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New Europe Print Edition Issue 972

New Europe Print Edition Issue 972

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Published by: New Europe Newspaper on Feb 05, 2012
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South Stream south-westward route delayed|Page 13
19thYear of Publication | Number 972| 5 - 11 February, 2012 | € 3.50
EU Policy 
Eurozone prepares foroverall solution | Page 3Audi opens its doorsin heart of Europe | Page 9Necas claims ‘NO’ to EU willnot affect nation | Page 21Schultz wants Serbia in the EU | Page 26
Obama reiterates support forGeorgia’s NATO accession | Page 10Crisis creates conditionsfor former USSR integration | Page 11Putin calls for facilitating business,outlines obstacles | Page 11 Yerevan to launch freetrade, visa talks with EU | Page 31
Energy & Climate
US, EU support tough pressureon Iran but China disagrees | Page 12Oil output from Russia hitsrecord high in January | Page 13
Country news
France cuts 2012 growth forecast | Page 18Spanair collapse leaves AdriaAirways Tehnika reeling | Page 19Check-in system fault groundsFinnair planes | Page 22Greece cuts solar subsidiesby 12.5% | Page 24Oldest Swiss bank sold amidUS tax dispute | Page 25
Editorial & Opinion
A Brussels agreement that fell short by €15bn | Page 2Austerity versus Europe | Page 4Nobody can afford aEurozone collapse | Page 4Duelling with China – the subtextof Obama’s wars | Page 6
 The standoff between the Greek governmentand the country’s citizen’s over continuingausterity measures looks set to reach a headnext week, as the troika looks to finally imposea new financial deal on Athens. The gap between the government, underpressure to carry out the demands of the troi-ka, and the citizens, who are feeling the pinchof the financial cutbacks, appears to be widen-ing each day.It is now questionable whether or not a deal will be reached on 6 February, the date set forsuch a deal to be concluded, as angry citizenscontinue to voice their disapproval of the poli-cies of the government and the internationalinstitutions. The leaders of the three major political par-ties in the Greek Parliament who back thePapademos government, are said to havesigned a document, reassuring the country'screditors that they do support now, and willcontinue to back after the next elections, when-ever they are held, the needed, but unpopularmeasures, to cut down public deficits, increasethe county's competitiveness by deregulatingthe labour market, reduce the work force in thepublic sector even with straight lay-offs andreshuffle the pension system. This document contains the basic ele-ments of the new Memorandum Of Understanding (MoU) to accompany thesecond soft loan package to Greece of €130bn. The document is addressed to theEuropean Union, the European CentralBank and the International Monetary Fund, who constitute the troika of official audi-tors/creditors and cover Greece's financialneeds as from May 2010, after the first softloan package to Greece of €110 billion wasagreed in April of that year.However towards June 2011 it becameclear that Athens could not apply the severeausterity terms of this first pact, partly because the country entered a vicious cycleof recession and more austerity measures. Toprevent a disorderly bankruptcy of Greecethe troika put together a second package of soft loans to Greece of €130 billion, whichgot the green light by the EU Summit of 28October and is to be realised in tandem witha Private Sector Involvement (PSI) deal, toalleviate Greece's sovereign debt and cutdown the value of the privately held bondsby 50% (haircut).Probably later on this week, a special meet-ing of the Eurogroup, (the 17 Eurozone min-isters of Finance council), is to examine andapprove the PSI agreement and the new MoUfor Greece, and then release the second loanpackage. Athens has to repay a huge bondmaturing on 20 March of €14.4 billion. Without the PSI and the EU-ECB-IMF package, Greece will fail to make this pay-ment, instantly going bankrupt and thusreleasing a contagion effect wave to hit firstPortugal and then Spain and Italy.
Despite the best efforts of government, unrest could erupt at any time
·Page 3
Beware of the Greeks
Protesters hold a banner reading "Troika Get Out of Greece" during a peaceful demonstration outside the Athens Hilton Hotel on 25 January, following talks between Greek labour andemployers over government-proposed private sector wage cuts. |
It is difficult to avoid thinking that behindthe furious speculative attack to the euroand the systematic downgrade of sover-eign debts of Eurozone countries therehas been no guidance
·Page 5
Confidently ChicPage 15
Chinese Prime Minister Wen Jiabao hasannounced that Beijing is “considering”contributing to European rescue funds,during the visit of German ChancellorAngela Merkel
·Page 7
Violence has broken out in South Sudanand New Europe talks to Hilde Johnson,the UN representative in Juba about anew 'mystery' army's assault on civillians
·Page 10
Gergana Pavlova, deputy minister of healthof Bulgaria in the Boyko Borishov govt, hasbeen able to pass a tailor-made law for phar-maceuticals that by pure coincidence...most- ly benefit her former employer
·Page 32
Page 2 | New Europe
5 - 11 February, 2012
 The man who can smile when things go wrong has thought of someone else he can blame it on. - Robert Bloch |
 The new sovereign states which appeared after the fall of the USSR around the Caspian Sea, still probably a lake, fell under therule of oligarchies, with democratic institutions like real political parties competing for citizens' votes and free and fair electionsremaining out of question. Most of the ex Communist leaders of the regional Soviets became presidents or prime ministers of the new countries, with their entourage always running the place. The obvious target of all those apparatchiks, now independentfrom Moscow's iron hand, was to personally benefit from the immense underground wealth of this land locked region. Oil how-ever had to reach the real sea if it was to be sold. This was not an easy task. Alliances were formed or broken according to who was offering more to the rulers. Not much has change there still to this day.
