By Marcus Bensasson, Maria Petrakis and Natalie Weeks - Nov 7, 2011 4:15 PM GMT+0700
Nov. 7 (Bloomberg) -- Andrew Freris, senior investment strategist for Asia at BNP Paribas Wealth Management, talks about the outlook for Greek politics and the nation's debt problems, and his investment strategy. Freris speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Nov. 7 (Bloomberg) -- Yannis Tsamourgelis, assistant professor at the University of the Aegean, talks about Greece's government and debt problems. Greek Prime Minister George Papandreou agreed to step down to allow the creation of a national unity government that will secure international financing and avert a collapse of the country’s economy. Tsamourgelis speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Greek Prime Minister George Papandreou will meet the opposition leader today after agreeing to step down to allow a national unity government to secure outside financing and avert a collapse of the country’s economy.
Papandreou and Antonis Samaras, leader of the main opposition party, agreed to form a government to lead Greece “to elections immediately after the implementation of European Council decisions on October 26,” according to an e-mailed statement yesterday from the office of President Karolos Papoulias in Athens. Papandreou already stated he won’t lead the new government, the statement said.
“If we take it to mean that Greece is making efforts to ensure that they continue to receive funding support from the euro zone, then the move is positive,” Sacha Tihanyi, a Hong Kong-based currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia, said today of the decision. “However, it would be much better to see sustained political stability out of the country.”
Both sides will meet again today to decide who will be the head of the new government, with a separate meeting to discuss the time frame and the government’s mandate, the statement said. Papoulias will also host talks with all political party leaders today. Feb. 19 is the “most appropriate” date to hold new elections, according to a statement yesterday from the Finance Ministry.
International Aid
Trying to preserve international aid before the nation runs out of money next month, Papandreou raced over the past 48 hours to clinch an agreement with the main opposition party before markets open today, healing divisions to secure an aid agreement. Samaras, who previously demanded elections and balked at joining forces with Papandreou’s socialist Pasok party, said he was “determined to help” reach an agreement as long as the premier stepped down first.
Concern that Greece will default on its debt has driven yields on its 10-year note to 26.7 percent as of Nov. 4, about 25 percentage points more than benchmark German bunds, a euro- era record. The euro has fallen 1.5 percent in the past six months among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Currency Indexes.
Greek Yields Higher
Greek two-year notes reversed an advance, pushing the yield 314 basis points higher to 101.11 percent at 8:36 a.m. London time. The price of the securities slid to 31.5 percent of face value. The yield on the debt earlier dropped as much as 544 basis points to 92.54 percent. Greek benchmark 10-year bond yields fell four basis points to 26.73 percent.
The 17-nation euro erased early gains today and was down 0.5 percent to $1.3727 as of 10:11 a.m. in Athens as investor focus turned to Italy, as growing defections threaten to unravel Prime Minister Silvio Berlusconi’s majority before a key parliamentary vote tomorrow.
Greek Finance Minister Evangelos Venizelos has said he wants a unity government agreed on before euro-area finance ministers meet in Brussels later today. Lucas Papademos, former European Central Bank vice president, will head a Greek national unity government, To Vima newspaper reported, without citing anyone.
The premier’s capitulation caps a tumultuous 10 days that started with him securing a second bailout from the European Union, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote, a plan he then dropped. Bowing to pressure from his party and the opposition, Papandreou pledged to stand aside for a government with wider support.
‘Positive Development’
Dora Bakoyannis, a former foreign minister who counts on the support of another four lawmakers in parliament as part of her Democratic Alliance group, said the decision is a “positive development,” necessary for the country’s “survival” and that decisive action must now be taken to quickly form the new government.
The meeting of Greek political party leaders scheduled for today may be canceled after two parties refused to attend, Athens-based newspaper Ta Nea said, without saying how it got the information. The Communist Party of Greece and the Syriza party declined the invitation from Papoulias to join the talks.
“A Greek unity government will give markets confidence,” Spyros Economides, a senior lecturer at the London School of Economics, said in telephone interview.
Referendum Scrapped
Papandreou, 59, met with Papoulias as pressure mounted on him to step down after he was forced to cancel the referendum that might have led to Greece being ejected from the euro. The premier won a confidence motion early on Nov. 5 after pledging to disaffected members of his ruling Pasok party that he would not stay on.
Italy’s Berlusconi also faces mounting pressure to step down as 10-year borrowing costs for the euro region’s third- biggest economy approach the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. The premier has reiterated that he won’t resign.
“With Papandreou’s decision, the focus will perhaps shift to Italy, where Prime Minister Berlusconi is facing intense pressure, and may well follow Papandreou’s footsteps should tension increase further,” Thomas Costerg, an economist at Standard Chartered Bank, said in comments made before yesterday’s announcement.
Bailout Accord
Officials from the Greek ruling party and New Democracy met in Athens late yesterday to discuss details of the bailout accord agreed after an Oct. 26 European summit, before Venizelos attends the Brussels meeting, government spokesman Elias Mosialos told reporters.
The main goal of a unity government is securing approval for the Oct. 26 agreement with international lenders, Papandreou told reporters in Athens on Nov. 5. Last month’s accord “is a prerequisite for our remaining in the euro,” he said, referring to the second financing package of 130 billion euros ($179.7 billion) agreed by EU leaders on that date.
The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package. Disbursement of funds was halted after German Chancellor Angela Merkel and French President Nicolas Sarkozy opposed Papandreou’s call for a referendum.
Austerity Measures
Papandreou survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and the IMF agreed to provide 110 billion euros in May last year in return for cuts in government spending and public sector jobs.
His referendum plan triggered a suspension in assistance by EU leaders less than a week after they’d approved the second rescue package and agreed with banks to write down the value of Greek debt by 50 percent.
The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. France now pays 123 basis points more than Germany to borrow for 10 years.
The MSCI Asia Pacific Index lost 0.5 percent to 119.66 today after it fell 3.6 percent last week, the most since Sept. 23. Japan’s Nikkei 225 Stock Average fell 0.6 percent.
European stocks declined for the first week in six last week, with the Stoxx 600 Europe Index falling 3.7 percent compared with a 4.1 percent drop for the MSCI World Index.
To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net.
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
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