GreekWatch special – deckchairs on the Titanic and the Greek cabinet: historic examples of useless reshuffles

There has been a major spike in activity on the Greek front today, meriting a special GreekWatch entry outside the now weekly roundup. Greek 10-year bond yields touched 18% this morning before finishing the day at a record closing of 17.75%

A relatively disappointing (by Greek standards) 20-50,000 protesters made a stand in the square in front of the Greek parliament building in Athens. It’s a disappointingly small protest given that there was a general strike today (one half of Greece’s 5m workforce is understood to be unionized) and detail of the new austerity measures have seeped out.  The square in front of the Greek parliament is called Syntagma (or “constitution” in English) Square and it has seen protests with over 50,000 participants during the past three weeks. Athensis two hours ahead of us, and the expectation is that the crowds will swell as people get off work, temperature is in the mid 20s and there is minor violence at present. For pictures of today’s protest see here.

But the major news today is on the domestic Greek political front. Their prime minister who leads the PASOK party which controls 160 of the 300 seats in the Greek parliament, has taken steps to improve the likelihood that an austerity and privatisation package will be adopted in parliament by the deadline of 29th June. Remember Greeceabsolutely needs the next €12bn tranche of IMF/EU bailout by 15th July 2011 to repay maturing debt, so no tranche draw-down will mean that Greece defaults, and worse, defaults in a very messy manner. The steps taken by the Greek PM today reportedly include an offer to his main Opposition party opponent to stand down in the interests of forming a national unity government – remember that concept in Ireland when we were in the unknown depths of the crisis, well that’s where Greeceis today, sadly. This evening, the Greek PM has made a televised address to the nation and announced a re-shuffle of his cabinet which will be detailed tomorrow (rumours that Greek finance minister, Giorgos Papaconstantinou is to be replaced), and he will seek a vote of confidence in his leadership (which he is likely to win). Meanwhile the main Greek opposition party continues to display belligerence towards both political co-operation and the plan. The betting on here still is thatGreece will approve an austerity and privatisation plan by the end of June 2011, though plainly there are major hurdles to overcome.

Outside of Greece the EU v ECB battle royal continues to rage, with the IMF on the sidelines scoffing popcorn just waiting to see whose opinion emerges on top. The EU (especiallyGermany) wants bondholders to extend the maturity of their bonds and want that to happen to reduce the second Greek bailout bill and possibly to establish a precedent forIrelandand other countries. The ECB doesn’t want bondholders to be forced into anything – “there shall be no element of compulsion whatsoever”, the ECB president Jean-Claude Trichet said last week. The reason for the ECB stance is that it wants to avoid credit rating agencies declaring a default event which would ripple out from Greece and potentially deplete the ECB’s capital base and generate damaging contagion across EuroZone banks.

Greece needs a second bailout and its estimated that it will need €120bn which from a German viewpoint would comprise €60bn of a contribution from the EU and potentially IMF, €30bn from additional privatisations in Greece and €30bn from bondholders who would agree to roll-over their maturing debt (eg a bondholder has a €100 bond paying 5% which matures in July 2011 would agree to be repaid in 2018 instead, though be compensated with a 7% interest rate).  The ECB hasn’t set out its position in detail, presumably it too would support a €120bn second bailout, but it would require a different composition which would exclude a contribution from bondholders who are unlikely to “purely voluntarily without any element of compulsion” agree to extending their debts.

CORRECTION: There is to be a EuroZone finance ministers meeting on Sunday next 19th June (brought forward from Monday) to discuss what now seems to be accepted as the EuroZone’s most serious crisis. That will be followed by an EU summit on 23-24th June where Enda Kenny will be batting for Ireland but I suppose we will be told again that – too bad, so sad – there is no time to discuss our pleadings. There will be the usual GreekWatch roundup at the weekend.

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