 A Brussels agreement that fell short by €15bn
 The latest chapter of the Athenian tragedy of the past two years was written in Berlin and Greek Prime MinisterLoukas Papademos heard it recited in Brussels on 30 January in the extraordinary Summit of the 27 EU leaders.Actually, the Berlin government was last week the author of a new ‘non-paper’, which was leaked to the local press and was advocating the appointment of a European budget com-missioner in Athens, who will ensure that Greek state rev-enues will be used firstly to service the country's debts.In this way, the Greek government will completely lose its sov-ereignty and the last fig leaf will be dropped and the Greek gov-ernment and parliament would appear as subordinates to a sec-ond-class ‘Euro-bureaucrat’. This is not a financial arrange-ment but rather a blow to Greece's national dignity.Papademos couldn't accept this (nor could any other Athensgovernment) and remain in office for 24 hours. In any case,Greece seems to have struck an agreement with the banks -the major European banks have accepted to lose as much asalmost 70% of the nominal value on their Greek bond hold-ings on the basis of their present value. This is the famousPrivate Sector Involvement (PSI) agreement, to alleviate theGreek debt, involving the Greek bond holdings of the majorEurozone banks and more so the lenders in this country.According to a decision taken by the 27 EU leaders duringtheir Summit of 28 October 2011, there is going to be a ‘hair-cut’ of 50% off the nominal values of these bonds, but the low interest rate and the longer maturities of the new bonds willresult in final losses of up to 70%. Along those lines the banks will accept to exchange the Greek bonds they hold now fornew ones of a value of 35% plus 15% in cash. Given howev-er that the new bonds will of longer maturities (up to thirty  years) and lower interest rates (around 3.5%) the banks esti-mate, on a present value basis, that they are to lose 70% of their wealth.And this still may not be enough to reduce the overall sover-eign debt of this country to the manageable level of 120% of GNP by the year 2020, after the PSI exercise to attempt toalleviate the Greek debt has been concluded. At least, this what the IMF is setting as a prerequisite to continue with itsparticipation in the Greek affair.In short, the anticipated realisation of the PSI is expected toleave a gap of around €15 billion in the flow of Greek debtover the next three to four years. This has to be covered by thecountry's proper means or what is left of them, the EuropeanUnion with an increased participation by the German gov-ernment, or by the European Central Bank (ECB), whichcould participate in PSI.As things stand now, Berlin seems to be excluding any solu-tion apart from an improvement in Greece's own efforts. Theproblem, however, is that the country has now entered itsfifth year of recession and the tax-paying abilities of Greek people is already in declining. On top of this Berlin insiststhat a European commissioner is appointed in Athens to seethat Greece pays its dues.Papademos however told his EU peers that neither he norany other Greek prime minister can accept a German'gauleiter' in Athens, and he also informed the other 26 lead-ers that his country is unable to find a further €15bn fromGreek taxpayers. Of course, the 26 told him that they cannotpay more for the 'Greek package' above the level of €130bnas agreed in the EU Summit of 28 October – welcome to thenew Greek stalemate.
Cillian Donnellycdonnelly@neurope.eu
Kostis Geropoulos (Energy & Russian Affairs)kgeropoulos@neurope.eu Andy Carling (EU Affairs)acarling@neurope.euJames Drew (On Line) jdrew@neurope.euIvan Delibasic (EU Affairs)idelibasic@neurope.eu Ariti Alamanou (Legal Affairs)aalamanou@neurope.euStratis Camatsos (EU Affairs)scamatsos@neurope.euLouise Kissa (Fashion)lkissa@neurope.eu Alexandra Coronakis (Columnist)acoronaki@neurope.eu
 Alexandros Koronakisakoronakis@neurope.eu
Panos Katsampanispkatsampanis@neurope.eu
Suman Haquesuman@neurope.eu
subscriptions@neurope.euSubscriptions are available worldwide
New Europe is a privately owned independentpublication, and is not subsidised or financed inany way by any EU institution or other entity.
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Signed Contributions express solely theviews of the writers and do not necessarily reflect the opinion of thenewspaper.
NE is printed on recycled paper.
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© 2012 
New Europe
all rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic or otherwise, without the permission of New Europe.
