greece’s debt, or $229 billion, is now effectively owned by one of the three troika members, according to estimates by the investment bank UBS.

The central bank, in particular, is eager to be paid back, said Mr. Mayer, who has followed the cash.

To help calm volatile financial markets, it bought billions of euros in Greek bonds that come due monthly. “It’s why they want to get paid back every month now,” he said. “The E.C.B. bought at a high price and now insists on being paid in full.”

Some people close to the situation say the troika is also trying to put financial pressure on Greece to do what it can to collect tax revenue from an increasingly devastated economy.

The managing director of the I.M.F., Christine Lagarde, prompted a furor in Greece over the weekend when she chastised Greeks for not paying taxes, in an interview with The Guardian.

A Greek government adviser who spoke on the condition of anonymity, for fear of alienating the European lenders, said of the troika: “They made sure that the sum for domestic spending is kept small enough to force Greece to dramatically raise its own revenues.”

On its face, the situation seems absurd. The European authorities are effectively lending Greece money so Greece can repay the money it borrowed from them.

“You send the money, you call it a ‘loan’ — you get it back and call it an ‘interest rate,’ ” said Stephane Deo, global head of asset allocation in London for UBS. Mr. Deo said such arrangements were common in situations where governments were in danger of defaulting on their debts.

That is because governments do not go bankrupt in the same way that companies do; creditors cannot break them up and sell the assets to recover some of their money. So creditors have an incentive to ensure that distressed governments continue to repay their debts, even if it means lending them the money.

Since May 2010, Greece has been sent about $177 billion in European taxpayer money to keep the country afloat and ward off a bigger crisis that might threaten the entire currency union. Of that amount, a full two-thirds has gone to pay off bondholders and the troika.

Only a third has been earmarked to finance government operations, with only a tiny sliver spent on stimulus projects for the anemic economy.

This circular lending is all about risk management. After all, Greece this year negotiated a debt deal in which banks that held its bonds got only about half of their money back.

The troika wants to ensure the same does not happen to its members and the taxpayers. European officials have also pointed to Greece’s track record on finances, including manipulating its budget numbers to qualify to join the euro union in 2001, and government corruption since then.

Another recent development has rung alarm bells. Last month the troika sent Greece $31 billion to help shore up its banks.

On Tuesday, the caretaker Greek government dispensed $23 billion of it to the banks. But some Greek officials have suggested tapping the remainder to keep the government running past June, should the troika continue to wield a tight fist.

The European Central Bank became one of Greece’s biggest creditors after it started buying debt from troubled euro zone countries in 2010 to help stabilize prices. The bank does not disclose how much Greek debt it bought, but estimates are from $44 billion to $69 billion.

Greek bonds are a profitable investment for the bank as long as Greece continues to make interest payments. The bank exempted itself from the debt restructuring deal. And Greek bonds were already trading at a big discount when the central bank started buying them. As a result, the bank is earning an effective interest rate of 10 percent or so, Mr. Deo estimated.

But he added that it was also a risky trade. If Greece defaulted, European taxpayers might ultimately have to pour new money into the bank’s capital reserves.

The European Union’s bailout fund, the European Financial Stability Facility, also became a major Greek creditor as a result of the debt-reduction deal that Greece negotiated with bondholders. All told its contribution amounted to about $88 billion.

However harsh the payback terms might seem, the European authorities have a strong interest in avoiding the even higher costs that would result if Greece left the euro zone or defaulted completely on its debt.

As early as next year, according to optimistic estimates, Greece could reach the point where tax receipts exceed government operating expenses.

At that point, a populist government might be tempted to stop making debt payments altogether. If so, it might then take its chances on its own, outside the euro zone without the burden of interest payments.

To help leaders in Greece resist that temptation, the troika’s reasoning goes, it is better to help them service the debt immediately.

