APNewsBreak: Banks nowhere near deal on Greece

The head of an international banking lobby that has been leading negotiations on giving Greece easier terms on its debt says the private sector and the eurozone are far from reaching a deal to cut Greece’s debt load.

Charles Dallara, the head of the Institute of International Finance, says Saturday “we’re nowhere near a deal.”

Banks in July agreed to accept 21 percent losses on their Greek bonds. But a report Friday by Greece’s international debt inspectors said its debt might have to be cut up to 60 percent for the country to recover.

Dallara told The Associated Press plans to slash Greece debt would still leave it as “a ward of Europe” for years.

He says “we would be open to an approach that involves additional efforts from everyone.”

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

BRUSSELS (AP) — EU finance ministers neared agreement Saturday on forcing banks to raise just over euro100 billion ($140 billion) to ensure they have enough cushion to weather further losses on their Greek bonds as well as market turmoil, a European official said.

In order to help Athens dig out of its debts — and hopefully keep a cap on the amount of money they have to loan Greece — the 17 countries that use the euro agreed Friday to ask banks to take bigger writedowns on Greek bonds. A new report suggests the value of Greek bonds might need to be slashed as much as 60 percent.

Taming Greece’s debts is an important part of the euro debt crisis puzzle, but it could make banks across the continent — not just in the eurozone — more vulnerable at a time when they’re already facing declining stock prices and finding it difficult to get regular loans for their day-to-day operations.

So when the eurozone finance ministers decided to reopen negotiations on Greek debt with the banks, the EU had to force its banks to reinforce their rainy-day funds.

Strengthening banks and slashing Greece’s debts are critical to solving Europe’s crisis, which is now threatening to engulf larger economies like Italy and Spain and is blamed for dampening growth across Europe and even the world.

“The crisis in the eurozone is doing real damage to many of the European economies, including Britain,” George Osborne, Britain’s chancellor of the exchequer, said as he headed into Saturday’s meeting. “We have had enough of short-term measures, sticking plasters that get us through the next few weeks.”

The European official said EU leaders meeting Sunday should sign off on forcing the continent’s biggest banks to raise just over euro100 billion in capital. The official spoke on condition of anonymity because the discussions between ministers were still ongoing.

The figure is likely to disappoint some analysts. A report by the International Monetary Fund has called for up to euro200 billion ($280 billion) to be poured into banks.

The new rules would force systemically important banks to raise their core capital ratios to 9 percent, compared with just 5 percent to 6 percent they needed to pass EU stress tests this summer. The ratio measures the amount of capital banks hold compared to their risky assets.

Greece, of course, has it far worse: The country is struggling through a third year of recession and record unemployment, which reached 16.5 percent in July. Deep anger is building against the Socialist government’s repeated rounds of new austerity measures. A two-day general strike against the new cuts and taxes shut down much of the country this week and led to violent protests on the streets of Athens.

Pressure to contain the Greek crisis ramped up Friday after a new report from the country’s debt inspectors — the European Commission, the European Central Bank and the IMF — showed that its economic situation had deteriorated dramatically even since the summer.

If banks don’t take bigger losses, the report said, Greece’s debt would peak at a massive 186 percent of economic output in 2013 and only decline to 152 percent by the end of 2020.

That would prevent Greece from raising money on the markets until 2021 and require the eurozone and the IMF to fund an extra euro252 billion ($350 billion) in new loans to Greece through 2020, according to the report, which was marked confidential but was seen by The Associated Press.

Those funds would be in addition to Greece’s first bailout of euro110 billion ($152 billion), which has been keeping the country afloat since May of last year, and another euro109 billion ($150 billion) rescue agreed to in July.

The report said that Greece’s debts would have to be cut by 60 percent if the eurozone wants to avoid lending it more money. It did not make policy recommendations, and the European Central Bank opposes cutting Greece’s debts further.

But finance ministers are clearly paying close attention to the experts’ document. Austrian Finance Minister Maria Fekter told journalists Saturday that the eurozone’s chief negotiator, Vittorio Grilli, had been asked to restart negotiations with banks.

