Belmont Club

The Siege of Athens

It was Merkel who put it to Papandreou: “Does Greece want to remain part of the euro zone or not. That is the question the Greek people must now answer.”  And to make sure Athens got the message,  “French President Nicolas Sarkozy and German Chancellor Angela Merkel say Greece will receive no more European bailout aid until it fulfills its commitments to the eurozone.”

The Dutch Prime Minister earlier expressed the hope that the question would not have to be put to Greek voters in the first place, saving everyone the possibility of embarrassment. Mark Rutte told parliament “it is very important to convince the Greeks that this referendum can’t go ahead and if it goes ahead that it should be organized quickly.” That could happen if Papandreou is toppled or cannot muster enough votes to proceed with a referendum.

China, which Europe hoped would ride to its rescue like a Red Knight is taking a closer look at everything now that the Greeks have laid bare the hollowness of the EU position. “Cash-rich China, which is being courted by Europe to contribute to the bailout plan, is deeply wary of the euro sovereign debt crisis.”

The Chinese government, with $3.2 trillion foreign exchange reserves — about a quarter of which are estimated to be held in euro-denominated assets — has yet to make clear public commitments to aid the EU, its largest trade partner, although it has repeatedly made general expressions of confidence in Europe. Chinese President Hu Jintao, who is visiting Europe now, said he believes that Europe can overcome its problems on its own.

That could translate to “Hu cares” or “Yu go it alone”, not exactly the reassuring message Brussels wanted to hear. The Wall Street Journal says that Vice Finance Minister Zhu Guangyao says China cannot commit to investing in an expanded EFSF mechanism until further details are made clear and that while the Greek referendum plan was unexpected it was a matter for Greece to decide”.

If this were a movie that would signal a drum roll and suspense.

In the meantime everyone is counting their pennies to see if they can make it to the next payday. Italy, after being driven to the brink on the bond markets is now exuding the confidence of a man whose only hope is that the cavalry will suddenly appear on the horizon to save it from financial annihilation. Silvio “Bunga-bunga” Berlusconi is plumb out patches to plug the holes in Italy’s leaky financial ship.

Silvio Berlusconi failed on Wednesday night to overcome internal government divisions and push through immediate legislation on structural reforms ahead of Thursday’s summit of the Group of 20 leading economies.

Italy’s prime minister had hoped to have a decree agreed by the cabinet in his hands to take to Cannes and to calm markets that have pushed Italian bond yields close to euro-era highs. But government sources said disagreements between Giulio Tremonti, the finance minister, who is insisting on fiscal discipline, and Mr Berlusconi, who was backed by other ministers, prevented a deal from being reached. …

The outcome, after a day of hectic government negotiations, is likely to unnerve markets, which had given Italy a slight reprieve on Wednesday, with yields on its 10-year bonds easing to about 6.1 per cent after spiking on Tuesday.

The sense of internal disarray will also add to pressure on Mr Berlusconi to resign and make way for an interim government of national unity rather than struggle on with his slim and dwindling parliamentary majority.

That means the Bunga-bunga man might be driven from office sooner than Papandreou. That would sound melodramatic, but it is a real possibility.  The Italian head of state mused openly about whether Berlusconi still had enough support to govern. Earlier, Berlusconi had promised his European partners that he would throw anything and everything overboard in an effort to keep Italy afloat.

Measures promised by Mr Berlusconi to his European partners last week include sales of state assets, liberalisation of the labour market, forced redundancies for civil servants, an increase in the pension age by 2026 and tax incentives to get more women and young people into jobs.

And now Berlusconi himself may have to go over the side.  Meanwhile there was hope that Greece would break. Exact German calculations showed that Athens might scrape along until mid-December, with economies, after which Athens would be down to their last cup of water as the EU siege train closed in.

“From all that we hear out of Greece, there is no acute payment need until around mid-December,” Martin Kotthaus told a regular government press conference. That gives time “to take a concrete look as to how we’re proceeding.”

Greece however, was making a brave show of being able to hold out. The BBC reported that “The latest bailout money was originally agreed for release in the middle of November.  The Greek government has previously stated that it would run out of cash before then to fund its spending, but Mr Papandreou played down this risk.”

The European drama is racing to a thundering but uncertain climax. It is hard to guess who will drop dead first: the Greeks, Italy or the EUcrats. China may take the view that Europe is merely getting its just deserts. After all, if the Zhu fits, then Brussels should wear it.

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