 

http://www.nytimes.com/2012/05/30/business/global/athens-no-longer-sees-most-of-its-bailout-aid.html?pagewanted=2&_r=0&smid=pl-share

The Greek government has secured enough votes to pass deeply unpopular austerity measures essential to unlocking further aid from foreign lenders. The fragile three-party coalition managed to secure 153 votes. 151 votes were needed to win approval for the package of spending cuts, tax hikes and labour reforms despite the junior-ruling Democratic Left party’s refusal to back it.

Outside parliament buildings in Athens, violence erupted as a handful of protesters tried to break through a barricade to enter parliament. The parliamentary session was briefly interrupted when parliament workers went on strike and opposition lawmakers walked out of the chamber in protest. Protesters hurled petrol bombs and police responded with teargas, stun grenades and water cannons. A sea of Greeks braved a steady downpour holding flags and banners saying “It’s them or us!” and “End this disaster!” stood before riot police guarding parliament. In all, nearly 100,000 protesters – some chanting “Fight! They’re drinking our blood” – packed the square and side streets in one of the largest rallies seen in months, police said.

Protesters held aloft Italian, Portuguese and Spanish flags in solidarity with other southern European nations enduring austerity. Public transport was halted, schools, banks and government offices were shut and rubbish was piling up on streets on the second day of a two-day nationwide strike, called to protest against the vote.

Greeks have also expressed outrage at the lacklustre approach consecutive governments have taken towards catching tax cheats. Many say officials have dragged their feet on investigations to protect a wealthy elite. Following the publishing last month of the so-called “Lagarde List” of more than 2,000 wealthy Greeks with Swiss bank accounts, the Swiss government said it was looking to clinch a swift deal with Athens on taxing secret holdings.

The austerity measures are accompanied by steps to make it easier for businesses to hire and fire workers.

The measures include reductions to severance pay and the warning time employers must give workers before they let them go.

The junior ruling Democratic Left party refused to support these, saying they have no bearing on Greece’s fiscal targets under the bailout plan.

http://www.rte.ie/news/2012/1107/greece-vote-imf.html

 

 

Updates:

Venizelos Expels 6 Of His MPs From Pasok And Samaras 1 From ND For Not Following Party Line During Vote

Greece: Venizelos expells Grekou, Kassis, Koytsoukos, Mpolaris, Parastatidis, Skandalidis from Pasok

Samaras announces that Kasapidis has been thrown out of New Democracy

PASOK down to 27 MPs in Parliament. It had 160 three years ago

18 MPs voted “present” tonight.

This response lacks any documentary evidence to support this policy and there is no mention regarding  the legal basis upon which the commission proceeds to the imposition of such loan conditionality clauses, which, as explicitly stated in the letter of organizations, runs counter to the directives of neutrality in relation to the private or public ownership and collective management of water services (Article 345 TFEU and Article 17 1 of the Directive 2006/123/EC on services in the internal market) and the Public Services Protocol of the Treaty. In the organizations letter, it is even mentioned that no initiative has been taken by the Commission to implement the UN resolution of July 2010 that acknowledges access to clean water and sanitation as a human right.

The new letter also refers to the reversal of privatization trend in the water sector that flourished in the 1990s and the new remunicipalization trend,  blowing now in Europe, after the experience of bad economic effects brought about by privatization in various cities. It is also noted that the only serious economic research that has been done on the subject does not support at any time the claim of the EU Commission “that privatization results in cost reduction”.

The initiative SAVEGREEKWATER, cosigns the letter and states unequivocally to the Greek government that it will proceed in all legal procedures to prevent this sad development in the water sector.

We once again call all Greek citizens and associations, scientific institutions and first degree unions and clubs to cosign our petition text, if they are generally in line with its direction so we can stand this time all together against the arbitrariness of the unelected Commissioners and undemocratic, unprofitable and unsubstantiated privatization of water services in our country.

From the part of Greece, the letter is also cosigned by Movement 136 of Thessaloniki.