ISSN number: 1106-8299
New Europe |Page 3
5 - 11 February, 2012
 With reassuring signs from Italy and Spainthat the two countries are on a sound fi-nancial track, applying effective policies onboth state deficits and banks' recapitalisa-tion, Greece remains the black spot, giventhat Ireland has already entered a ‘virtuouscircle’ that is solidly based on trade sur-pluses, while Portugal's problems are con-sidered negligible.On top of this, the Eurozone looks likely to be protected by a strong firewall to con-tain the present crisis and potential futureproblems, which is being gradually built by its own means plus support from the rest of the world, through the International Mon-etary Fund. Interest rate fall on Eurozonedebt and the rise of stock markets stand as witnesses to all that.As a result the Eurozone, as one financialentity, appears to be almost established on a virtuous path, more so now that Athens saysit has struck a final agreement with its pri- vate creditors (Private Sector Involvement(PSI)) to alleviate the country's debts andthe Papademos government is ready to signa new deal with the EU-ECB-IMF troikato unblock the second soft-loan package of €130 billion for the country.
Much more than €1 trillion
As was published in New Europe on 31 January:
“The 25 EU leaders also decided(on 30 January) that the European Stability Mechanism (ESM) will be activated on 1 July 2012, one year earlier than was initially planned. The total firepower of the ESM, which is to replace the present EuropeanFinancial Stability Facility (EFSF) will bearound €500bn...Most probably, the ESM's firepower will be increased by €250bn in the form of guar-antees, available at present through thenow-operational European Financial Sta-bility Facility...In addition, the surplus Eurozone coun-tries have already started to deposit their increased participation with the Interna-tional Monetary Fund – these new fundsare expected to top up the IMF's firepower by €200bn, to be used only to support Eu-rozone countries in distress.In this way, almost €1 trillion will beavailable in total...”
In addition, there is information suggest-ing that other (non-EU) countries are ready to deposit billions in the special IMF ac-count, which will be used exclusively to sup-port Eurozone countries in distress. Thereason is that emerging economic powerssuch as China, Russia and Brazil have a very strong interest in the Eurozone’s financiallong-term stability, because the 17-countrzone constitutes their major source of growth as their best customer. The same is true for large developedeconomies such as the US and Japan. Atthis point, it should be noted that theAmerican central bank, the Fed, has already created a line of almost unlimited dollarcredits for Eurozone banks at almost zerointerest rates, while China, Japan, Russiaand Brazil have expressed keen interest inparticipating in the IMF special account insupport of the Eurozone. There is also further information that theIMF using all its firepower will create an ac-count aimed at supporting the Eurozone with at least €200bn. As a result, the Euro-zone's own resources plus the support fromnon-Europeans through the IMF will addup to at least €1.2 trillion, thus creating ahuge financial arsenal in support of the 17members. In this way, the uncertainty aboutthe Eurozone's fate will definitively be re-moved. But what about Greece?
 The Greek ‘bottomless jar’
Sources close to the Athens governmentsay that Papademos had a difficult time inBrussels during this week's EU Summit. He was told by his EU peers that Greece has toconclude both pending deals within this week, namely the PSI agreement with thecountry's creditors and secondly the troikadeal the second soft-loan package forGreece.As to the first issue, Greece seems to havenow concluded a final agreement with itsbanks - the major European banks have ac-cepted that they will lose as much as almost70% of the nominal value on their Greek bond holdings on the basis of present valueestimate – there will be a ‘haircut’ of 50%off the nominal values of these bonds, butthe low interest rate and the longer maturi-ties of the new bonds will result in finallosses of up to 70%. The banks will receive35% in new bonds plus 15% in cash. This may still not be enough to reducethe overall sovereign debt to the desiredmanageable level of 120% of GNP by the year 2020, after the PSI agreement to alle- viate Greek debt is concluded. According toinformation from Athens, this leaves a gapof €15 billion that must be financed eitherby Greece herself, a rather unlikely prospect,or by her peers in the Eurozone or by theEuropean Central Bank (ECB). The mostprobable option is this last, involving theECB.Athens, however, is not allowed to agreeto PSI without having accepted the troika’sterms over the second loan package of atleast €130bn to support the country for aslong as is needed for Greece to be able toself-finance her debts, hopefully by 2015. The difficult part of this agreement is thatthe troika demands deep deregulation of theGreek labour market along with a reshuffleof the entire public sector's wages system. The main friction points are the lowest legalremuneration and the traditional 13th and14th salaries in the private sector. The troikais demanding that the lowest salaries besteeply reduced and the two extra yearly salaries abolished in order to restore thecountry's competitiveness.It should be remembered that the 13thand 14th salaries have already been abol-ished in the state sector and pensions sys-tem. The problem is that the Papademosgovernment is supported by the three majorparties of the Greek parliament, with di- verging opinions on this issue and the primeminister has to conduct negotiations inter-nally, with the leaders of these three parties,and externally with the troika.In any case, the whole Greek packagemust be decided upon by 6 February whenthe Eurogroup, comprising the 17 Euro-zone finance ministers will meet in Brussels. The ministers are expected to decide onboth Greek agreements on PSI and thetroika’s terms for the release of the secondsoft-loan package.
A woman walks by a poster showing a euro coin at a bank branch in Athens, Greece. A financial deal for the country is due to be reached when Eurozone governments meet on 6 February. |
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Eurozone prepares for overall solution

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