Greek gov't slams international debt inspectors

By ELENA BECATOROS

BusinessWeek

Feb. 12, 2011

ATHENS, GREECE - Greece on Saturday slammed European and International Monetary Fund debt inspectors overseeing the country's efforts to reform its economy, accusing them of interfering in the debt-ridden country's internal affairs and saying they had overstepped their mark.

In an unusually harshly worded statement issued in the early hours of Saturday morning, government spokesman Giorgos Petalotis said the behavior of the inspectors at a news conference the previous day had been unacceptable.

The IMF, European Central Bank and European Commission delegation said Greece must privatize euro50 billion ($68 billion) in state assets and speed up structural reforms in the next few months to keep the country's troubled finances afloat. The IMF representative also said some of Greece's frequent demonstrations against the government's reforms were being carried out by groups angry at the prospect of losing "unfair advantages and privileges."

Petalotis said in his statement that, "We have needs, but we also have limits. And we do not negotiate the limits of our dignity with anyone," He added: "We take orders only from the Greek people."

It is the first time the government has publicly struck back at the IMF and EU, which have rescued Greece from bankruptcy but at a price many Greeks consider too harsh.

The opposition conservative party, however, struck back at the government, saying it was "too late for false tears" and that the government's "post-midnight theatrical performance is a farce."

Greece's economy is under strict supervision as part of a deal for the country to receive a euro110 billion package of bailout loans from the IMF and other European Union countries that use the euro -- funds that saved Greece from defaulting on its mountainous debts last May.

In return, the government has been pushing through stringent and unpopular reforms, including cutting public sector salaries and pensions, increasing taxes and overhauling labor laws. The austerity program has led labor unions to stage a series of strikes and demonstrations.

Batches of the loan are released every quarter, before which representatives from the IMF, EC and ECB visit Athens to review progress.

On Friday, the representatives -- collectively dubbed the 'troika' in Greece -- said Greece must privatize euro50 billion ($68 billion) in state assets and speed up structural reforms in the next few months to keep the country's troubled finances afloat.

IMF mission chief Poul Thomsen said Greece's long-term reforms were being "fiercely tested by vested interests." He said some of those demonstrating against the reforms, such as truck drivers and pharmacists, were "people who are angry because the government wants reforms that will take away their privileges."

Thomsen said he was "not surprised that these groups are protesting but I'm also convinced ... that the Greek population see it for what it is: an attempt to preserve their unfair advantages and privileges."

The troika's Friday afternoon press conference had led to quick outrage in sections of the Greek press, with one anchor on a private network describing Thomsen's remarks as being "unacceptable." But there was no government reaction until Petalotis' statement shortly before 2 a.m.

"We asked them to help and we are fully honoring our commitments. But we didn't ask for anyone to intervene in our country's internal affairs," he said, adding the government would make clear that "everyone must understand their role."

Greek national debt is set to exceed 150 percent of GDP this year, and during the news conference the troika laid out the new privatization program worth euro50 billion through 2015 -- seven times larger than a target set three months ago.

Thomsen scoffed at a suggestion that Greece might sell its ancient monuments to raise money, but argued "the mismanagement of public property is a major source of waste" in Greece.

Privatization targets are likely to include state companies not listed on the stock market and the development of public land, including Olympic facilities that have languished since the Athens Games in 2004. Greece will seek euro15 billion ($20 billion) in privatization and real estate development this year alone, according to Finance Ministry officials.

Petalotis said the government had frequently spoken of the need to utilize state property, but stressed that any such program would have to be done transparently and "in no case means the sale of public land."

"It is equally obvious that only the Greek government is able to take these decisions," he said.

--------

Associated Press writer Derek Gatopoulos contributed to this report.

Japan Government Debt Hits Record Y919 Trillion

TOKYO (Dow Jones)--Japan's outstanding public debt hit a record Y919.151 trillion at the end of last year, the Finance Ministry said Thursday, likely fueling concerns over the nation's fiscal health and adding to a sense of urgency within the government to quickly formulate a tax hike plan.

The ministry's quarterly data showed public debt rose 1.1% from the end of September, reaching a level equivalent to 194% of Japan's nominal gross domestic product for the fiscal year ended March 2010.

[This article is a stub - You must be a subscriber to the Wall Street Journal to view the rest.]

In Congress, Bernanke Faces Questions About Inflation

By SEWELL CHAN

Feb 9, 2011

WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, parried tough questions Wednesday about rising gasoline prices in the United States and the soaring cost of food and grains in the emerging world as he defended the central bank’s $600 billion program to shore up the recovery.

