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Italy’s Prime Minister Renzi To Resign After Referendum Rout

Italy’s Prime Minister Renzi To Resign After Referendum Rout

By Crispian Balmer and Gavin Jones

ROME (Reuters) – Italian Prime Minister Matteo Renzi is set to resign on Monday after suffering a crushing defeat in a referendum over constitutional reform, tipping the euro zone’s third-largest economy into political turmoil.

His decision to quit after just two-and-a-half years in office deals a blow to the European Union, already reeling from multiple crises and struggling to overcome anti-establishment forces that have battered the Western world this year.

Renzi’s emotional, midnight resignation announcement sent the euro lower and jolted stock and bond markets on concerns that early elections could follow, possibly paving the way for an anti-euro party, the 5-Star Movement, to come to power.

But financial markets bounced back later in the morning as European officials played down the prospect of a broader euro zone crisis.

Even Italy’s fragile bank sector, which is looking to raise around 20 billion euros ($21 billion) over coming months, staged a comeback on the Milan exchange after a shaky start.

European Commissioner for Economic and Financial Affairs Pierre Moscovici dismissed talk of a euro zone crisis, and German Finance Minister Wolfgang Schaeuble urged calm. Both said Italy’s institutions are capable of handling a government change, which would be its 64th since 1946.

Italian Economy Minister Pier Carlo Padoan, who has pulled out of scheduled meetings with European finance ministers in Brussels this week, is viewed as a possible candidate to replace Renzi.

Senate President Pietro Grasso and Transport Minister Graziano Delrio have also been tipped as possible successors.

The government crisis could open the door to elections next year and to the possibility of the opposition 5-Star Movement gaining power in the heart of the single currency area. 5-Star, which campaigned hard for a ‘No’ vote, wants to hold a referendum instead on membership of the euro.

“I take full responsibility for the defeat,” Renzi said in a televised address to the nation, adding that he would hand in his formal resignation to President Sergio Mattarella on Monday.

“I will greet my successor with a smile and a hug, whoever it might be,” he said, struggling to contain his emotions when he thanked his wife and children for their support.

“We are not robots,” he said at one point.

Sunday’s referendum was over government plans to reduce the powers of the upper house Senate and regional authorities but was viewed by many people as a chance to register dissatisfaction with Renzi, who has struggled to revive economic growth, and mainstream politics.

“No” won an overwhelming 59.1 percent of the vote, according to the final count. About 33 million Italians, or two-thirds of eligible voters, cast ballots following months of bitter campaigning that pitted Renzi against all major opposition parties, including the anti-establishment 5-Star.

The euro briefly tumbled overnight to 21-month lows against the dollar, as markets worried that instability could deal a hammer blow to Italian banks, especially the troubled Banca Monte dei Paschi di Siena. However, by early in the European morning it had largely rebounded. [FRX/]

Monte dei Paschi shares were suspended, initially falling 7 percent before bouncing back to a small gain. Yields on Italy’s benchmark 10-year bond soared to more than 2 percent, but then also retreated back below that mark. [GVD/EUR]

Monte dei Paschi needs to raise 5 billion euros by the end of this month. A consortium of investment bankers supporting its cash call will meet at 1100 GMT on Monday to decide whether to go ahead with it, a source familiar with the situation said.

Mattarella will consult with party leaders before naming a new prime minister – the fourth successive head of government to be appointed without an electoral mandate, a fact that underscores the fragility of Italy’s political system.

In the meantime, Renzi would stay on as caretaker.

The new prime minister, who will need the backing of Renzi’s Democratic Party (PD) to take office, will have to draw up a new electoral law, with 5-Star urging a swift deal to open the way for elections in early 2017, a year ahead of schedule.

“From tomorrow, we will start work on putting together 5-Star’s future program and the team of people that will make up a future government,” said Luigi Di Maio, tipped to be the group’s prime ministerial candidate.

Opinion polls put 5-Star neck-and-neck with the PD.

Renzi, 41, took office in 2014 promising to shake up hidebound Italy and presenting himself as an anti-establishment “demolition man” determined to crash through a smothering bureaucracy and reshape creaking institutions.

Sunday’s referendum, designed to speed up the legislative process, was to have been his crowning achievement.

However, his economic policies have made little impact, and the 5-Star Movement has claimed the anti-establishment banner, tapping into a populist mood that has seen Britons vote to leave the European Union and Americans elect Donald Trump president.

In a moment of relief for mainstream Europe, Austrian voters on Sunday rejected Norbert Hofer, vying to become the first freely elected far-right head of state in Europe since World War Two, choosing a Greens leader as president instead.

