Papandreou on the verge of resigning

As talks continue today in Greece to solve the debt crisis,Prime Minister George Papandreou appears likely to resign maybe before the end of the night.

Sources are saying that Papandreou asked the Greek president,Karolos Papoulias to host a three-way meeting with himself and the leader of the opposition this evening after a cabinet meeting to explore the possibility of an agreement soon.

The conservative opposition offered to cooperate in forming a national unity government provided Papandreou stood aside after two years at the helm.

Papandreou and opposition New Democracy party leader Antonis Samaras are set to meet at 6.00pm tonight and Samaras has insisted that Papandreou should resign before a new coalition is set up.

Is he in or his he out?

So where are we after Day one of the G20 summit and has the Euro been saved?

Has he or has he not has been the main discussion.Has Greek Prime Minister George Papandreou offered his resignation and if so has the referendum been cancelled?

The answer,as I write this.is that nobody is really sure.

He is currently addressing the Greek Parliament,telling MP's that Angela Merkel and Nicolas Sarkozy said that Greece would be out of the EU for ten years if they refused to accept the terms of the bailout,urged political unity in Greece, and inviting the opposition party to "jointly negotiate" the new bailout deal.

It does appear now that the referendum will not be going ahead.

Meanwhile the new ECB boss Mario Draghi,in a bid to calm the markets cuts the ECB policy rate to 1.25 per cent from 1.5.

Whilst in the UK,the city minister Mark Hoban admitted in the Commons that the Government had drawn up contingency plans for the break up of the eurozone.

David Cameron tells the press that the UK would not contribute to any further bailouts, but would consider increasing their contribution to the IMF.

A flaw in Osbourne's plans maybe

We may be on the edge of the EU's tackling or non tackling of the Greek crisis but its outcome may may profound effects on George Osborne's economic visions.

According to Chris Dillow,

Greece’s troubles cast doubt over George Osborne’s “new economic model”, which envisages a rebalancing of the economy away from public spending and towards exports?

after he has argued that tough fiscal medicine will be balanced by the creation of an export market as sterling weakens.

However

What if all countries are tightening fiscal policy? They can’t all have falling exchange rates.

Where do our exports go then

No such thing as a Keynesian free lunch

A very interesting piece in the FT this morning from Niall Ferguson who argues that

it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies

According to his rational,

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect

Eurozone under crisis

Off the radar somewhat but fair play for the Independent in highlighting the story this morning is the worrying trend in European stock markets which have been plunging on fears of debt in Southern Europe.

As the paper reports

Some £30bn has been wiped from the FTSE in recent days, and it lost a further 1 per cent of its value yesterday as European policymakers again failed to reassure markets that the "contagion" could be contained. The crisis could push Europe, including the UK, into a "double dip" recession. In foreign exchange markets, the euro slumped to its weakest level against the dollar since May, and its weakest level against the yen for more than a year.

and as the FT says

The rout sent investors fleeing to the safety of US government debt, boosting the dollar to its highest level against the euro in more than eight months and sending US Treasury prices higher only days after the Obama administration forecast a $1,556bn deficit for 2010.

Problems in Greece,Portugal and Spain are puuting the Eurozone under its biggest test since formation and whilst the Greek government is urgently addressing those problems,it will need the giants of the zone,notably Germany to support such measures

A lesson In Greek

Maybe we shold be looking at the way that the Greek government is tackling its spiralling national debt?

Yesterday,Prime Minister George Papandreou has announced tough austerity measures to tackle a growing problem in the country,currently 13 per cent of GDP whereas the Euro Zone limit is 3 per cent.

Measures will include a blanket freeze on civil servants' salaries, and a raising of fuel taxes as well as other ways of broadening the tax base.

The government would extend a public sector wage freeze to those making below 2,000 euros a month for this year, excluding seniority pay hikes. Those making below that mark had previously been promised above inflation pay rises.