That means the July deal, under which banks would have taken writedowns on their Greek bond holdings of about 21 percent, is definitively off the table.

Despite that significant progress, agreement on arguably the most important measure has remained elusive to eurozone leaders: boosting the firepower of the currency union’s euro440 billion ($600 billion) bailout fund to keep the crisis from spreading.

Increasing the effectiveness of the fund — called the European Financial Stability Facility — is meant to help prevent larger economies like Italy and Spain from being unable to afford to borrow money from markets. That’s exactly what happened to Greece, Portugal and Ireland and why those three EU countries needed bailouts.

Germany and France still disagree over how to do that and failed to make much progress on that front Friday night. German Chancellor Angela Merkel and French President Nicolas Sarkozy are meeting Saturday evening in the hopes of moving toward a deal.

The Greek crisis and its threat of contagion have led to calls for more robust intervention when it becomes clear that an EU country is in financial trouble.

German Foreign Minister Guido Westerwelle said Saturday that the EU along with the IMF should be able to directly intervene in the budgets of member states if they are receiving financial aid but failing to meet fiscal targets.

But not all EU nations share his view. The foreign ministers of Luxembourg and Finland cautioned that changing the EU treaty is too big a task to tackle now and the bloc should try instead to strengthen budget rules through existing channels.

Significant changes to the EU treaty would require national referendums in some countries, and winning approval for the current treaty from 27 nations took 10 years.


Elena Becatoros contributed to this report from Brussels.

Greeks Work Hard, So Why Is There a Debt Crisis?

ATHENS—From the German press to Stephen Colbert’s hit show on Comedy Central, Greece has been the butt of jokes throughout the financial crisis. The implication is always the same — that the Greek people are lazy and don’t like to work.

Greek Protests

The stereotype makes Michalis Chrysochoidis, Greece’s minister of development and competitiveness, bristle.

“There is a myth that the Greeks don’t work many hours. This is a big lie,” Chrysochoidis said. “The reality is that the Greek people work more than any other country in the European Union.”

He’s right: Greek workers put in longer hours than any other Europeans or Americans, according to a new report by McKinsey. (Click here to read the full report) The consulting firm’s 60-page brief, “Greece 10 Years Ahead,” examines what makes the Greek economy so uncompetitive relative to its neighbors and offers advice on what to do about it.

Within the McKinsey report, however, there are two additional data points that explain why more hours worked by Greeks haven’t led to a growing economy.

First, Greece has the lowest labor participation rate in all of Europe — just 66 percent of the employable population have jobs, compared with 73 percent in the European Union and 70 percent in Southern Europe.

Second, not only are fewer Greeks working, those who do are far less productive: A Greek worker’s productivity comes in at $35 an hour, compared with $49 an hour in the EU, $55 an hour in Central Europe, and $58 and hour in the U.S.

Michelle Caruso-Cabrera

CNBC Anchor

Put it all together and it led McKinsey to one inescapable conclusion: “A relatively smaller percentage of Greeks work longer and harder hours than their European peers to support a generally unproductive system.”

Therein lies the problem—the Greek economy is uncompetitive, and until that changes it will be unable to grow at a sufficient rate to generate enough tax revenues to pay its bills.

Having combed through the databases of the International Monetary Fund

[cnbc explains]

, Eurostat, Global Insights, and the Conference Board, McKinsey paints a vivid picture of why the Greek economy is so uncompetitive — primarily, its extensive bureaucracy and rigid labor rules. Both are strangling Greece’s ability to compete in a global economy, whether in the shipping industry, tourism, or even exporting its high-quality olive oil and famous yogurt.

Chrysochoidis, the minister of competiveness, agrees with this assessment.

“The Greek economy was not competitive during the last decades,” he said, adding emphatically, “We are going to create a new Greece.”

The first step, Chrysochoidis said, is to “reform the business environment.”

Chrysochoidis used to be the minister of public order, and is credited with shutting down two Greek terrorist organizations. His new task may be even more daunting — eliminating the mountains of bureaucratic red tape that hinder entrepreneurship and business investment.

