NEWS,09.10.2012

Merkel tells irate Greeks painful reforms will pay off

Tens of thousands of angry Greek protesters filled the streets of Athens to greet German Chancellor Angela Merkel, who offered sympathy but no promise of further aid.Police fired teargas and stun grenades to hold back crowds chanting anti-austerity slogans and waving Nazi flags while Merkel's host, Prime Minister Antonis Samaras, welcomed her on Tuesday as a "friend" of Greece.On her first visit to Greece since the euro zone crisis erupted three years ago, Merkel struck a conciliatory tone.She reaffirmed Berlin's commitment to keep the debt-crippled Greek state inside Europe's single currency but offered Samaras no concrete relief ahead of a new report on Greece's reform progress due by next month."I have come here today in full knowledge that the period Greece is living through right now is an extremely difficult one for the Greeks and many people are suffering," Merkel said at a news conference with Samaras just a few hundred yards from the mayhem on Syntagma Square, outside parliament."Precisely for that reason I want to say that much of the path is already behind us," she added.Samaras, who invited Merkel to Greece during a visit to Berlin in August, promised to press on with economic reforms necessary to restore confidence."The Greek people are bleeding but are determined to stay in the euro," he said. "They are not asking for more money or favours. They only want to get back on their feet as soon as possible and exit this recession."On the other side of the parliament building, tens of thousands of demonstrators defied a ban and gathered to voice their displeasure with the German leader, whom many blame for forcing painful cuts on Greece in exchange for two EU-IMF bailout packages worth over 200 billion euros ($315 billion).Greek riot police clashed with protesters who tried to break through a metal barrier to reach the cordoned-off area where Merkel and Samaras were meeting. Some demonstrators pelted police with rocks, bottles and sticks.At least 30 people were hurt or suffered breathing problems from tear gas and about 300 were detained, police said.Four people dressed in World War Two-era German military uniforms and riding on a small jeep, waved black-white-and-red swastika flags and raised their hands in the Hitler salute.Banners read "Merkel out, Greece is not your colony" and "This is not a European Union, it's slavery"."We know that she is not here to offer favours but she must help us, this is our last chance," said 45-year-old Mari Hanioti, a saleswoman supporting her two children and her unemployed husband."She must be able to see what we are going through, how much we are suffering. She should see the poor neighbourhoods not just the expensive hotels."Some 6000 police officers were deployed for the six-hour visit, including anti-terrorist units and rooftop snipers. German sites in the Greek capital, including the embassy and Goethe Institute, were under special protection.Before departing, Merkel met Greek business people to ask how reforms were progressing and hear how they were affected by an economy that has shrunk by a fifth in five years, leaving 25% of workers out of a job."She said: talk to me as if I wasn't a leader but a good reporter," one attendant said on condition of anonymity.Merkel decided to come to show support for Samaras, a fellow conservative, as he struggles to convince reluctant, leftist coalition partners to impose more austerity on a society fraying at the edges after several rounds of cuts.With a year to go until Germany holds a parliamentary election, Merkel also hoped to neutralise opposition criticism at home that she has neglected Greece and contributed to its woes by insisting on crushing budget cuts.After her government flirted earlier this year with the idea of allowing Greece to exit the euro zone, she now appears determined to keep it in - at least until the German election is out of the way.Greece is in talks with its "troika" of lenders - the European Union, European Central Bank and International Monetary Fund - on the next tranche of a 130-billion-euro ($204 billion) loan package, its second bailout since 2010.Without the 31.5-billion-euro tranche, Greece says it will run out of money by the end of November.Merkel said the aid payment was "urgently needed" but stopped short of promising that the funds would flow."The troika report will come when it is ready. Being thorough is more important than being quick," Merkel said.Ties between Germany and Greece run deep. Thousands of Greeks came to Germany after World War Two as "guest workers" to help rebuild the shattered country and more than 300,000 Greeks currently reside there.But the relationship is clouded by atrocities Greeks suffered at the hands of the Nazis. Samaras's own great grandmother killed herself after Nazi tanks rolled down the streets of Athens and the swastika flew over the Acropolis.Greek President Karolos Papoulias, whom Merkel also met on Tuesday, fought against the Germans as a teenager, before fleeing to escape persecution by the Greek military dictatorship and finding refuge in Germany.

