Euro falls as Greece rejects bailout talks with troika

Jeroen Dijsselbloem, (left) head of the euro zone finance ministers' group, addresses journalists as Greek Finance Minister Yanis Varoufakis looks on during a common press conference at the ministry in Athens on Jan 30, 2015. 

PHOTO: REUTERS

31 Jan7:29 AM              www.google.com/+EricAu118

[NEW YORK] The euro retreated against other major currencies Friday as struggling Greece refused to meet with its international creditors and rejected fresh loans, and the eurozone showed weaker inflation.

The finance minister of Greece's new anti-austerity government, Yanis Varoufakis, said that despite warnings Greece would shortly run out of money, his government preferred to do without the instant fresh cash, and instead renegotiate the entire bailout package.

"This government was elected on the basis of analytically questioning the very logic of the programme now being applied," he said, referring to the reforms and budget cuts demanded by Athens's international troika of creditors - the European Union, the European Central Bank and the International Monetary Fund.

"Our first act as government will not be to reject the logic of questioning this program by requesting to extend it," he added.

At a strained press conference with Eurogroup chief Jeroen Dijsselbloem, Varoufakis said Athens was willing to negotiate with its lenders but not with the troika auditors who he said were merely a "committee built on rotten foundations." Athens had been promised another 7.2 billion euros in funds from the troika if it completed reforms required by its lenders by February 28.

"Greece is clearly creating more headaches for the eurozone because if they do not allow the troika into the country, they may not receive the next aid disbursement that they desperately need to avoid default," said Kathy Lien of BK Asset Management.

Adding to the gloom over the eurozone was the latest official data showing consumer prices fell by a record 0.6 per cent in January, after a drop of 0.2 per cent in December, suggesting deflation could be taking hold in the 19-nation currency bloc.

The dollar, meanwhile, was little-changed after the Commerce Department reported the US economy grew at a 2.6 per cent annual pace in the fourth quarter, slower than the 3.2 per cent expected by economists.

"There were aspects of the report that should keep optimism around the US economy (at least relative to the rest of the world) elevated through early-2015," said Christopher Vecchio, currency analyst at DailyFX.

AFP

   

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Greece says will not cooperate with "troika" or seek aid extension

Greece's new leftist government opened talks on its bailout with European partners on Friday by flatly refusing to extend the programme or to cooperate with the international inspectors overseeing it. 

PHOTO: REUTERS

31 Jan6:57 AM       www.google.com/+EricAu118

[ATHENS] Greece's new leftist government opened talks on its bailout with European partners on Friday by flatly refusing to extend the programme or to cooperate with the international inspectors overseeing it.

Prime Minister Alexis Tsipras' government also sacked the heads of the state privatisation agency after halting a series of state asset sales.

The politically unpopular policy of privatisation to help cut debt is one of the conditions of Greece's 240-billion-euro bailout that has imposed years of harsh austerity on Greece.

Finance Minister Yanis Varoufakis met Jeroen Dijsselbloem, head of the euro zone finance ministers' group, for what both men described as "constructive" talks. But Greek media seized on signs of frosty body language between them and the hour-long meeting appeared to do nothing to bridge the gap between them.

The meeting marks the start of Athens' drive to persuade its creditors to ease the strict terms of the bailout. It precedes planned visits by Tsipras and Varoufakis to London, Paris and Rome next week.

Although neither France nor Italy has shown any sign of accepting the new Greek government's demand to write off part of its 320 billion-euro debt, they have both previously called for a change of course from German-style budget austerity.

Tsipras has repeatedly said he wants to keep Greece in the euro but he has also made clear he will not back away from election campaign pledges to roll back the terms of the bailout.

His government, winner of last Sunday's election, has raced ahead with a series of anti-bailout moves including reinstating thousands of public servants laid off by the previous government as well as cancelling privatisations.

But Germany, Europe's paymaster, is also digging in.

Finance Minister Wolfgang Schaeuble said Berlin was open for talks with the new government about its debt, but he also made clear that Athens had to do its part. "We need solidarity in Europe, and besides we cannot be blackmailed," Schaeuble said.

After a volatile week in which banking stocks fell by as much as 40 per cent, financial markets fell back after recouping some ground on Thursday. The main Athens stock market index was down 1.6 per cent. Greek 10-year yields were down 22 basis points at 10.37 per cent but still well above levels seen before Sunday's election.

Varoufakis said Greece had no intention of cooperating with a mission from the lending "troika" of the European Union, European Central Bank and International Monetary Fund, which had been due to return to Athens. He said Greece would not seek an extension to a Feb 28 deadline with euro zone lenders. "This platform enabled us to win the confidence of the Greek people," he told reporters after meeting Dijsselbloem. "Our first action as a government will not be to reject the rationale of questioning this programme through a request to extend it." He gave no indication of what Greece would do if it cannot reach an agreement by the deadline. The centre-right New Democracy party, which lost power in Sunday's election, said the new government "does not understand what it is about to do." Without the EU/IMF bailout programme, Greece's banks would lose their access to ECB funding.

Dijsselbloem said a decision on the bailout deadline would be reached before the end of February but he rejected Greece's push for a special conference on debt, saying such a forum already existed in the shape of the Eurogroup of euro zone finance ministers.

Athens is waiting on a final bailout tranche of 7.2 billion euros (US$8.13 billion) and has been shut out of international bond markets. It faces around 10 billion euros in debt repayments this summer.

