Finance ministers’ sticking point seems to be around a 300m euro gap that appeared in Greece’s budget when it changed the way unemployment benefits were paid. What’s 300m euros between friends, eh? Greece has now agreed to switch back to the original way of doing things, but ministers remain extra-cautious, saying they wanted to see evidence of the changes being made before paying out any money. The consensus, though, seems to be that Greece is trying hard: ‘we saw today that Greece has made a lot of effort and has made a lot of progress,’ said German finance minister Wolfgang Schaeuble yesterday. Does he mean it, or is it just PR?
The second half of the bailout, which will give it an extra 71.5bn euros to play with, will come through the restructuring of 206bn euros of privately held sovereign debt. Although, obviously, private bondholders aren’t terribly pleased the value of the debt they hold will be cut by more than half, eurozone leaders have essentially told them to suck it up – or Greece will be forced to default when a 14.5bn bond matures on March 20.
The worry now is what will become of Greek banks, reserves of which will plummet along with the value of the Greek bonds they hold during the restructuring deal. Officials have approved another 23bn euros to recapitalize them, which will hopefully be enough. On top of that, there are concerns as to whether the debt restructuring deal will trigger credit default swaps – insurance-esque policies that are paid out in the event of a default. The International Swaps and Derivatives Association said it shouldn’t – but it didn’t rule out the possibility of it happening in the future.
While all that was going on, the EU’s 27 leaders were also at work, thrashing out a new EU fiscal treaty, aimed at preventing countries from running up Greek-style debts in the future. The treaty will force governments to enshrine their budgets in law – any back-tracking will incur legal penalties.
As was his wont, David Cameron (along with the Czech government) didn’t sign, citing red tape that would affect the City. Was European Council president Herman Van Rompuy sending a message to him when he said the treaty ‘helps prevent a repetition of the sovereign debt crisis… The restoration of confidence in the future of the eurozone will lead to economic growth and jobs’? Whatever it meant, the UK’s name is mud in parts of Europe.
Only one man who can save our reputation now. Take it away, Englebert...