Turkey and Syria: Dark clouds on the horizon

Having listened to Erdoğan’s speech at the NATO meeting earlier today I was struck by the severe wording:

“Turkey will not remain speechless towards what is happening in the region”…”Turkey is friendly country, but it gets gravely angry”…”The Syrian administration is tyrant. We will aid the Syrian people to get rid of their dictator. We have evidence that the Turkish jet was downed out of the Syrian air space. The response of the Syrian officials, following the downing of the jet, was hostile. The Assad administration is threatening Turkey’s security. We will offer all the possible support to liberate the Syrians from dictatorship. Any Syrian troops approaching our borders would be dealt with as a military target.”

My take is that Syria just gave Turkey an excuse to implement its strategy of becoming a regional superpower. Dark clouds on the horizon.

Posted in Middle East, Turkey | Leave a comment

Euro Council live-blog

06:41 We now conclude our Euro Summit live coverage. Thank you.
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06:39 Papandreou: I completely agree with Angela Merkel on setting up a permanent Troika mission in Athens. “We don’t need a show every three months”.
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06:05 Euro Summit statement
Click here to read the complete Euro Summit statement.
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05:54 ‘EU Forges Greek Bond Deal’, DowJones by Stephen Fidler And David Enrich

European leaders secured a deal to reduce Greece’s debt after laboring deep into Thursday morning to find agreement on what they had billed as a blockbuster package aimed at stemming the Continent’s debt crisis. French President Nicolas Sarkozy said after the marathon negotiating session that the leaders had reached agreement with private banks on a “voluntary” 50% reduction of Greece’s debt in the hands of private investors. He also said they had agreed to expand the firepower of the European Financial Stability Facility, the euro zone’s bailout vehicle, four- or five-fold—suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries like Spain and Italy. The leaders agreed on a plan that would boost the capital buffers of the stragglers among the Continent’s 70 biggest banks by €106 billion ($147 billion)—though they didn’t say where the money would come from.

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04:56 Euro Zone Closing In On 50% Greek PSI Haircut

Dow Jones, by Laurence Norman, Matina Stevis and Costas Paris — The euro zone is closing in on a deal for a 50% writedown of Greek bonds, three officials familiar with the situation said in the early hours of Thursday. “That’s where we’re heading, yes,” said one person familiar with the talks. The person said it would be a voluntary deal, meaning a negotiated one with the banks. A second person familiar with the discussions said the deal would cut Greece’s debt to gross domestic product ratio from around 170% now to around 120% in 2020. “There is consensus … for a 50% writedown. We are almost there,” the person said.

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04:29 We have a deal! EU official says deal reached on Grek debt-cutting plan, private creditors to take 50% cut on Greek bonds: AP
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04:15 Van Rompuy – Barroso presser time “unknown”, as @Dana_Council tweeted me.
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03:24 ‘Euro zone summit stalls on banks’: Reuters reports: Sources said the IIF could present another offer, a move that is likely to further extend negotiations.
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03:18 Financial Times Deutschland reports that Greek debt talks are now concentrated on a swap of long-maturity bonds.
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03:13 No solution yet on Greek haircut, talks continue. In Japan, Nikkei opened slightly higher at 0.42%.
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02:29 Merkel, Sarkozy Discussing Outcome of Banker Talks With EU-17 – Bloomberg
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02:27 Van Rompuy – Van Rompuy presser is obviously delayed until further notice.
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02:16 ‘Euro zone summit stalls on banks, some progress on rescue fund’: Reuters’ latest report from Brussels
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02:03 Sarkozy, Merkel, Lagarde, Van Rompuy Meeting Bankers’ Dallara, Trichet not present at meeting, EU official says
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01:58 Lucinda Creighton tweets:
RT @LCreighton: Eurozone Leaders gone back into meeting. Progress being made but long night ahead
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01:46 ‘EBA: €106bn of bank capital needed — we think’
FT Alphaville has an interesting post on a chart from the European Banking Authority’s release late on Wednesday night (featuring as its target the widely trailed 9 per cent Core Tier 1 capital rato for banks).
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01:37 Latest from Nouriel Roubini:
@Nouriel Merkozy not impressed with Berlusconi’s letter (retirement age up only in 2026, 5bn of asset sales per year with 2tril debt) Markets neither

