THE prospect of technocrat-led governments in both Greece and Italy calmed markets but volatility is expected to return next week as both regimes attempt to push through austerity measures.
There was a flurry of phone calls between the leaders of the large eurozone countries yesterday and Germany’s Chancellor Angela Merkel also spoke to US President Barack Obama. The US fears the euro crisis is threatening growth in the rest of the world.
Nerves were further frayed when institutions began to ditch French bonds following what Standard & Poor’s said was a mistaken downgrade on their website. This followed an admission by the head of the EU’s rescue fund that they could find it difficult to leverage it up to at least €1 trillion.
The new Greek government took office yesterday, hours after the two largest parties in the parliament finally agreed to accept former ECB vice-president Lucas Papademos as prime minister. He was governor of the Greek central bank when the country joined the euro.
The outgoing finance minister, Socialist Evangelos Venizelos, will remain in his post in a cabinet composed of members from three coalition partners, the Socialists, centre right New Democracy and, for the first time, the far-right LAOS.
The first job of the new prime minister, a 64-year-old US-educated economist, will be to have all parties in his government sign up to the new range of austerity measures in exchange for the two bailout loans totalling €240 billion.
European Commissioner for Economics Olli Rehn and the eurogroup finance ministers have insisted their commitment to implement the measures needs to be in writing and signed. Former prime minister George Papandreou could not get the support of the opposition to the measures before he created mayhem by announcing a referendum, which he was forced to later withdrew.
However, Papademos — who was adviser to the outgoing premier — will have a massive job in front of him as he needs to turn around not just an economy but the entire establishment including the corrupt tax collecting system.
Most attention over the weekend will be on Rome, where the lower house is expected to pass an austerity budget after the senate approved it yesterday. Once that is done, Silvio Berlusconi is expected to resign and the president is expected to ask Yale-educated economist Mario Monti to form a new government.
But Monti could have serious problems forming a government as Berlusconi’s Democratic Party is on the verge of imploding as the varied interests the media magnate managed to hold together are deeply divided.
Rehn warned during the week that the measures Berlusconi had indicated in a 14-page letter to the Commission was not sufficient. They did not include reforming the pensions system which eats up half of the country’s current primary expenditure. He also a list of concrete steps linked to a time line for the reforms to be complete.
Spain is also in a state of suspense in the lead-up to their general election next week, with the latest economic figures showing the country’s growth has come to a standstill in the third quarter. The eurozone’s fourth largest member was also caught up in the escalating cost of debt during the week as the difference between it and German bonds increased dangerously.
Klaus Regling, who heads up the special purpose vehicle, the European Financial Stability Facility, warned in an interview in the Financial Times that the volatility surrounding the euro suggested they would find it difficult to leverage the €250bn remaining in the fund five times as originally suggested.
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This appeared in the printed version of the Irish Examiner Saturday, November 12, 2011
