Tags: hans | parisis | greece | EU

Financial Noose Continues to Tighten Around Greece

By    |   Wednesday, 17 February 2010 03:27 PM

This isn’t headline news, but it’s significant enough to demonstrate the turmoil in Europe.

Greece has lost its European Union voting power at a crucial EU meeting next month, the worst humiliation ever suffered by an EU member state.

The EU Ecofin council, which is composed of the Economics and Finance Ministers of the EU Member States (Budget Ministers are only included when budgetary issues are discussed), said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether.

It if fails to do so, the EU will itself impose cuts under the Draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty, or overlordship.

Under Article 126.9 of the Treaty, Greece is required to follow the adjustment path outlined in the 2010 stability program in terms of nominal deficit, structural deficit and change in debt levels, and detail the measures to be implemented.

The recommendations include measures to be implemented already in 2010, such as:

• A reduction in the overall public sector wage bill, including through the replacement of only 1 of 5 retiring civil servants.

• Progress with healthcare and pension reforms.

• The set up of a contingency reserve amounting to the 10% current expenditure, tax and excise duties increases.

• Tax administration reform.

Greece is required to implement further adjustment measures of a permanent nature, continue with tax administration reforms and improve the budgetary framework.

Considering that Greece has failed in its duty to report reliable budgetary statistics, as seen again in October 2009 with a significant revision of data for 2008, the European Commission is also initiating infringement proceedings, requesting the government to take all necessary steps to ensure that the systemic failures and weaknesses identified in the recent Commission report are corrected.

Greece is asked to cooperate with the Commission so as to promptly agree on an action plan to tackle statistical, institutional and governance deficiencies, including the adoption, by May 15, of legislation that makes compulsory to provide public reports on budgetary execution on a monthly basis.

The measure would also require the obligation for social security funds and hospitals to publish accounts and enhanced control mechanisms and effective personal responsibility in the statistics and general accounting offices as well as receive the appropriate resident technical assistance for the compilation of reliable statistics.

Greece is required to submit a first report next month, in mid March 2010, spelling out the implementation calendar of the measures to achieve the 2010 budgetary targets, standing also ready to adopt additional measures if needed, and quarterly integrated reports from mid May 2010 on the implementation of the recommendations, including on the reforms.

Interestingly, the EU has still refused to reveal details of how it might help Greece raise 30 billion euros ($40.81 billion) from global debt markets by the end of June.

So, investors remain unsure whether this is part of “constructive ambiguity” to pressure Greece and keep markets guessing, or if it reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union.

If you ask me, I’m convinced the Greek drama has still to unfold and we are in the eye of the storm.

They will need more than a miracle to get their fiscal house “within the euro-zone rules” in order.

I don’t think they will be able to do that, and believe me: The Spartan way of achieving goals won’t work this time around.

But, of course, miracles do happen.

We saw yesterday Greek bonds selling off again while their 10-year government bonds yields jumped to 6.42 percent.

In response to these austerity measures, a string of strikes have been launched already across Greece.

Finance Ministry employees called a strike that will run through Friday.

Customs employees across Greece in the meantime are on a three-day strike, starting from yesterday morning, which has fueled worries for problems in the refueling of gas stations in the following days, since it coincides with another strike called by owners of fuel trucks on Friday.

Greek taxi drivers will also be on a 24-hour strike this Friday, their second in a week, while the country is expected to be paralyzed on Wednesday, Feb. 24, the day that the two main unions of employees in the public and private sectors, ADEDY and GSEE, have called a nationwide one-day strike.

I still remain bearish on the euro relative to the dollar.

The streets in Greece could become very “hot” and will have their “word” to say, which won’t be supportive for all the ongoing undertakings.

We’ll see what happens.

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This isn t headline news, but it s significant enough to demonstrate the turmoil in Europe. Greece has lost its European Union voting power at a crucial EU meeting next month, the worst humiliation ever suffered by an EU member state. The EU Ecofin council, which is...
Wednesday, 17 February 2010 03:27 PM
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