Greek Protests

He’s taken some key first steps. Beginning in April of this year, his ministry established a new streamlined electronic registry system for new businesses called One-Stop Service (OSS). “A new firm can now be established through a single procedure, in one day, with significantly lower costs,” according to a ministry statement.

Before the OSS, it would take at least 38 days to register a limited liability corporation in the country. Now, it takes as little as 38 minutes, according to the ministry. The cost of registering a new business has dropped by more than two thirds, as well — to 910 euros ($1,243) from 2,377 euros ($3,248).

Chrysochoidis adds that the ministry has identified 72 additional obstacles to entrepreneurship and has introduced new legislation that will eliminate them.

Among those obstacles are the role the government plays in many sectors of the economy — either through outright ownership of assets, such as a utility; price controls; and high barriers to entry, such as strict limitations on the number of players in a profession, and/or difficult licensing requirements, according to the McKinsey report. Add to all that very tough labor restrictions on large enterprises.

The result is that very few businesses have been able to get started or grow in size, and among those that do small family-owned businesses still dominate — 30 percent of manufacturing employment in Greece is in firms with nine or fewer employees. In Italy, that number is 15 percent, while in Germany it’s just 5 percent.

Without what economists call “economies of scale,” such as the advantages achieved when you have a large factory versus a small one, it is impossible to achieve higher levels of productivity. That means lower profitability and fewer jobs — something desperately needed in a country where unemployment is at 16 percent.

It’s tourism industry is also beset by red tape, which has lead to fewer large-scale hotels and resorts being built.

“Cumbersome licensing processes and a volatile tax framework discourages investments,” according to the McKinsey report.

Hence Greece hasn’t been able to cater as effectively to modern demand patterns in tourism, such as integrated resorts, vacation homes, large ports for cruises, and marinas for yachting. That leads to an industry based on mass-market travelers rather than the affluent, and hence a loss in revenue: In Greece, tourists spend on average 146 euros ($200) a day, while in Turkey they spend 162 euros ($222) a day, and in it’s Italy 200 ($274) a day.

McKinsey also takes aim at the power of unions in the country and the collective bargaining agreements struck over time. Greece, because of its location on one of the largest intercontinental routes, ought to be a good place for cargo port hubs. Yet the country is losing customers to Bulgaria, Turkey, and Romania, because they offer “better operational stability (e.g. fewer non-operating days due to strikes),” the report said.

Perhaps the most difficult hurdle for Greece to overcome, at least politically, is the size of the public sector versus the private sector.

“We cannot serve this huge public economy,” said Chrysochoidis. “The small private sector cannot serve the huge public sector.”

That kind of talk, unheard of by a member of the government just six moths ago, will be welcome by the country’s leading business people.

In June, Dimitri Papalexopoulos, the head of Titan Cement, one of the largest publicly traded companies in Greece, said the country needs to reduce the size of the public sector, and “take a hatchet to this bloated system that pervades all economic activity, cut it down, reduce regulatory burden, (and) cut red tape.”

Greek Protests

The size of the public sector isn’t known for certain. For the first time, the government took a census of government workers and estimated the number at 800,000, but not all municipalities provided data. The Athenian Chamber of Commerce puts the number at 1 million.

Downsizing the public sector is going to be enormously difficult, because the mere notion violates a long-held social compact between the government and the Greek people. The Greek Constitution states that once you are an official government worker, you have a job for life. This rule is the result of a well-intentioned labor reform from early last century—at the time government workers were fired every time there was a change in the party in power.

The government’s attempts to lay off a mere 30,000 workers out of 800,000 is already meeting stiff, and sometimes violent, resistance.

Wednesday, a massive two-day strike will get under way, in which thousands of government workers and union members are scheduled to descend on Parliament to protest the layoffs, as well as a new law that would effectively eliminate the mimimum wage and reduce the influence of collective bargaining agreements.

For the most part, the public sector has stopped functioning already: Garbage collectors have stopped collecting garbage; tax collectors have stopped collecting taxes; and the permitting office isn’t issuing permits. The city is set to run out of gasoline in a few days because workers are on strike. (These are known as “white strikes,” when employees go to the office but don’t actually do any work.)

