April 19, 2015 - GLOBAL ECONOMY - The world's financial leaders see a number of threats facing a global economy still on an uneven road to recovery with U.S. and European officials worrying that Greece will default on its debt.
The finance ministers and central bank governors ended three days of meetings in Washington determined to work toward "a more robust, balanced and job-rich economy" while admitting there are risks in reaching that objective, the steering committee of the International Monetary Fund said in its communique Saturday.
Seeking to resolve Athens' debt crisis, Greek Finance Minister Yanis Varoufakis held a series of talks with other finance officials on the sidelines of the meetings. The focus now shifts to Riga, Latvia, where European Union finance ministers meet next week.
The head of the European Central Bank, Mario Draghi, said it was "urgent" to resolve the current dispute between Greece and its creditors. He said that while the international finance system had been strengthened since the 2008 crisis, a Greek default would still put the global economy into "unchartered waters" with its effect hard to estimate.
Draghi told reporters he did not want to even contemplate the chance of a Greek default on its debt. But French Finance Minister Michel Sapin said he thought any damage would be confined to Greece because euro zone countries had established measures to protect themselves from any spillover effects.
Seeking to assure financial markets, which fluctuated considerably on Friday over the possibility of a Greek default, Sapin said nothing had changed on the issue as a result of the weekend meetings. He said it was up to the Greek government to present credible, assessable solutions to its economic problems.
"The solution to the Greek debt crisis is in Greece," he said.
The head of the IMF, Christine Lagarde, who had rejected suggestions that the IMF might delay Greek debt repayments, said she had constructive talks with Varoufakis and that the objective remained the same: to restore stability for Greek finances and assure an economic recovery.
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International
Monetary and Financial Committee (IMFC) Chair Governor of the Bank of
Mexico Agust{ed}n Carstens, accompanied by International Monetary
Fund
(IMF) Managing Director Christine Lagarde, speaks during a news
conference after the IMFC meeting at the World Bank-International
Monetary Fund
annual meetings in Washington, Saturday, April 18, 2015. (
AP Photo/Jose Luis Magana)
|
Greece is negotiating with the IMF and European authorities to receive the final 7.2 billion euro ($7.8 billion) installment of its financial bailout. Creditors are demanding that Greece produce a credible overhaul before releasing the money.
The country has relied on international loans since 2010. Without more bailout money Greece could miss payments due to the IMF in May and run out of cash to pay salaries and pensions.
The negotiations over Greece's debt have proved contentious, but all sides have expressed optimism that the differences can be resolved.
A number of countries directed criticism toward the U.S. for the failure of Congress to pass legislation needed to put into effect reforms that would boost the agency's capacity to make loans and increase the voting power of such emerging economic powers as China, Brazil and India.
Agustin Carstens, the head of Mexico's central bank and chair of the IMF policy panel, said "pretty much all of the members expressed deep disappointment" that a failure of Congress to act is blocking implementation of the reforms. The IMF panel directed IMF officials to explore whether interim solutions could be put in place until Congress acts.
The finance ministers urged central banks including the U.S. Federal Reserve to clearly communicate future policy changes to avoid triggering unwanted turbulence in financial markets.
The annual meetings of the IMF and its sister organization, the World Bank, take place Oct. 9-10 in Lima, Peru. -
AP News.
How sleepy Finland could tear apart the euro project
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| Finland's stricken economy has been strangled by the euro just as much as Greece. |
Finland is the unlikely stage for the latest turn in Greece’s interminable eurozone drama this weekend.
With events having decamped temporarily to Washington DC, Athens will be keeping half an eye on developments in Helsinki, where
the Nordic state of just 5.4m people heads for the polls on Sunday.
In the five years since Greece’s financial woes were revealed to the
world, it has been sleepy Finland which has emerged as the most
trenchant critic of EU largesse to the indebted Mediterranean.
The outcome of the country’s general election could now determine Greece’s future in the monetary union
Getting tough on the Greeks
In a leaked memo seen last month, it was revealed that the Finns had already drawn up contingency plans for a Greek exit from the euro.
Although ostensibly a sensible measure for any finance ministry to
contemplate, the document confirmed the Finns' position as the most
uncompromising of the EU’s creditor nations.
The reputation is well-deserved.
At the height of Greece’s bail-out drama in 2011, Helsinki negotiated an unprecedented bilateral agreement with Athens, receiving €1bn in collateral in return for supporting a rescue deal.
A year later, the Finns were prime candidates to become the first dissenters to voluntarily break the sanctity of the monetary union. “We have to be prepared,” the country’s then foreign minister told the Telegraph three years ago.
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| Finnish PM Alexander Stubb meeting Germany's Angela Merkel last month. |
Greece's current impasse is also partly a result of Finnish obstinacy.
Helsinki was one of the main obstacles to securing a long-term
extension to Greece's bail-out programme under the previous Athens
government late last year. The eventual compromise of a three-month,
rather than six-month reprieve, has seen the new Leftist regime scramble
desperately for cash since February.