Like Germany, France has rejected suggestions that part of the Greek debt could be written off, but Paris has been more open to the possibility of offering other forms of relief such as pushing back debt maturity or cutting interest rates.

Varoufakis said he had assured Dijsselbloem that Athens planned to implement reforms to make the economy more competitive and stick to balanced budgets, but it would not accept a "self-fed crisis" of deflation and non-viable debt.

In turn, Dijsselbloem said he had told the new government to respect the terms of the existing agreement between Greece and the euro zone and warned against taking unilateral steps, saying it was important not to reverse progress made so far.

He said euro zone partners were ready to continue supporting Athens until it can begin borrowing on the markets again"provided that Greece fully complies with the requirements and objectives of the programme".

Earlier on Friday Energy Minister Panagiotis Lafazanis said the government was examining its options on a Canadian-run gold mine, one of the biggest foreign investment projects in Greece.

Privatisation had been meant to raise billions for Greece's depleted state coffers but proceeds have been disappointing so far, amounting to no more than around 3 billion euros, a fraction of an initially targeted 22 billion euros.

REUTERS

Singapore, Switzerland and the risk of currency war - BY WILLIAM PESEK

WILLIAM PESEK

Singapore, Switzerland and the risk of currency war

PUBLISHED ON JAN 31, 2015 6:10 AM

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       www.google.com/+EricAu118 

Thirteen days after the Swiss National Bank let the franc soar, the Monetary Authority of Singapore unexpectedly eased policy and allowed the Singapore dollar to weaken. People in Geneva queuing up to exchange their currency after their central bank ended the cap on the franc. -- PHOTO: BLOOMBERG

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BY WILLIAM PESEK

In September, the world will commemorate the 30th anniversary of the Plaza Accord. That agreement to weaken the US dollar and boost the yen still stands as a landmark of economic cooperation - something that's sadly lacking in our chaotic and deflationary times.

This week's move by Singapore's central bank shows why it may be time for another round of currency talks. Thirteen days after the Swiss National Bank let the franc soar, the Monetary Authority of Singapore unexpectedly eased policy and allowed the Singapore dollar to weaken. The unilateral moves disrupted markets around the world, adding to the general climate of volatility.

While the two banks' moves may seem divergent, they are battling the same problem: fallout from too much liquidity zooming around the globe.

Thus far, the debate surrounding quantitative easing (QE) has focused on the risks to big economies - the United States, Japan and the euro zone. But actions by "the major advanced-economy central banks portend high levels of capital flow and currency volatility in global financial markets", says Cornell University's Professor Eswar Prasad, author of The Dollar Trap. "Emerging markets and small economies with open capital accounts, such as Singapore and Switzerland, are likely to feel whiplash effects from this volatility."

In the last year alone, about US$14 billion (S$19 billion) of overseas hot money poured into equity markets in Indonesia, Thailand and the Philippines. Taiwan's equity bourses have seen over US$5 billion of foreign buying. These flows could easily reverse as soon as the Federal Reserve begins hiking interest rates or Greece's troubles push the euro back into crisis.

That's making it devilishly hard for smaller nations to manage risks to their economies - and driving them to act before competitors do. The fact that highly conservative Singapore felt compelled to surprise the market is a sign of how worried officials there must be.

The problem is that as more and more nations slash rates in an attempt to keep their export-focused economies competitive, returns are diminishing. Eventually, nations trying to out-stimulate each other are, in central banker parlance, pushing on a string. QE programmes are already generating more financial-market side effects - including excessive volatility, bubbles and impossibly low bond yields - than actual growth.

This should worry the big economies as well. At a lunch in October 1998, the late Karl Otto Poehl, who as head of Germany's Bundesbank in 1985 was one of the Plaza Accord principals, offered a useful analogy involving wine grapes. Vineyards often surround vines with rose bushes, he explained, as an early-warning system. Since rose bushes are vulnerable to disease, wine makers know their grapes are in trouble long before disaster strikes. Small, open economies like Singapore and Switzerland serve a similar role for the global economy.

Asking countries to work together to head off a potential currency war will be a tough sell. Still, the need for greater coordination should be obvious. Central bankers could calm volatility by addressing deep fissures over exchange rates, budget- and current-account deficits and other imbalances. Signs of cooperativeness - and in particular a united approach to fighting deflation - would cheer global markets. Perhaps policymakers might even gin up out-of-the-box ideas, such as pegging the yen to the US dollar to battle deflation, or establishing a regional exchange-rate system in South-east Asia.

"Some sort of international coordination may be preferable at this point to a growing wave of competitive devaluations," says Professor Russell Green of Rice University's Baker Institute (named after Mr James Baker, who was US Treasury secretary at the time of the Plaza Accord).

In particular, Prof Green suggests, the International Monetary Fund "needs to step forward and establish some ground rules. Checking exchange rate competition is one of its major mandates, so it needs to provide the intellectual leadership that others can coalesce around".

Perhaps as a unit, the gathered central bankers could even shame governments into repairing economies. "The problem remains that central banks are being asked to do most of the heavy lifting in terms of propping up growth and prices, and monetary policy invariably has spillovers across national borders," says Prof Prasad. "What I wish for is a better mix of policies in major economies, with less reliance on monetary policy."

BLOOMBERG