But elsewhere, the established order is in retreat. French President Francois Hollande said last week he would not seek re-election next year, and even German Chancellor Angela Merkel looks vulnerable as she seeks a fourth term in 2017.

($1 = 0.9400 euros)

(Additional reporting by Steve Scherer and Isla Binnie; Editing by Kevin Liffey and Pravin Char)

In Germany, 60 Conservative MPs Oppose Merkel Course On Greece

In Germany, 60 Conservative MPs Oppose Merkel Course On Greece

By Paul Carrel and Andreas Rinke

BERLIN (Reuters) – A total of 60 lawmakers in German Chancellor Angela Merkel’s 311-member conservative bloc voted against or abstained in a test ballot on Tuesday over a third bailout plan for Greece before the vote in parliament, participants told Reuters.

In what was nevertheless an important endorsement for Merkel, the test ballot showed there may be far fewer rebels in Wednesday’s vote from her bloc over the 86 billion-euro ($95 billion) package than feared. Bild newspaper had reported that up to 120 of her deputies would vote against it or abstain.

The test ballot – a non-binding vote – showed 56 ‘no’ votes and 4 abstentions on Tuesday. That was fewer than the 65 lawmakers from her conservative camp who last month broke ranks and refused to back negotiations on the bailout.

Germany is Greece’s largest creditor. The parliament’s approval, required by law, is vital because, with skeptical lawmakers reflecting public reservations about Greek rescue efforts, it sends an important signal across Europe.

Merkel and Finance Minister Wolfgang Schaeuble, despite earlier misgivings, had urged their fellow Christian Democrats (CDU) and Christian Social Union (CSU) members of parliament to vote ‘yes’ on the measure.

“It was the right thing to do to take a tough line with Athens,” Merkel told the deputies, according to conservatives who took part in the closed-door meeting.

Schaeuble said he backed the third bailout “with complete conviction,” sources said. He also told them he was sure that the International Monetary Fund, whose imprimatur many lawmakers see as guaranteeing rigorous implementation of budgetary and reform targets, would take part.

Klaus-Peter Willsch, a key dissident, said: “We were promised the same thing so often but it was always broken.”

Support from other parties including the Social Democrats (SPD), Merkel’s junior coalition partner, and the opposition Greens means approval is not in doubt. But a rebellion by a large number of her allies would be damaging for Merkel.

The lawmakers had broke off their holidays on Tuesday to debate Greece’s third bailout plan before approving it.

Schaeuble, who last month told parliament that talks on the third bailout were a “last attempt” to solve the Greece crisis, threw his weight behind the package before Wednesday’s vote and said Athens was ready to reform.

Many senior figures in the ruling coalition agreed. But a significant minority of Merkel’s conservatives have openly opposed the plan and a growing rebellion would embarrass her.

The debate has been given added spice this time after Volker Kauder, head of the conservatives’ bloc in parliament, incensed fellow lawmakers earlier this month with threats of retaliation if they rebelled and voted against a bailout.

Schaeuble, who argued last month that Greece should consider a “timeout” from the euro zone, sought to shore up support for the bailout ahead of Wednesday’s vote, citing a dramatic change in the Greek government’s readiness to reform.

(Editing by Larry King)

Photo: German Chancellor Angela Merkel attends a Christian Democratic Union (CDU) and Christian Social Union (CSU) party faction meeting in the Reichstag building before a parliamentary vote on a third bailout programme for Greece in Berlin, Germany August 18, 2015. REUTERS/Stefanie Loos

New Greek Bailout Talks Start, Creditors Seek More Action

New Greek Bailout Talks Start, Creditors Seek More Action

By Francesco Guarascio and Renee Maltezou

BRUSSELS/ATHENS (Reuters) – Talks between Greece and its international creditors on a third bailout began in Athens on Monday but the lenders want to see more reforms turned into law before they disburse the first loans to keep the near-bankrupt country afloat.

The government of Prime Minister Alexis Tsipras has pushed two packages of measures through parliament this month as conditions for starting negotiations on a three-year loan program worth up to 86 billion euros ($95 billion) to keep Greece in the euro zone.

A spokeswoman for the European Commission said teams from the creditor institutions were now in Athens. “Work has started, meaning that the institutions are talking to the Greek authorities,” she said.

The talks had been due to start last Friday, but were delayed because of organizational and security issues.

“Negotiations on a Memorandum of Understanding should now progress as swiftly as possible,” Commission spokeswoman Mina Andreeva told a news briefing. Both sides say they want a deal concluded before Aug. 20.

Greece came close to the brink during a long stand off between the government and its creditors, with Athens missing a debt repayment to the International Monetary Fund and forced to close the country’s banks for three weeks.

