NEWS,02.10.2012

One step forward, two back for Greece on debt

Every step Greece takes to shore up its finances seems to make it harder for Athens to make the numbers add up in the long-term, especially when it comes to its spiralling debt.Monday's 2013 budget plan contained some positive news - for example, the expectation that Greece will have a primary budget surplus, before debt financing costs, for the first time since 2002 - as well as some more alarming forecasts.Chief among those was an acknowledgement that the economy will shrink again next year, by 3.8%, the sixth annual contraction in succession, and that the debt-to-GDP ratio will rise to 179.3% in 2013, a dauntingly high figure.The bottom line is that Greece is in a worse state now than even the most pessimistic forecast just six months ago.The relationship between growth and debt is the focus of the European Commission, the European Central Bank and the International Monetary Fund - the troika of inspectors currently in Athens poring over the government's projections.In the coming 4-6 weeks, the troika will publish its latest report assessing whether Greece's debt is sustainable in the longer-term, something many private sector economists have already concluded is not the case.In its last analysis published in March, the troika said Greece needed to get its debts down to 120% of GDP by 2020 for the situation to be manageable and concluded the goal was achievable under certain optimistic assumptions.But as so often with the Greek economy in the past three years, most of the assumptions are already way off-target and the likelihood of Athens meeting the 2020 goal is now even slimmer than it was then.That makes it all the more likely that Athens will have to go through another debt restructuring, involving further losses for bondholders, if it is to return to solvency. And this time it is the official sector - mostly European governments and their taxpayers - who will have to take a hit rather than the private sector.That would be a major blow to German Chancellor Angela Merkel, whose country is the biggest contributor to euro zone rescue funds, and diplomats say she would be eager to avoid such an event before a September 2013 German general election."Debt reduction will still require a herculean domestic fiscal adjustment," JP Morgan said in an analysis of Greece's deteriorating debt predicament back in July."The upshot of this arrangement is that the inevitable decisions on burden-sharing that lie ahead will relate to official creditors and Greek citizens," it said, noting 70% of Greek debt would be in official sector hands by 2014."Ugly picture" Perhaps the clearest illustration of how far Greece has strayed in the past six months - during which time it has held two elections and so far failed to push through the legislation needed to cut spending and raise revenue - is set out in black and white in the troika's 10-page analysis from March.In that report, written just after private investors took a 70% writedown on their Greek bond portfolios, the EU/IMF inspectors said they expected public debt to peak at 170% of GDP in 2014 under a worst-case scenario.Wisely, they added a proviso: "The debt trajectory is extremely sensitive to programme delays, suggesting that the programme could be accident prone, where sustainability could come into question."Indeed, the debt next year is now forecast to be 10 percentage points higher than even the worst-case figure, and could go on rising in 2014, depending on whether grow returns."It's an extremely ugly picture," said an EU economic adviser responsible for coming up with solutions to the crisis."The truth is, everyone knows Greece needs another debt restructuring but no one wants to acknowledge it right now because the contagion impact remains."A further concern is that even if Greece were magically to get its debt down to 120 percent of GDP by 2020 - an adjustment of around 120 billion euros in seven years - there is no hard-and-fast rule that says it will then be sustainable.For some countries with low growth, a debt level of 90% of GDP is hard to sustain. Others, such as Japan, can survive with debts approaching 200% of GDP."When it comes to Greece, we just used 120% because that's where Italy's debt level was at the time and Italy had managed to sustain it," an EU official closely familiar with the troika's work

Sanctions failing to halt Iran: Israel

 

International sanctions against Iran are biting but are not slowing the country's nuclear programme, Israel's strategic affairs minister Moshe Yaalon said on Tuesday."The sanctions and the pressure in place against Iran for around the past two years are effective, but the centrifuges continue to turn," Yaalon told Israeli public radio."There is a sanctions clock, and the Iranian nuclear programme is getting closer and closer to the red line," he added."We think it is necessary to impose harsh sanctions, economic, political or otherwise, against Iran, and we retain the military option," Yaalon said."But the fact is that diplomacy is not working and the sanctions have not had the desired effect because Iran is continuing its nuclear programme."Israel, the Middle East's sole if undeclared nuclear power, and much of the international community, believe Iran's nuclear programme masks a weapons drive Tehran says the programme is for peaceful energy and medical purposes, but has been slammed with increasingly harsh sanctions that have squeezed the country's economy.On Monday, Iran's currency plummeted at least 17% in trading, prompting the US State Department to describe the freefall as evidence that sanctions were putting pressure on the Iranian government."From our perspective this speaks to the unrelenting and increasingly successful international pressure that we are all bringing to bear on the Iranian economy. It's under incredible strain," State Department spokesperson Victoria Nuland said.

Russia tells Nato to stay away from Syria

Russia told Nato and world powers on Tuesday they should not seek ways to intervene in Syria's civil war or set up buffer zones between rebels and government forces.Moscow further called for restraint between Nato-member Turkey and Syria, where violence along their shared border has strained relations between the former allies.Tensions have flared since a mortar round fired from inside Syria struck the territory of Turkey. Ankara has threatened to respond if the strike were repeated.When asked by Interfax if Moscow worried whether the tense border situation could prompt Nato to intervene to defend Turkey, its easternmost member, Deputy Foreign Minister Gennady Gatilov warned against any such step."In our contacts with partners in Nato and in the region, we are calling on them not to seek pretexts for carrying out a military scenario or to introduce initiatives such as humanitarian corridors or buffer zones." Turkish Prime Minister Tayyip Erdogan, one of Assad's most caustic critics, recently lashed out at Russia for blocking efforts at the UN Security Council to exert pressure on Assad and said Moscow's stance allowed massacres in Syria to continue.Turkey has floated the idea of setting up "safe zones" inside Syria to protect civilians from the conflict but that would also have to be approved by the Security Council.Russia and China have vetoed three Security Council resolutions condemning Syrian President Bashar Assad and have blocked attempts to impose further sanctions on his government or intervene more directly in the conflict.Ankara has repeatedly complained of artillery and gunfire spilling over the border into Turkey, leading to threats of retaliation.Assad may cling to power"We believe both Syrian and Turkish authorities should exercise maximum restraint in this situation, taking into account the rising number of radicals among the Syrian opposition who can intentionally provoke conflicts on the border," Gatilov was quoted as saying.The West accuses Russia of supporting Assad in the bloody 18-month conflict and imposing a stalemate in the Security Council as violence in Syria has spiralled.Moscow says Syrians themselves should decide their fate and says it will veto any Security Council resolution that could serve as a springboard for military intervention.Russia accuses the West of overstepping its mandate when it set up a no-fly zone in Libya last year, leading to the fall of Muammar Gaddafi to a popular uprising and insurgency.Western diplomats in Moscow say Russia seems to believe Assad may still successfully cling to power though they see Russia's dialogue with some Syrian opposition groups as an attempt to secure its interests there if he were overthrown.