Wall Street falls on IMF report

Equities slumped on both sides of the Atlantic after the International Monetary Fund reduced its forecast for global growth.The global economy will expand 3.3% this year and 3.6% in 2013, the IMF said in its World Economic Outlook. That is down from July forecasts of 3.5% in 2012 and 3.9% in 2013.Meanwhile, the latest round of US earnings-kicked off by Alcoa-is expected to clearly reflect the impact on corporate profits. Earnings reports for S&P 500 companies may show the first quarterly drop in three years, with analysts forecasting a 2.3% decline from the year-ago quarter, according to Thomson Reuters data.To be sure, some say expectations are so low that it leaves plenty of room for good news."There's so much pessimism over earnings that there's room for upside with any positive surprise," Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg News."Overall I think traders are too pessimistic. Even with the IMF economic numbers we got, those are still pretty good numbers. The IMF is forecasting global growth next year will be above 3%. That's probably higher than what most people are fearing at the moment," Zemsky said.In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.55%, the Standard & Poor's 500 fell 0.74%, while the Nasdaq Composite Index shed 1.29%.It was five years ago that the S&P 500 reached a record high of 1565.15. Today, it was last at 1445.12The IMF's downgrade of expectations for global growth helped demand for US Treasuries-an auction of US$32 billion in three-year notes was met with record demand.Shares of Intel fell, last down 2.55%, after downgrades from Sanford Bernstein & Co and Robert Baird & Co.In Europe, the Stoxx 600 Index ended the session with a 0.5% decline from the previous close.Benchmark indexes also fell in Germany, France and the UK, declining 0.8%, 0.7% and 0.5% respectively.The euro weakened too, dropping 0.9% against the Japanese yen, while falling 0.7% against the greenback.European Union finance ministers met in Luxembourg today, while German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras met in Athens."I want Greece to remain in the euro," Merkel told reporters, according to Bloomberg. "A lot has been done, much remains to be done."Her visit came as the IMF forecast today that Greece will miss the five-year debt reduction goal that underpins the nation's bailout.

Europe edges towards banking union

European Union ministers examined a proposal today to limit planned new powers for the European Central Bank to supervise lenders, in a bid to allay the concerns of countries outside the euro zone over a new banking union.The diplomatic drive came as the President of the ECB and Germany's markets regulator cautioned that setting up a new system of supervision would take up to the end of next year, later than many expected and a potential setback to efforts to help distressed euro zone countries and their banks.Brussels proposed earlier this month that the ECB take charge of supervising all banks in the euro currency zone in stages from January, as a first step towards creating a banking union under which chiefly euro zone countries would eventually jointly back their lenders.Winning broad support for a prompt introduction of the new supervision framework is important because it should allow the euro zone's rescue fund, the European Stability Mechanism (ESM), to directly inject much-needed capital into banks, such as those in Spain.However, the plan has sparked concerns among the 10 EU countries which do not use the euro that they will be indirectly affected by the ECB's new supervisory powers and put at a competitive disadvantage, whether they join the scheme or not.On Tuesday, diplomats from Cyprus, the current holder of the European presidency, delivered a proposal to change the blueprint for banking supervision, a move, in the words of one EU official, to make it more "digestible" for countries outside the euro.In the document, seen by Reuters, they recommend a counterweight to the central bank's authority to withdraw a bank's licence, the ultimate threat a supervisor holds, by giving national regulators a large say in such a decision.They also suggest a way for countries outside the currency area that choose to join the banking union, subjecting lenders to ECB control, to leave it again, by allowing them to "request the ECB to terminate the close cooperation at any time".Speaking to journalists after the meeting, Michel Barnier, the European commissioner in charge of regulating banks, called for "flexibility and imagination" in reaching a "fair" system for those countries outside the euro zone to participate.Barnier is aiming to reach agreement on the new supervisory system by the end of this year. But Mario Draghi, the president of the ECB, cautioned on Tuesday that setting up a new framework of supervision would take longer."The ECB is not supposed to take over supervision in three months' time and do it," Draghi told lawmakers in the European Parliament. "There is a phase-in time. We foresee that one year will be needed to adapt all the structures."Elke Koenig, head of Germany's markets regulator BaFin, also warned that the original deadline to start such supervision by the beginning of next year was unrealistic."I could imagine that we get there in January 2014. That's a guess," she told German television station ARD on Tuesday, advocating a cautious approach."I support the idea of a strong European regulator. But I have not seen a roadmap of how we get there," she said."The last thing we can afford is to have an interregnum between those who are no longer responsible (for supervision) and those who are not yet in a position to act."Word play Others urged quick action.The Dutch central bank said today that policymakers should quickly allow the European Central Bank to supervise major lenders and to enable the ESM to directly recapitalise troubled banks.Gerard Rameix, head of the French markets watchdog AMF, said that he had heard nothing to suggest there would be a change to the timeframe."I think they are playing on words a bit. If they are talking about the utmost end of the process, then they are maybe not wrong," Rameix said.As a first step, the ECB is set to take responsibility for supervising banks which have received state aid beginning 2013. From mid-2013 the ECB will add systemically relevant institutions, before finally overseeing all euro zone banks by 2014.Germany, the euro zone's economic heavyweight, has criticised efforts to allow the ECB to supervise all euro zone lenders, claiming it will be overstretched.In reality, the ECB will not be in day-to-day charge of supervision, which will still lie with national regulators, but will have the power to overrule those authorities.The close ties between some troubled governments and the banks they supervise - and on which they also rely to buy their debt - have dragged both ever deeper into crisis.A banking union would break this link by making the policing of banks supranational and establishing central schemes paid into collectively to cover the costs of closing failed lenders and protecting savers' deposits.