The letter is cosigned by the Organizations

Água é de todos (Portugal)

Aquattac

ATTAC Hungary

ATTAC Spain

Berliner Wassertisch (Germany)

Blue Planet Project

Coordination Nationale des Associations de Consommateurs d’Eau (CACE)

Coordination Eau Ile de France

Corporate Europe Observatory (CEO)

Council of Canadians

La Coordination Rhône-Méditerranée des Associations des Usagers de l’Eau (CRAUE)

Ecologistas en Accion (Spain)

European Federation of Public Service Unions (EPSU)

Food & Water Europe

France Libertés

Gemeingut in BürgerInnenhand (Germany)

Ingenieres Sin Fronteras (Spain)

Italian Forum of Water Movements

Movement 136 (Greece)

Mouvement Utopia (France)

Save Greek Water (Greece)

Transnational Institute (TNI)

Wasser in Bürgerhand (Germany)

Za Zemiata (Bulgaria)

LETTER RESPONSE OF EUROPEAN WATER MOVEMENT 17/10/2012

EU COMMISSION REPLY 26/9/2012

FIRST LETTER OF EUROPEAN WATER MOVEMENT 15/5/2011

PRESS RELEASE OF EUROPEAN WATER MOVEMENT 17 Oct

EU Commission Forces Crisis-hit Countries to Privatize Water

Brussels – The European Commission is deliberately promoting privatization of water services as one of the conditions being imposed as part of bailouts, it acknowledged in a letter to civil society groups on 26 September 2012.[1] EU Commissioner Olli Rehn’s directorate was responding to questions posed in an open letter concerning the European Commission’s role in imposing privatization through the Troika in Greece, Portugal and other countries.[2] The civil society groups have today written to Commissioner Rehn to demand that he stop “any further pressure to impose water privatization conditionalities”.[3]

The Commission’s push for privatization disregards the fact that water privatization has failed to deliver results in Europe and around the world. Paris and many other cities have recently remunicipalized their water services due to negative experiences with privatization. The Dutch government in 2004 passed a law banning private sector provision of water supply and the Italian Constitutional Court ruled that any future legislation attempting to privatise public services would be unconstitutional.

The Commission has not put forward any evidence to back its stance in its reply, even though research shows that public provision is often more effective than private. It also violates key articles of the EU Treaty that state the EU should be neutral on the question of water ownership.[4]

Members of the European Parliament have already tabled a question to the Commission asking for clarification on the contradiction between the Troika’s recommendations and the required neutrality of the Commission.

“This really demonstrates how the Commission has lost touch with reality. Their ideological arguments are not based on substantiated facts and goes to the extreme of ignoring the democratic will of the people,” said Gabriella Zanzanaini, Director of European Affairs for Food & Water Europe.

“The Commission has a lot to explain. Not only is there is no evidence at all to support the view that the private sector is more efficient, but there is very strong public resistance to privatization. European citizens will not back down quietly on this,” said Jan Willem Goudriaan of the European Federation of Public Service Unions (EPSU).

As movements around Europe are gathering momentum to fight the sale of public water, the first European Citizen’s Initiative has been launched to promote the implementation of the right to water for all in Europe and the idea that water supply and management of water resources should not be subject to ‘internal market rules,’ and that water should be excluded from liberalization.[5]

Contact:

Pablo Sanchez EPSU

tel: 0032 474 626 633 email: psanchez@epsu.org

Olivier Hoedeman, Corporate Europe Observatory

tel: 0032 4 7448 6545   email: olivier@corporateeurope.org

Gabriella Zanzanaini, Food & Water Europe

tel: 0032 488 409 662 email: gzanzanaini@fweurope.org

Notes:

[1]http://documents.foodandwaterwatch.org/doc/FoodWaterEuropeWaterPrivatization17Oct2012.pdf (page 4)

[2] http://corporateeurope.org/open-letter-eu-commission-water-privatisation

[3]http://documents.foodandwaterwatch.org/doc/FoodWaterEuropeWaterPrivatization17Oct2012.pdf

[4] The EU’s supposed neutrality on the question of public or private ownership and management of collective water services is outlined in article 345 TFEU and Art. 171 of the Directive 2006/123/EC on services in the internal market.