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00:49 While Euro leaders convene in Brussels, stocks in Wall Street rebound on plan to leverage EFSF.
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00:40 Euro-Zone Draft (via DowJones):
Support ECB Action To Maintain Price Stability. Further EFSF Enhancement Can Be Achieved With Help From IMF. Eurogroup Must Finalize EFSF Details In November. EFSF Options Leverage Effect Expected To Be ‘Several Fold’. Agree On Two Options To Leverage EFSF. Two EFSF Options Can Be Deployed Simultaneously. EFSF To Be Boosted By Both Private, Public Investors. Bond Buyers To Be Offered Credit Insurance. Will Enhance Credit Of New Debt Issued By Member Countries. Credit Enhancement Will Be Provided To Underpin Greek Banks Collateral.

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00:29 DowJones: Euro-Zone Draft: Will Finalize Treaty Change Road Map In March 2012.
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00:18 WSJ’s David Gauthier-Villars reports:

The talks on Greece have reached an impasse because while governments have asked banks to accept “voluntary” write-downs of 50% to 60% on their Greek bonds, a so-called “haircut,” the private creditors have demanded to receive more high-quality collateral in guarantee, the person familiar with the matter said.

France and other euro-zone governments insist the write-downs must be voluntary to avoid causing a credit event which, many fear, would send ripple effects similar in magnitude to the September 2008 collapse of Lehman Brothers.

Private creditors have one trump card: one of the agencies in charge of deciding what constitutes a credit event, or a default, is controlled by a consortium of banks.

Yet, France has warned private creditors that in the absence of an arrangement, a Greek default would amount to a 100% haircut, the person familiar with the matter said.

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23:58 The leaders of the 17 eurozone members are now in their conclave.
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23:52 Correcting my previous post, joint Van Rompuy – Barroso presser scheduled to start at 00:00am CET/01:00 EET. You may watch live here.
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23:35 Headlines hitting the wires now:
Banks Want More Quality Collateral If Greece Haircut Exceeds 50%- Source

France Insists Greece Debt Deal Doesn’t Cause Credit Event – Source

France Warns Haircut Would Be 100% In Case Of Default – Source

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23:30 Just to lighten up the mood a bit, Reuters gas gathered up some of the jokes circulating around Europe on Greece and the now famous haircut.
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23:15 Joint van Rompuy – Barroso presser has just started.
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23:05 Reuters reports:
EU Leaders moving towards a 100bln writedown of Greek debt held by the private sector – EU source
€100bn represents roughly 49% of orivately held Greek debt.
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22:50 The Financial Times’ Alex Barker, working the corridors at the summit, on the report from France that Merkel and Sarkozy plan to personally meet Greece’s creditors:

“This rumour is surely too delicious to be wrong. Word is spreading that Nicolas Sarkozy and Angela Merkel are plotting a late night ambush on the bankers locked in the Greek haircut negotiations. The theory is that they’ll bust in to the Greek negotiations, which are taking place across the road from the summit, to give the bankers a good fright. Who knows what will worry them more — the pair looking triumphant or angry?”

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22:43 Zerohedge with another bitter tweet:
RT @zerohedge EU Leaders moving to €100 billion writedown on Greek debt held by private sector. Greek Pension Funds are about to be wiped out.
My reply:
@YanniKouts: @zerohedge Greek Pension Funds’ projected losses at ~€12bn.
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22:34 Merkel and Sarkozy to directly negotiate with bankers on a 50% Greek debt haircut. /via @lesoir
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22:28 U.S. President Barack Obama is being kept up-to-date on the European debt crisis as leaders in the euro zone are working to stem the region’s debt woes, the White House said a few minutes ago.
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22:22 European Union Council statement: the full text

At today’s meeting, in line with paragraph 7 of the European Council conclusions of 23 October concerning relations between the EU and the Euro area, the members of the European Council were informed by President Van Rompuy about the state of preparations of the Euro Summit that will take place later in the day.

