The Euro’s Small Sickness Spots
Cyprus after weeks of speculation formally requested EU help to recapitalize its 3 main banks devastated by Greece’s 75 percent sovereign debt write-down and corporate cratering as the government’s communist president continued soliciting Russia for balance of payments support. The bailout total will likely exceed EUR 10 billion as long-term bond yields passed 15 percent on further ratings downgrades. Agencies calculate near-term debt/GDP above 100 percent as funds may soon be exhausted to pay civil servants. Direct intervention from the EFSF-ESM without a full adjustment program was asked as in Spain’s case, but Brussels has expressed longtime reservations with the island’s low tax and offshore depositor secrecy practices. Almost 40 years after the split negotiations with Turkey also remain stymied, with issues such as joint air and port access and division of new natural gas finds yet to be resolved. With the natural resource discovery officials have tried to interest the Chinese in access for loan deals thus far unsuccessfully. The stock exchange stayed at the bottom of Europe’s performance ranks on the application, with tiny Slovenia another recent euro adopter also languishing on talk its turn is next. There a major bank in part owned by a teetering Belgian group failed a previous stress test and must be strengthened to maintain ECB ties. The just-elected administration intends to use savings from pension cutbacks to reinforce the balance sheet, but public outcry over tampering with traditional social welfare provisions contributes to growing debt. It is below the accepted danger zone but moving toward 50 percent of GDP as the leadership denies any immediate outside rescue need either though bilateral or multilateral auspices. An approach in any event could be complicated by testy international donor relations with ex-Yugoslavia neighbor Serbia, where an ally of the former dictator and war criminal Milosevic won office as the IMF arrangement was derailed on fiscal policy lapses.
Greece meanwhile after another poll resulting in a conservative party-led coalition is attempting to normalize the relationship with the Troika, and in a first step named a Finance Minister who headed a think tank consulted by the monitors. Before talks were postponed Athens had agreed to find EUR 10 billion in additional budget scope to justify the next tranche’s release. Election victor Samaras had campaigned on achieving easier terms as annual output again plummets 5 percent but his platform for years has featured broad privatization which will not even hit the current modest EUR 3 billion target. The agency chief resigned after citing regular political meddling, as state dominated telecoms concern OTE prepared to sell assets abroad. MSCI took further steps to demote the bourse to emerging markets class in a lengthy review process that could go into 2014 on a designated downward trajectory.