With the situation in Athens deteriorating by the day,
both
Finland's prime minister and central bank governor have eschewed
high-minded rhetoric about European unity, to insist creditors should be
ready to pull the plug on Greece.
Strangled by the euro
But unlike its fellow creditor giant Germany, Finland is more economic laggard than European powerhouse.
Having been mired in a three-year recession, the country heads to the
polls with economic output still 5pc below its pre-crisis levels.
Finland has suffered an economic downturn of almost Greek proportions.
The boon from falling oil prices and launch of eurozone QE will still
only see the economy expand at a paltry 0.8pc this year, worse only to
Italy and Cyprus.
Stagnating growth saw Finland stripped of its much coveted Triple-A
sovereign debt rating last year. The International Monetary Fund now
recommends a cocktail of structural reforms and fiscal consolidation
that would make officials in Athens bristle.
"There is no
sympathy for Greece any more, especially because our own economy is
struggling," says Jan von Gerich, strategist at Nordea bank in Helsinki.
"If there was a refrerendum on a bail-out deal tomorrow, it would fail."
The tale of the Finnish economy proves competitiveness is not merely the plague of the southern Europe.
At the heart of the country's woes are stifling wages, which have risen
by 20pc, while those in the crisis-hit countries of the south have
slashed their labour costs.
Unemployment has shot up to nearly 9pc, while the country’s debt and
deficit levels will both fall foul of euro-area limits this year.
Much like its fellow northern counterparts, Finland has also fallen
into a demographic trap. It is now the fastest ageing country in the
world, topping Japan in the race to get old.
Weak productivity
and an ageing population, all trapped in the strictures of a monetary
union, make Finland a microcosm for much of Europe' future economic
woes, says Karl Whelan, a professor of Economics at University College
Dublin.
“The future for growth in Europe appears to be Finnish”
says Mr Whelan.
The euro has also robbed the economy of the freedom to devalue its
currency - the tried and tested instrument the Finns have used to
extricate themselves from the midsts of their deepest depressions.
The Finns were one of the first economies to follow Britain’s lead and
abandon the inter-war Gold Standard in 1931. They also moved to a free
floating exchange rate at the height of a banking crisis and deep
recession following the collapse of the Soviet Union in the early 90s.
In the aftermath of both episodes, the country was able to get back on
its feet through reflationary export-led booms.
Faced with
political and economic crisis in neighbouring giant Russia, the
country’s current and likely outgoing premier Alexander Stubb, has
bemoaned a “lost decade” under the monetary union.
Blocking another bail-out
The run-up to its last elections saw the unprecedented rise of the eurosceptic True Finns, who were ostracised from the coalition-making process for their fierce resistance to Greek aid.
This time round, the party - which has been re-branded as just The
Finns - has taken a more subdued approach. The party's charismatic
leader has refused to categorically state whether or not he would block a
new debt deal in a bid to make the Finns more palatable to any future
coalition partner.
Unprecedented among left-leaning parties in
Europe however, Finland's Social Democrats now lead the charge against a
third Greek bail-out.
But it is The Centre Party who are on
course to become the largest in the parliament. The race for second
place will be fought over by the Social Democrats and The Finns.
Whatever the outcome, the position of finance minister will be occupied
by the head of the junior coalition party.
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| The Centre Party's Juha Sipila is on course to become Finland's new Prime Minister |
And should Greece need a third bail-out this summer, as the parlous
state of its coffers suggests, then the Finns stand ready to throw sand
in the wheels of a fresh agreement, says Moritz Kraemer, chief rating’s
officer at Standard & Poor's.
“The Finns will have a very conservative line as before,” says Mr Kraemer.
“They want stringent conditions attached to any bail-out deal and could
be put the test very quickly when the new parliament gathers at the end
of the month. They might have something to vote on very soon.”
Any insistence on another preferential 2011-style deal from the Finns could cause another major political schism in Europe.
Unlike the first ad hoc rescue deals secured at the height of the
crisis, the eurozone now as a bail-out mechanism in place through its
European Stability Fund. Brussels will now be loathe to give the Finns
any kind preferential creditor status over the rest of the eurozone,
adds Mr Kraemer.
“It will be communicated to the Finns that they have to play by the rules,” says Mr Kraemer.
But the nature of the rescue mechanisms still gives disproportionate
veto power to individual member states, says Mr von Gerich.
"Even the European Stability Mechanism needs unanimity among all member
states unless there are really exceptional circumstances," he says.
The only saving grace for the prospect of another political crisis in the eurozone, is that Athens shows no signs of completing its existing bail-out, let alone agreeing a new deal.
"This is all for the day after tomorrow" says Mr Kraemer. "The task at
hand is still to get Greece through to June, before anything new can be
negotiated." -
Telegraph.