They discussed the situation and underlined their common resolve to do their utmost to overcome the crisis and to help face in a spirit of solidarity the challenges confronting the European Union and the Euro area.

They welcomed the consensus on measures to restore confidence in the banking sector reached by the Council (ECOFIN) on 22 October. On this basis, they agreed the text annexed to this statement subject to agreement on the measures indicated in this text forming part of a broader package, including the decisions to be taken by today’s meeting of the Euro Summit. The Council (ECOFIN) will finalise the work and adopt the necessary follow up measures.

Consensus on banking package

Measures for restoring confidence in the banking sector (banking package) are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector. These measures should address:

The need to ensure the medium-term funding of banks, in order to avoid a credit crunch and to safeguard the flow of credit to the real economy, and to coordinate measures to achieve this.

The need to enhance the quality and quantity of capital of banks to withstand shocks and to demonstrate this enhancement in a reliable and harmonised way.

Term funding

Guarantees on bank liabilities would be required to provide more direct support for banks in accessing term funding (short-term funding being available at the ECB and relevant national central banks), where appropriate. This is also an essential part of the strategy to limit deleveraging actions.

A simple repetition of the 2008 experience with full national discretion in the setting-up of liquidity schemes may not provide a satisfactory solution under current market conditions. Therefore a truly coordinated approach at EU-level is needed regarding entry criteria, pricing and conditions. The Commission should urgently explore together with the EBA, EIB, ECB the options for achieving this objective and report to the EFC.

Capitalisation of banks

Capital target: There is broad agreement on requiring a significantly higher capital ratio of 9pc of the highest quality capital and after accounting for market valuation of sovereign debt exposures, both as of 30 September 2011, to create a temporary buffer, which is justified by the exceptional circumstances. This quantitative capital target will have to be attained by 30 June 2012, based on plans agreed with national supervisors and coordinated by EBA. This prudent valuation would not affect the relevant financial reporting rules. National supervisory authorities, under the auspices of the EBA, must ensure that banks’ plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy and taking into account current exposure levels of the group including their subsidiaries in all Member States, cognisant of the need to avoid undue pressure on credit extension in host countries or on sovereign debt markets.

Financing of capital increase: Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support , and if this support is not available, recapitalisation should be funded via a loan from the EFSF in the case of Eurozone countries.

State aid

Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework, which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis.

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21:59 WSJ’s Min Zeng reports about the markets’ reaction to the Euro Council:
Despite a lack of a comprehensive deal out of the European summit, investors take comfort in signs officials are moving forward toward a breakthrough. An encouraging sign is that EU is reaching out to big cash cows such as China to help stem the crisis — which, if successful, would give a strong boost to the euro-zone’s crisis-fighting capacity. The hope is that a package would be ready for next month’s G-20 summit. French President Nicolas Sarkozy will telephone China’s President Hu Jintao on Thursday to discuss EFSF and G20, the Journal reported. US stocks rebound and the DJIA is recently 1.3% higher. The euro now recoups losses to trade little changed at $1.3911. Safe-haven assets flip from an earlier rally — benchmark 10-year Treasury note is 21/32 lower to yield 2.207%.
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20:38 Financial Times’ Brussels blog: RT@ftbrusselsblog Polish PM Donald Tusk warns not to expect a full deal tonight. “We are close, but some details may require more time”.
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20:14 EU Council is about to finish. WSJ’s Laurence Norman writes from Brussels:

There will be no amount announced for the recapitalization plan in the upcoming statement from European Union leaders on the bank plan, a senior EU source said Wednesday.

