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by Euro Reporter
2011-08-30 07:42:27
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When Will Greece Say 'Enough Is Enough'?

EU leaders yesterday rounded on the new Head of the IMF calling her comments on Europe 'misguided'. Christine Lagarde's assessment is certainly stark. The former French Finance Minister argues economies are now in a 'new dangerous' phase' that requires Europe's banks be forced to recapitalize in order to cut the 'chain of contagion'. Even as hurricane Irene bore down on the East Coast of the United States, President Obama found time to call Angela Merkel yesterday to exert pressure for action from European politicians to stem the market turbulence. On Wall Street there will be bitter disappointment that Jean-Claude Trichet did not offer more from the ECB at Jackson Hole. Trichet will meet EU officials and appear before the European Parliament Monday. But an article in the UK's Sunday Times suggesting that certain types of new debt issued by Europe's banks might be guaranteed centrally seems just speculation at this stage.

In Greece local TV stations report that before Europe's open tomorrow Alpha and Eurobank will announce that they're merging to shore each other up. But investors will be more worried that the second EU bailout for Greece - worth $158 billion - may be yet deadlocked. Contributing loans from the Euro Zone's other 16 states are held-up by a row over what collateral Greece should post in return.  A deal struck by the Finns under which the Greeks would deposit the equivalent of $870m in an escrow in return for their $2 billion loan triggered uproar from big donors like Germany and the IMF - because it is essentially their cash. A suggestion that instead of cash the Greeks offer everyone physical assets as collateral, in the form of real estate or nationalized assets (many already earmarked for privatization), failed to generate agreement Friday. But it's Germany's bigger condition attached to the $158 billion bailout that may now prove a bigger stumbling block; the demand that private sector investors share the pain of Euro Zone governments by taking a 'voluntary' 21 percent haircut now through debt swaps.

Organizers say only 60 – 70 percent of investors are expressing an interest. That may be because the terms of the schemes are still vague and the official deadline is still weeks away. But with the near continuous drum beat of comments from German academics that only a 50 percent haircut will steady Greece, it may also be that investors increasingly fear the Greeks can not keep going as they are, leaving the banks to simply start writing down their exposure. It's notable that the Greeks are now saying that they will only work with a 90 percent take-up rate on the debt swap. With brutal austerity taking its toll recession continues to grip the Greek economy. This year its finance minister now predicts another 5.3 percent of his economy could be destroyed.  A smaller economic base is a major reason why Greece is struggling to meet its EU/IMF deficit to GDP targets. Officials are promising 'tough negotiations' when they arrive in Athens tomorrow - with presumably more spending cuts and more tax rises. Increasingly I hear people ask at what point Greek politicians say enough is enough, particularly if they are asked to persuade voters to accept the ultimate indignation is worth it; posting their ancient cultural heritage as collateral for a bailout primarily aimed at preventing foreign banks from having to write their debt down.


Greece's Alpha Bank, Eurobank agree tie-up

Two of Greece's largest lenders, Alpha Bank SA (ALPHA.AT) and EFG Eurobank Ergasias SA (EUROB.AT), Monday announced plans for an estimated EUR7 billion tie-up that would create the country's largest bank, in a bid to address mounting problems in the Greek banking sector. "I am confident that the new combined entity will act as an important agent for the economic development of the country," Eurobank Chairman Efthymios Christodoulou said. "It is also well placed not only to withstand the current economic turbulence, but to create new opportunities and play a pivotal role in the future growth of the region."

According to a joint statement, the combined entity would be among the top 25 largest banking groups in the euro zone with pro forma total assets of EUR146 billion, and 2010 pre-provision income of EUR2.6 billion, also on a pro forma basis. Under the terms of the deal, Eurobank shareholders will receive five new Alpha Bank ordinary shares for every seven of their own shares. The proposed exchange ratio will result in a pro forma ownership split of the new group of 57.5% by existing Alpha Bank shareholders and 42.5% by existing Eurobank EFG shareholders. According to analysts, Eurobank will be paying a 27.5% premium for Alpha Bank shares, although technically Alpha will be absorbing Eurobank under Greek merger law.

"This sounds fair for shareholders of both banks, in our view," says Alexander Kyrtsis, a senior banks analyst at UBS, adding that the merger is likely to force other Greek lenders to follow. Management control of the bank will be split. Current Alpha Chairman Yannis Costopoulos will become chairman of the merged bank, while the two banks' current chief executives, Demetrios Mantzounis and Nicholas Nanopoulos, will remain as co-CEOs. The banks said they would proceed with a series of measures to boost capital at the combined entity. These include a EUR1.25 billion rights issue, which is expected to take place early next year, and a EUR500 million convertible bond issue. That convertible bond issue will be fully subscribed by a Qatari investment fund--Paramount Services Holding Ltd--which already controls roughly a 4% stake in Alpha Bank. After the bonds are converted, Qatar will control about 17% of the merged entity, making it the biggest shareholder in the bank, according to analysts. Another EUR2.1 billion would come from what the banks described as "equivalent internal measures," while also estimating synergies of about EUR650 million a year after three years.


Greek rescue creditors in Athens to review cuts

Representatives of Greece's international creditors are in Athens to review the debt-crippled country's austerity program before deciding whether to release a new batch of rescue loans. Officials from the European Union, the European Central Bank and the International Monetary Fund are meeting labour ministry officials, a ministry statement says. They will hold talks at the finance ministry later Monday.

Greece is in the throes of a major financial crisis, and is being kept solvent by two successive international bailouts worth a total euro219 billion ($315.4 billion). In return, the Socialist government took harsh austerity measures, whose progress is linked with continued release of the vital rescue funds. The next instalment, due next month, is worth euro8 billion.

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Emanuel Paparella2011-08-30 08:42:45
Indeed, the center definitely does not seem to be holding in the EU presently. Should we be considering the idea that for any center to hold, there must be a genuine union underpinned by a true cultural identity, to begin with? Just a thought.

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