Voters angered by years of austerity demanded by the creditors rejected an earlier bailout offer in a referendum, but Tsipras later agreed in Brussels to the lenders’ terms as the crisis deepened.

The institutions involved in the talks are the European Commission, the European Central Bank and the IMF, as well as the euro zone’s rescue fund, the European Stability Mechanism (ESM).

EU officials said the heads of mission of the Commission and the ECB were already on the ground and the new IMF mission chief was due in Athens by Friday to hold talks on a political level.

Andreeva said Greece had delivered “in a timely and overall satisfactory manner” on promises made at a euro zone summit on July 13 of prior legislation to enable the negotiations.

“More reforms are expected from the Greek authorities to allow for a swift disbursement under the ESM. This is also what is being discussed right now,” she said.

The banks have re-opened after the ECB increased emergency funding but capital controls remain in place. Doubts also persist about whether a severely weakened Greek economy can support another program after a six year-long slump that has cut national output by a quarter and sent unemployment over 25 percent.

Among politically sensitive measures held back from the initial package were curbs on early retirement and changes in the taxation of farmers to close loopholes that are highly costly for the Greek state. A source close to the talks said these reforms were expected to be enacted by mid-August.

However, touching pensions is sensitive with Tsipras’s left-wing Syriza party, which has already suffered a substantial revolt over the Brussels agreement, and the main opposition New Democracy party opposes ending tax breaks for farmers.

ACCESS PROMISED

EU officials played down the logistical and security issues that have dogged talks between the creditors and Greece since Tsipras’s radical government took office in January, promising to free Greeks from humiliation and imposed austerity.

An EU official said access for the negotiators to ministries and all relevant government bodies had been agreed. An ECB official said part of the talks would take place at the Athens Hilton Hotel.

The talks will mostly cover a reform program that Greece must implement to receive phased disbursements of loans, money it needs to meet its debt service obligations and help recapitalize the banks. However, an ECB policymaker said they would also cover debt relief for Athens.

ECB Executive Board member Benoit Coeure said in a newspaper interview published on Monday that the euro zone no longer questions whether to restructure Greece’s debt but rather how best to go about it.

All euro zone countries wanted Greece to remain in the shared currency bloc and were prepared to offer “unprecedented financial solidarity” as long as Greece carried out reforms, Coeure told the French daily Le Monde.

“In truth, the question is not whether to restructure Greece’s debt but rather how to do it so that it would be really useful for the country’s economy,” he said.

“That’s why it’s important to make this restructuring, whatever form it takes, conditional on the application of measures that reinforce the economy and ensure the sustainability of Greek public finances,” he added.

Coeure defended the ECB in the face of criticism about its handling of Greece, notably the rationing of liquidity to Greek banks, saying it had always stuck to its mandate during the crisis.

Five months of acrimonious negotiations had caused huge economic and financial costs for Greece, and exposed how deeply flawed the euro zone’s decision-making was, he said, urging more integration in order to take tough decisions effectively.

Germany’s finance minister proposed at the height of the crisis that Greece take a five-year “time out” from the currency bloc if it could not meet the conditions.

“The genie of euro zone exit has escaped in the Greek crisis and won’t easily get back in the bottle,” Coeure said.

(Additional reporting by Alexander Saeedy and Philip Blenkinsop in Brussels and Leigh Thomas in Paris; Writing by Paul Taylor; editing by David Stamp)

People walk in the early morning at the Plaka area in Athens, Greece July 27, 2015. REUTERS/Ronen Zvulun  

Euro Zone Strikes Greek Deal With Tough Conditions

Euro Zone Strikes Greek Deal With Tough Conditions

BRUSSELS (Reuters) – Euro zone leaders made Greece surrender much of its sovereignty to outside supervision on Monday in return for agreeing to talks on an 86 billion euros bailout to keep the near-bankrupt country in the single currency.

The terms imposed by international lenders led by Germany in all-night talks at an emergency summit obliged leftist Prime Minister Alexis Tsipras to abandon promises of ending austerity and could fracture his government and cause an outcry in Greece.

“Clearly the Europe of austerity has won,” Greece’s Reform Minister George Katrougalos said.

“Either we are going to accept these draconian measures or it is the sudden death of our economy through the continuation of the closure of the banks. So it is an agreement that is practically forced upon us,” he told BBC radio.

If the summit had failed, Greece would have been staring into an economic abyss with its shuttered banks on the brink of collapse and the prospect of having to print a parallel currency and exit the European monetary union.

“The agreement was laborious, but it has been concluded. There is no Grexit,” European Commission President Jean-Claude Juncker told a news conference after 17 hours of bargaining.