EU leaders are expected to wrap up their meeting shortly, with a press conference expected from Polish Prime Minister Donald Tusk, whose country currently holds the EU presidency.

The source–a person familiar with the discussions–said that as with the earlier draft statement that was widely leaked, there would be no total amount for the recapitalization plan. EU officials have said in recent days they expected a recapitalization of 107 billion euros to 108 billion euros, but that has not been confirmed.

The official also said there had been no significant changes to the plan since the earlier statement was leaked. It has been “rather stable,” she said.

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20:55  China has agreed to invest in the European Financial Stability Fund (EFSF), European Union diplomats said Wednesday. (RFI)
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20:14  Financial Times: Peter Spiegel, FT Brussels bureau chief, has more exclusive news from the summit:

“The FT has received more details on the draft conclusions that were presented to the 17 eurozone leaders as they headed into Wednesday’s summit. The most interesting thing about the communiqué may be what’s not in it.

After a long section praising Spain for reducing its budget deficit, restructuring its banks, reforming its labour markets and adopting a constitutional balanced budget amendment is a blank section just labelled ‘Italy’. So far, there’s nothing in the section. Clearly, the eurozone leaders are still undecided whether efforts Silvio Berlusconi has made to date are enough to warrant the same praise as Madrid.

The sections on Greece still remain vague and inconclusive, a reflection of the still unresolved talks with Greek bondholders, which many now believe may not be completed in time for summit’s end.

The draft also for the first time makes clear that both proposals for enhancing the firepower of the €440bn eurozone bail-out fund – a first-loss guarantee scheme and a special purpose vehicle to be seeded with bail-out money – will be implemented at the same time. But it also calls on the ‘modalities to be completed by eurozone finance ministers sometime next month.

These documents always change before the summit wraps up, but it gives no reason to believe that specifics will be decided by the night’s end.”

20:12  Developments so far today (FT):
  • Trading on world markets has been wary. The FT’s Jamie Chisholm’s 4pm update has all the figures
  • Angela Merkel won an emphatic majority for her mandate to take to Brussels and lawmakers approved expanding the firepower of the eurozone’s rescue fund
  • Silvio Berlusconi found himself juggling tough demands from his fellow EU leaders for a concrete reform plan and a fractious coalition. The Italian PM was working on his proposals right up until he left for Brussels. And MPs in Rome started thumping one another. The FT’s Guy Dinmore reports from Rome
  • Private holders of Greek bonds were closeted with EU negotiators over the size of the “haircut” to the value of Greek bonds. The bondholders said they had made a “significant new offer” but details were there none
20:01  RT @Nouriel High time for Berlusconi to put his country’s interest above his personal ones and quit. Government change long overdue for many months now
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19:07  Greek PM Says the Time Is Now (WSJ)
http://blogs.wsj.com/source/2011/10/26/debt-crisis-live-blog-euro-summit, by Ainsley Thomson and Laurence Norman

Now is the time European leaders must make the decisions to put an end to the uncertainty and crisis in Europe, Greek Prime Minister George Papandreou said on Wednesday. Speaking on his way into a meeting of EU leaders, Mr. Papandreou said the Greek people are “making a superhuman effort to put our house in order to make our economy confident viable, prosperous and create a better future for the Greek people.””Now is the time for the European leadership collectively to take decisions to end the uncertainty, end the crisis, turn the page and make sure we make a big step forward for the better future and prosperity and security for our peoples in Europe.”
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Turkey proposed ‘secret negotiations’ to Greece on Aegean dogfights

Secret meetings between Greece and Turkey on Aegean dogfights: According to a report today by Aristotelia Peloni on Greek daily ‘Ta Nea’, Turkey in June tried to start a secret diplomatic dialogue with Greece on Aegean airspace issues. According to a classified diplomatic wire obtained by “Ta Nea” the ‘dialogue’ would be held independently of the ongoing bilateral exploratory contacts between the two countries.