[5] http://www.right2water.eu

 

http://savegreekwater.org/?p=743

Dutch and German politicians like to blame Greece for refusing to stick to the agreements — but, in truth, the Greeks are doing more than they should.

Everyone who talks about Greece these days — even well-intentioned liberals — seems to assume a priori that Greece is somehow “opposing the reforms” and “refusing to stick to the agreements”. With Dutch Prime Minister Mark Rutte and German Chancellor Angela Merkel at the forefront, of course. Greece does not deserve respite, not a second of extra time and not a single penny more, simply because “the country keeps breaking its promises.”

First of all, the problem is that it’s impossible for a country as a whole to stick to any agreement whatsoever as if it’s some kind of ‘person’. In Greece there are countless people — the majority of the population — who have been struck by austerity measures that have been forced down their throats as if they were some kind of natural disaster; measures that are the result of those aforementioned “agreements”: a 40 to 50 percent reduction of salaries and pensions, an unbearable series of extra taxes, layoffs on a gigantic scale, a massive increase in unemployment and poverty, the destruction of labor rights, the implosion of healthcare. All these things are utterly unthinkable in a country like Germany or the Netherlands, yet nobody seems to give the Greeks who bravely carry this burden any credit whatsoever.

And then there is obviously the minority, a substantial part of Greece’s rich and corrupt political and industrial elite, which does dodge taxes on a grand scale by funneling money away to foreign countries, but which still gets away unscathed. The majority of Greeks who are bending over backwards to serve the Brussels diktat cannot help that. The middle class, the incredibly hard-working and impossible-tax-paying Greek, cannot be held responsible for that. Try to convince those people that, simply because a tiny minority keeps behaving scandalously, their country is somehow “refusing to stick to the agreements”.

Mind you, it’s exactly that “virtueless” minority of Greeks that Berlin and The Hague were happily doing business with and that could comfortably continue its corrupt ways under the watching gaze of Brussels. For decades, journalists wrote blisters onto their fingers about all the things that were going wrong in Greece, how the people suffered as a result of this, and how sooner or later things were bound to go wrong — but EU politicians didn’t even budge. I would like to see Dutch Prime Minister Rutte explain to my elderly Greek neighbor, who now has to find a way to survive on a miniscule pension of 300 euros, that she is somehow “refusing to stick to the agreements” and “opposing the reforms” when she recounts, crying, that she can’t (and hence won’t) pay her electricity bills.

Secondly, this is not about “agreements” at all. Somehow, that word presupposes that we are talking about two equal parties agreeing on a mutual course of action. Nothing could be further from the truth. Greece has been humbled, mangled and castigated, forced to accept the various IMF demands and Merkel’s austerity measures in a profoundly unequal “like it or lump it” type of situation. The word “agreements” itself is just as deceptive as the words “support” or “reform”. In the case of Greece, “agreements” refer to demands made at knifepoint. Support does not consist of gifts, subsidies or investments, but of big fat loans at disastrous, sky-high interest rates that squeezed Greece will never be able to repay. And the reforms are really just absurd budget cuts that would be utterly impracticable in Northern Europe, including the prospect of a total annihilation of minimum labor rights — something for which Europeans, including the Greeks,  have fought for centuries.

Thirdly, contrary to what Merkel and Rutte unjustifiably keep claiming, ad nauseam, the Greek government is making unbelievable, superhuman efforts to fulfill those impossible demands from Brussels. It does so in spite of the inevitable social unrest and understandable resistance of the Greek people, who are naturally rebelling against all this injustice. Whoever still claims that the Greek government is “once again” falling behind on its commitments and, as a result of slacking and bad governance, fails to pursue the right measures and reforms in the timeframe imposed by Brussels, is simply lying. Merkel is lying. Rutte is lying. Nobel Prize-winning economists and commentators like Joseph Stiglitz and Paul Krugman have already been predicting for two years, also ad nauseam, that Merkel’s current austerity policies are not only failing to work, but are actually driving the Greek economy ever deeper into the abyss.