Mr. Bernanke said it was “certainly possible” that the Fed might cut short its efforts to loosen credit by buying Treasury bonds, especially if domestic inflation were to flare. But Mr. Bernanke maintained that for now, inflation was comfortably in check despite rising commodity prices overseas.

In his first appearance before House lawmakers since Republicans took control of the chamber last month, they repeatedly tried to draw him into the fierce debate over a looming vote to raise the government’s $14.3 trillion borrowing limit.

But the Fed chairman repeatedly declined to side with one party or the other on what was needed to plug the budget deficit. “Congress is going to have to decide where its values are, whether it wants to raise taxes, whether it wants to cut spending or whether it wants some combination,” Mr. Bernanke said.

The chairman reiterated his view that toying with the debt ceiling — some Republicans want to use the vote to force the Obama administration to make immediate spending cuts — could be disastrous if it resulted in a time-consuming debate that worried debt markets and forced the Treasury to default.

Representative Paul D. Ryan of Wisconsin, the new chairman of the House Budget Committee and a vocal skeptic of the Fed’s bond-buying effort, told Mr. Bernanke: “My concern is that the costs of the Fed’s current monetary policy — the money creation and massive balance sheet expansion — will come to outweigh the perceived short-term benefits.”

Mr. Ryan described “a sharp rise in a variety of key global commodity and basic material prices,” and an increase in interest rates of longer-term Treasury securities. And while conceding that American consumers were not yet experiencing substantially higher prices, Mr. Ryan warned that “the inflation dynamic can be quick to materialize and painful to eradicate once it takes hold.”

Mr. Ryan all but accused Mr. Bernanke of devaluing the dollar, saying, “There is nothing more insidious that a country can do to its citizens than debase its currency.”

Mr. Bernanke said the rise in commodity prices was mostly “a result of the very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.” He did not mention China by name, but he has in the past.

He added that overall inflation was “still quite low” and that longer-term inflation expectations, which can influence short-term changes in prices, were stable.

In 2010, a closely watched measure of inflation, the price index for personal consumption expenditures, rose by 1.2 percent, compared with 2.4 percent in 2009. And core inflation, which excludes the food and energy prices, was 0.7 percent in 2010, compared with around 2.5 percent in 2007. Wages rose only 1.7 percent last year.

Mr. Bernanke also denied printing money to finance government borrowing, saying, “What we’re doing here is a temporary measure that will be reversed.” Eventually, the Fed sells the bonds it acquires.

While part of the historically large deficits of the last two years stem from the government’s responses to the recession, Mr. Bernanke said the budget would remain on an unsustainable path even as the economy improved because of an aging population and rising health care costs.

Though Mr. Bernanke did not take sides on the most volatile questions of fiscal policy — whether to cut military spending, change entitlement programs like Medicare and raise personal income tax rates — he did offer lawmakers some suggestions.

He told Representative Betty McCollum, a Minnesota Democrat, that Congress should close myriad corporate tax loopholes and then lower the corporate tax rate. He told Representative Mike Honda, a California Democrat, that wise investments in education, including community colleges and on-the-job training, were essential to lowering unemployment.

The chairman also offered some of his most detailed comments to date on what he called China’s “counterproductive policy” of undervaluing its currency, the renminbi.

“They have an inflation problem, and the way they’re addressing it is not by raising their currency value, which would reduce the demand for their exports,” he told Representative Tim Ryan, an Ohio Democrat. “Rather, they are leaving it where it is, and they are instead trying to reduce domestic demand through higher interest rates. And it would seem like a better strategy would be to let domestic demand be what it is and let people enjoy a higher standard of living in China, and reduce their exports via a higher exchange rate.”

On Tuesday, China raised interest rates for the third time since October, and many economists in Asia expect that China will do so again this year.

Mr. Bernanke said the Fed was prepared to start raising interest rates when the time came. “Just like a quarterback has to lead a receiver,” he told Representative James Lankford, an Oklahoma Republican, the Fed has to begin tightening monetary policy before inflation becomes a problem.

But Representative Todd Rokita, Republican of Indiana, said the Fed had a poor track record in that regard. “Can you name one time in your agency’s history where you got it right, where you got on the brakes in time to correct runaway inflation?” he asked.

Mr. Bernanke pointed to his predecessor Paul A. Volcker, who crushed inflation in the early 1980s by sharply raising interest rates. But Mr. Rokita said the Fed had not acted in time.

As Mr. Bernanke spoke, Representative Ron Paul, a Texas Republican, held his own hearing to lambast the Fed.

“There is a great recovery going on,” said Mr. Paul, who has advocated abolishing the Fed and now leads a Financial Services subcommittee that oversees the Fed. “But the people don’t feel that way.”

The Fed did not take part in the hearing, at which three experts testified.

Christine Hauser contributed reporting from New York.