Ankara proposed a secret deal to reduce airspace tension and made proposals that would turn part of the Aegean Sea into a neutral zone, whereas Turkish Air Force could fly in airspace now controlled by Greece.

Turkish proposal was similar to positions formulated by Turkey in 2006 and 2009 on the formation of a joint airspace management regime in the Aegean.

According to ‘Ta Nea’ Turkish Prime Minister Recep Tayyip Erdoğan made the proposal during his visit in Athens in May. He proposed to George Papandreou a parallel channel of dialogue to reduce tension between the two countries and lower the risk of accidents over the Aegean. The Greek side accepted the proposal. As a classified telegram of the Greek Ministry of Foreign Affairs on June 18 shows a month after Erdoğan’s visit to Athens Greek Foreign Ministry General Secretary Alexis I. Zeppos and Turkish Deputy Foreign Minister and Turkish Chief Negotiator with Greece Feridun Sinirlioğlu met in Istanbul once on Aegean airspace issues. The Turkish side suggested that discussions should include the ‘package’ proposed Turkey in August 2009, the ‘code of conduct’ proposed in 2006, and air traffic ‘behavior’ proposed by Greece in 2006. Two proposals that were made by Erdoğan during his Athens visit were added: Fighter jets should fly unarmed and ‘flight plans’ should be exchanged daily between Greek and Turkish Air Force. Sinirlioğlu expressed the vision that practical ways to reduce tension in the Aegean should be aimed and the two parties shouldn’t address core issues. As he stated according to the telegram “to turn the basketball game into a volleyball game by putting a safety net in the middle”. So whatever the agreement that would not undermine the negotiating positions on bilateral diplomatic talks.

The three main points of the Turkish proposal were: i) a secret ‘gentleman’s agreement’ to implement ‘a code of conduct’ beyond 10 nautical miles of airspace, ii) Turkish fighter jets would not fly over Greek islands if Greek jets would not engage in an aggressive way, and iii) Turkish jets would only violate Greek airspace within a 6-10 nautical mile range and accordingly Greek interceptions to be reduced in international airspace off the Greek coast. Sinirlioğlu proposed a new meeting to be held on June 29 in Athens in order to summarize all proposals made by both sides at times and to provide a common basis for discussions.

Under the pretext that these issues should be addressed directly Sinirlioğlu suggested to proceed with the ‘secret dialogue’ regardless of the course of official bilateral negotiations and even proposed to have them completed by the end of September.

However talks were ‘frozen’ indefinitely by Greek Prime Minister George Papandreou, as he estimated that Turkish proposals affect Greek sovereignty and saw them as an attempt to implement a co-management regime in the Aegean Sea. Therefore, according to reports, airspace issues are currently excluded from bilateral talks.

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Angela Merkel blocked a Deutsche Bank-arranged rescue plan for Greece in February

Angela Merkel blocked a bank-arranged rescue plan for Greece in February: German newspaper “Die Zeit” today reveals the secret negotiations that took place between Deutsche Bank and Greece. DB arranging a rescue plan for Greece, but German government blocked it. A DB-team under interest-rate specialist Michele Faissola met with Greek Financial Minister George Papaconstantinou on February 4, to find solutions to Greece’s fiscal problems. The bankers suggested to invest between 10 and 20 billion euros in Greek government bonds. The bonds would be bought by German State Investment Bank KfW and French State Bank Caisse des Dépôts et Consignations (CDC). In a letter to Papaconstantinou the bankers demanded “a detailed reform plan that was imperative and had to be negotiated with the European Commission”. They were ready to send a team of experts to negotiate the deal. On February 26 Deutsche Bank chief Josef Ackermann visited Athens and met with Greek Prime Minister George Papandreou and Papaconstantinou. There were various media reports on Greek media about the visit. There was the impression that a deal was imminent. Ackermann returned the same day to Berlin and met with Chancellor Merkel’s financial advisor Jens Weidmann only to find out the deal was “rejected” because it was against EU-regulations.

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