And behold, they were right. The fact that Merkel and Rutte seem to believe that the targets of their much-revered but ultimately disastrous austerity policies are not being met has nothing to do with the fact that the Greeks are “failing once again”, but is simply the result of a stupid and unworkable set of policies. Back in the Netherlands, Prime Minister Rutte keeps complaining that Greece isn’t privatizing fast enough. This is completely unjustified. Something else is going on: the time Greece has been granted to privatize is simply surreal. Not a single government could comply with that. It’s simply demagoguery to go on and claim that the “Greeks are falling behind again”.

Moreover, the pressure of this “Mission Impossible” pushes the Greek government into an unworkable position. Partly because of Brussels, it finds itself with its back against the wall, in an in extremely weak position to privatize. It is being forced to sell off large state assets at firesale prices. Foreign buyers and vulture investors smell weakness — and blood. No surprise, then, that government revenues are disappointing; something which can subsequently be used by Rutte and Merkel to claim that “Greece is not honoring its promises”. The same goes for the disappointing revenue from all those extra new taxes: the austerity measures have pushed the Greek economy into a diabolical recession, as a result of which all those EU and IMF calculations about expected revenues turn out to be wrong. That’s not the fault of the Greeks.

One of the most extreme pronunciations came from Dutch Prime Minister Mark Rutte in a recent pre-election debate with Labour leader Diederik Samsom. Samsom openly asked Rutte whether, in order to save Greece and the euro, he would be willing to cough up the money for another bailout. (Obviously, it’s not about “giving” this money, it’s about expensive loans. But let’s leave that aside). No, Rutte yelled. Why not? Because it would be extremely unwise to say that now, for the Greeks would immediately slow down, sit back and stop privatizing and reforming. After all, they would count their blessings in advance, knowing full well that “someone would pay for them” again and therefore refuse to do anything whatsoever. And so Samsom had to be careful with his words, because the Greeks were listening along — and they would “now receive a completely perverse incentive” from the Labour leader.

Rutte: “we have to keep them on a tight leash.”

Excuse me?

As if Greece were a dog. As if the Greeks were shitty little kids grabbing every opportunity to skirt their responsibilities. What an idiotic way of doing international politics. What an arrogant attitude toward people who are bending over backwards to stay inside of “Europe”. Rutte apparently has such a deep distrust and such a profound contempt for our fellow EU member state that we — from the point of view of Ruttian pedagogy — have to actively deceive them and, above all, should not let them know that they can count on any further bailouts if needed. As Prime Minister, Rutte has already made it known that he has “nothing to do with the Greeks”. Such a person, who just like the right-wing extremist Geert Wilders likes to play with the gut feelings of ill-informed citizens to win their votes, should never be allowed to become PM in the first place.

Last but not least: in my own environment and extensive circle of acquaintances in Greece, I do not know a single Greek who does not want to see reform — in the pure sense of the word — from the government; not a single Greek who does not want to put an end to the old and corrupt Greek political establishment, and who does not believe that the debt, for which they themselves are not responsible, should ultimately be paid back (should it?). These people deserve our support and encouragement; not to be treated arrogantly, mercilessly and unjustly, like second-class citizens — or even worse, like a dog.

Ingeborg Beugel is a Dutch journalist and was formerly based in Athens as a foreign correspondent for various Dutch media. She regularly appears on Dutch television to comment on the Greek debt crisis.

http://roarmag.org/2012/09/ingeborg-beugel-austerity-greece-europe-rutte-merkel/

In Dutch: http://www.volkskrant.nl/vk/nl/3184/opinie/article/detail/3314000/2012/09/10/Ingeborg-Beugel-Griekenland-is-geen-hond.dhtml