Greek Protests

The leader of one of the nation’s Communist parties refutes the notion that the government sector is too large. Alexis Tsipras, leader of the Syriza coalition for the radical left, says the government is just too inefficient.

McKinsey agrees: The report found that northern European countries have even larger governments relative to their sizes—however, they’re far more efficient.

In addition to contributing to a lack of efficiency, giving government workers a job for life has led to another tough economic consequence — Greece has the lowest employment turnover rate in Europe, the sign of a stagnant economy.

It contributes directly to high levels of youth unemployment, which minister Chrysochoidis acknowledges: “Imagine that in Greece we have 45 percent of young people unemployed,” he said. “It’s a defeat for Greece because the economy could not employ and absorb those people.”

Holiday bookings disappointing

Water cascades down Pantavrechi canyon into the river near Karpenisi, where bookings are slightly down this year.

By Stathis Kousounis

With Greeks cutting back on holidays both abroad and at home or even canceling their travel plans altogether as they feel the heat of the financial crisis, bookings for the October 28 national holiday are moving sluggishly, according to sources.

Representatives at hotels in fall and winter destinations across the country say that despite reductions in rates and special deals, reservations are down compared to last year, even though the holiday lands on a Friday, making it ideal for a three-day escape.

At the same time, sales of organized packages by tour agents for Greece and abroad have also seen a decline this year compared to 2010.

Bookings in Karpenisi, a popular winter destination in central Greece, are slightly lower this year compared to last, despite a campaign to offer more attractive prices, according to the president of the Evrytania Hoteliers’ Association, Panayiotis Mantzoufas. The biggest difference compared to other years, he says, is that fewer people are planning their own trips and more are looking to join groups or sign on for a package deal in order to secure cheaper prices.

Furthermore, Mantzoufas added, “people will come for two nights only; few stay on for a third.”

Hoteliers in Karpenisi and the broader Evrytania region are targeting residents of Thessaloniki especially — as October 26 is also the feast day of the northern port city’s patron saint, Aghios Dimitrios — with offers of special package deals.

“There are a lot of rooms available in Pilio at very low prices,” for the October 28 holiday, according to the head of the Hoteliers’ Association of Magnesia in central Greece, Costas Leventis. Prices are even more attractive if holidaymakers decide to stay for more than two nights, according to Leventis, who added that “even though the holiday comes on a Friday, we have not seen the demand we expected. Nevertheless, we are staying optimistic.”

Leventis sees the crisis as the main reason behind the drop in reservations, as financial worries put Greeks off the idea of making travel plans.

Dinos Dafalias, head of the Association of Hoteliers Tourist Accommodation of Kalavryta, a ski and mountain-climbing destination in the northern Peloponnese, said that even though prices in the area are down by some 10 percent compared to 2010, demand is significantly lower than it was last year, while in Meteora and Pertouli in central Greece, demand is down by half compared to 2010.

“Reservations are down 50 percent in the broader region of Trikala, which includes Meteora and Pertouli,” explained Yiannis Kouroupas, of the local hoteliers’ association. “This period, and especially during the October 28 holiday, the tourism sector here relies on the domestic market. And, because the Greek market is in a recession and the general mood is pretty negative, we do not expect to see a change in this trend.” He added that hotels in the region have dropped their prices by 10-15 percent.

In another popular winter destination, Arachova, about 160 km northwest of Athens, however, reservations seem to be at the same levels this year compared to last, according to Yiannis Georgakos, president of the local hoteliers’ association. “Reduced rates begin at around 35 euros for a room with twin beds and we expect to reach around 80 percent of capacity,” he said, adding that there are about 2,000 beds in hotels and holiday apartments in the popular ski resort.

Centenary triggers rush to battlefields

Illustration: Michael Mucci.

Illustration: Michael Mucci.

Australians want to pay respect to fallen soldiers, and the opportunities to do so are multiplying.

FROM niche market to “bucket list” experience, Anzac Day has become big business for the Australian travel industry.

