In a vote along party lines, the German parliament approved the E22.4 billion Greek aid bill as part of the joint EU-IMF rescue of Greece. According to Germany’s DPA, Chancellor Angela Merkel‘s centre-right coalition, with the support of the Green party, carried the vote, which passed with 390 votes in favor, 72 against and 139 abstentions from the opposition party of Social Democrats. Clearly, the opposition is making a play for the state vote in North Rhine Westphalia on Sunday and tapping into German voter’s anger over paying for Greek fiscal misdeeds.
Also, German banks and insurers have pledged to contribute 8 billion euros (10 billion dollars) to the Greek rescue package, a finance ministry spokesman said on Friday. “The voluntary contribution takes the form of existing loans and investments in Greece that German financial institutions have promised to maintain.” This is a quasi debt restructuring for Greece from Germany as it provides additional capital to Greece that German banks (who already own the debt) will likely not get back.
Also, the G7 today are going to have a conference call to discuss the Greek debt situation. Apparently, they believe it’s important enough to perhaps organize a global response and provide some kind of backup liquidity. I wonder if anyone is going to call the ECB?
Today, the FT carries a story about how the European Central Bank is acting in the proper fashion by not acting or reacting to the markets. “Siren voices have suggested that the European Central Bank should employ that tactic to alleviate the debt crisis. They are wrong. So it is heartening that Jean-Claude Trichet, president of the monetary authority, has said that it was not discussed this week by the ECB governing council.” As one of those Sirens, I would say that the ECB’s intransigence helped create the conditions for yesterday’s 1000 point drop in the Dow.
Next up, the Euro Zone summit on European debt is happening later today and will discuss next steps. On CNBC last night, Larry Kudlow made the point that the economic news out of Europe has been improving significantly. Supporting this view over the last couple of days, we had German industrial production at +4.0%, EC PMI services 57.3, Spain +6.8% (yoy), and Spain stepped out of recession by announcing today a +0.1% increase in Q1 GDP. Perhaps, this is what the ECB is considering when they sit on their hands.
However, the salient point is that this crisis can cause a disruption in this growth trend if nothing is done to arrest it.
Andrew B. BuschDirector,