He dismissed suggestions that Tsipras had been humiliated even though the summit statement insisted repeatedly that Greece must now subject much of its public policy to prior agreement by bailout monitors.

“In this compromise, there are no winners and no losers,” Juncker said. “I don’t think the Greek people have been humiliated, nor that the other Europeans have lost face. It is a typical European arrangement.”

Tsipras himself, elected five months ago to end five years of suffocating austerity, said he had “fought a tough battle” and “averted the plan for financial strangulation”.

Greece won conditional agreement to receive a possible 86 billion euros ($95 billion) over three years, along with an assurance that euro zone finance ministers would start within hours discussing ways to bridge a funding gap until a bailout – subject to parliamentary approvals – is finally ready.

That will only happen if he can meet a tight timetable for enacting unpopular reforms of value added tax, pensions, budget cuts if Greece misses fiscal targets, new bankruptcy rules and an EU banking law that could be used to make big depositors take losses.

German Chancellor Angela Merkel said she could recommend “with full confidence” that the Bundestag authorize the opening of loan negotiations with Athens once the Greek parliament has approved the entire program and passed the first laws.

The secretary-general of Merkel’s conservatives said the Bundestag was likely to vote on Greece on Friday.

VERSAILLES IN BRUSSELS?

Asked whether the tough conditions imposed on a desperate Greece were not similar to the 1919 Versailles treaty that forced crushing reparations on a defeated Germany after World War One, Merkel said: “I won’t take part in historical comparisons, especially when I didn’t make them myself.”

The deterioration of the Greek economy since Tsipras won office in January, and particularly in the last two weeks, had led to a much higher financing need, she said.

One senior EU official calculated the cost to the Greek state of the last two weeks of political and economic turmoil at 25 to 30 billion euros. A euro zone diplomat said the full damage might be closer to 50 billion euros.

Tsipras accepted a compromise on German-led demands for the sequestration of Greek state assets worth 50 billion euros – including recapitalized banks – in a trust fund beyond government reach, to be sold off primarily to pay down debt. In a gesture to Greece, some 12.5 billion euros of the proceeds would go to investment in Greece, Merkel said.

The Greek leader had to drop his opposition to a full role for the International Monetary Fund in the next bailout, which Merkel had insisted on to win parliamentary backing in Berlin.

In a sign of how hard it may be for Tsipras to convince his own Syriza party to accept the deal, Labour Minister Panos Skourletis said the terms were unviable and would lead to new elections this year.

Six sweeping measures including spending cuts, tax hikes and pension reforms must be enacted by Wednesday night and the entire package endorsed by parliament before talks can start, the leaders decided.

In almost the only concession after imposing its tough terms on Tsipras, Germany dropped a proposal to make Greece take a “time-out” from the euro zone that many said resembled a forced ejection if it failed to meet the conditions.

Tsipras was subjected to a 17-hour browbeating by leaders furious that he had spurned their previous bailout offer on more favorable terms in June and held a referendum last week to reject it. Only France and Italy worked to try to soften the terms being imposed on Greece.

HARD BARGAIN

Some diplomats questioned whether it was feasible to rush the package through the Greek parliament in three days. Tsipras is set to sack ministers who did not support him and make dissident Syriza lawmakers resign their seats, people close to the government said.

Even if this week’s rescue succeeds, many EU diplomats question whether an unstable Greece will stay the course on a three-year program.

Merkel, whose country is the biggest contributor to euro zone bailouts, said from the start that she would drive a hard bargain against a backdrop of mounting opposition at home to more aid for Greece.

The final sticking point was Germany’s insistence on an independent external trust fund to control state assets for privatization. Berlin initially wanted to use a structure in Luxembourg managed by its own national development bank, KfW, but eventually relented.

One diplomat said that was tantamount to turning Greece into a “German protectorate”. But Merkel declared the matter a “red line” for Germany.

Euro zone finance ministers were tasked with finding sources of immediate bridge funding for Greece if it passed the laws, to prevent it defaulting on a key payment to the ECB next Monday.

Finance ministers said Greece needed 7 billion euros of funding by July 20, when it must make a crucial bond redemption to the ECB, and a total of 12 billion euros by mid-August when another ECB payment falls due.

The ECB maintained emergency funding for Greek banks to keep them just afloat this week, a banking source said. But the finance ministry in Athens said the banks would remain shut for now.

(Reporting by Alastair Macdonald, Andreas Rinke, Tom Koerkemeier, Philip Blenkinsop, Julia Fioretti, Alexander Saeedy, Robert-Jan Bartunek and Julien Ponthis in Brussels, George Georgiopoulos and Lefteris Karagiannopoulos in Athens; Writing by Paul Taylor; editing by Anna Willard and Giles Elgood)

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