French parliament backs EU budget discipline treaty

France's lower house of parliament voted to ratify a European budget discipline treaty today.A law ratifying the fiscal pact was passed by 477 votes in favour to 70 against, despite a small but noisy revolt from left-wingers and Greens that threatened to embarrass Hollande just before an October 18-19 European Union summit.In all, 45 among the 314 lawmakers that make up Hollande's left-wing parliamentary coalition either voted against the law or abstained, ignoring pleas from Prime Minister Jean-Marc Ayrault in recent days to fall into line.Yet Hollande still rallied 282 left-wing votes in favour, above the 274 required for a majority and sparing him from having to rely on votes from opposition conservatives, who voted largely in favour of ratification."This sweeping majority will give France a bigger voice, that is to say it will enable us to forge ahead with the rebuilding of Europe that I have committed to since my election," Hollande said after the result.When former president Nicolas Sarkozy signed up to it in March, the Socialists had opposed the fiscal pact, which holds governments to meet deficit-cutting goals or face sanctions.Plagued by painful memories of failing to rally his party behind a 2005 referendum on an EU constitution, Hollande persuaded his EU partners at his first summit in June to sweeten the pact with accompanying measures to stimulate growth in Europe.As recalcitrant left-wingers continued to revolt against the pact this month, Ayrault told them voting against it meant putting the euro's future in danger.Still, 20 out of the 264 Socialist Party deputies in the lower house voted against the law on Tuesday, along with 12 Greens. Among opposition parties, 13 radical leftists voted against and 17 conservatives.Shackles Hollande is anxious to show that his party will stand united behind him on steps agreed in June to deepen fiscal and economic integration in Europe, steps opponents on the left view as handing too much control of national affairs to EU authorities."We salute the no vote of a number of Socialist and Green deputies who, like us, reject the shackles this austerity treaty imposes on the people of Europe," said Andre Chassaigne, leader of far-left lawmakers in the National Assembly."It will lead our country, like other EU states, towards the abyss of recession," he said.Hollande is treading a fine line as he tries to convince his EU partners, and investors from London to Beijing, that he is serious about bringing down the public deficit while also battling to restore jobs and growth to a stalled economy.Since his May election Hollande's approval ratings have fallen from 55% to as low as 41%, the fastest drop of any recent president, as unemployment has surged to a 13-year high above 10%.Tuesday's vote came as riot police used teargas to disperse protesters during nationwide demonstrations over mounting job losses and a wave of industrial layoffs.Hollande's economic credibility is being put to the test by the jobs crisis and by a 2013 budget that hinges on an economic growth target of 0.8% that many view as over-optimistic.The International Monetary Fund joined sceptical economists on Monday and halved its growth forecast for France to 0.4% next year. Finance Minister Pierre Moscovici responded by calling the government's outlook "realistic".The president has promised the European Union he will cut the deficit to 3% of gross domestic product in 2013, but the gloomier growth outlook and his decision to make two-thirds of the adjustment through tax rises has raised doubts.The fiscal pact enters into force on January 1 next year or when 12 of the 17 euro zone member countries ratify it, as half a dozen, including Germany, already have.The ratification law passes to the Senate today and should be finally adopted before the end of the week.