Dozens of new trips for Gallipoli and other battlefield locations have been released over recent weeks and many major tour companies are lining up for a slice of the action.

Interest will only grow in the lead-up to the Anzac Day centenary in 2015, taking the sector further out of the realm of specialist operators and into the mass market.

“Many years ago, we were almost on our own [as a Gallipoli tour operator from Australia],” says the manager of battlefields tour specialist Boronia Travel Centre, Michelle Waller.

“I think there are a lot of people starting up and thinking ‘I can make some money here’, especially with 2015 coming up.”

Waller says the 2015 Anzac Day service at Gallipoli is likely to be attended by more than 15,000 people, limited only by space and safety precautions. Boronia Travel ‘s (boroniatravel.com.au) seven trips for 2015 are already fully booked and many Australians who want to go will miss out, Waller says.

For those looking for Anzac travel, the huge range of choices now available can mean plenty of research is required.

Choices range from day trips and cheap backpacker packages to extensive war history trips, with plenty of compromises in between.

Some operators offer the dawn service at Gallipoli as part of a broader Turkey or Europe itinerary, while others offer dedicated trips, with options such as being able to trace relatives who fought in the war.

Trafalgar Tours (trafalgar.com) is offering a dedicated Anzac trip for the first time next year, after operating charter trips for special-interest groups over recent years.

Managing director, Matthew Cameron-Smith, says the 16-day trip was made possible by Trafalgar securing accommodation on the Gallipoli peninsula.

“We’ve always wanted to do it, based on the success of our custom groups,” he says. “It’s a bit of a pilgrimage for many Australians.”

A spokesman for Tempo Holidays (tempoholidays.com), Nigel Loveday, says demand for Anzac Day trips is higher this year than the same time last year and the lead-up to the centenary event will generate even more interest.

Loveday says family groups and younger travellers are starting to join the traditional 60-plus market for Gallipoli trips.

Top Deck (topdeck.travel) says it is also seeing increased interest from younger travellers, prompting it to expand its Anzac Day offerings for next year.

Part of the new program is a four-day trip, whereas the shortest trip had previously been six days.

The Greece and Mediterranean Travel Centre (greecemedtravel.com.au) has also released new trips for 2012, including a selection of budget tours and a trip combining Gallipoli with a Greek Islands cruise.

Albatross Tours (albatrosstours.com.au), which is one of the biggest operators of Anzac Day tours, says it is seeing a big increase in demand for Western Front tours, with bookings for these trips up 30 per cent on last year.

Managing director Euan Landsborough says there is also strong demand for a new Anzac summer tour, which has proved popular among those who prefer to go after Anzac Day, when the site is not as crowded. Boronia Travel’s Michelle Waller says it is important for travellers to do their research on Anzac trips and to think about what they want out of the experience.

Those who just want to experience the dawn service at Gallipoli might be happy with a quick in-and-out trip.

Those who want to learn more or have a special interest in military history will need to choose a specialist operator.

Waller also warns travellers to check the location of their accommodation, as there is limited accommodation on the Gallipoli peninsula and the journey to the site from surrounding hotels can involve several hours of travel.

Boronia Travel, which is the official travel agent for the Australian War Memorial and has been operating for almost two decades, recently launched an accommodation booking and information service for Australians travelling to Gallipoli.

The company has secured exclusive hotel deals on the peninsula and is also offering a range of fully escorted day tours in addition to its longer trips.

Another specialist operator is Mat McLachlan Battlefield Tours (battlefields.com.au), which offers two choices for Anzac Day: an eight-night trip including Gallipoli and a nine-night trip taking in the battlefields of the Western Front.

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In the trenches

Coach tour operator Insight Vacations has partnered with a Scottish university to help uncover the secrets of a significant Australian World War I battlefield in the Somme region of France.

Insight is sponsoring the University of Glasgow’s Centre for Battlefield Archaeology in an excavation of the site of the battle of Mont Saint Quentin, in the town of Peronne.

Work began last month and Insight says the project will provide new understanding of the actions of the Australian troops who played a significant role in the final defeat of the Germans on the Western Front during World War I.