Reuters | Wed May 5, 2010 | 4:34pm IST
Euro zone policymakers and the head of the IMF warned of looming financial contagion on Wednesday unless a euro zone debt crisis is stopped in Greece, as nervous investors fled to the safe haven of the dollar. Greek public and private sector workers shut down airports, tourist sites and public services in a general strike and tens of thousands demonstrated in Athens against harsher austerity, accepted by the government as the price for a 110 billion euro ($146.5 billion) EU/IMF bailout on Sunday. German Chancellor Angela Merkel told parliament Europe’s fate was at stake in the most serious crisis in the single currency’s history, and other euro zone countries could be hit unless the rescue for Greece succeeds. European Monetary Affairs Commissioner Olli Rehn said it was vital to stop the crisis spreading beyond Greece. "It’s absolutely essential to contain the bushfire in Greece so that it will not become a forest fire and a threat to financial stability for the European Union and its economy as a whole," he told a news conference.
Anxiety over a widening of the euro zone debt crisis sent stocks tumbling worldwide, and the euro hit a new one-year low. Shares in Spain and Portugal, seen as the next two targets for investors, testing the European Union’s will and ability to defend weak euro zone economies fell for a second straight day. Lisbon had to pay more than four times its previous yield to sell six-month treasury bills at auction on Wednesday. Merkel, whose foot-dragging many analysts have blamed for aggravating the Greek crisis, told parliament the success of the rescue package would determine "nothing less than the future of Europe — and with it the future of Germany in Europe". "We’re at a fork in the road," she said in a debate on approving Berlin’s 22 billion euro contribution to the emergency loans for Athens despite hostility among the German public. Without the aid, a chain reaction
Washington Post | Op-Ed column | Friday, April 30, 2010
Two months ago, his back against the wall, the finance minister of Greece chose a strangely honest metaphor to describe his country’s prospects: "We are basically trying to change the course of the Titanic." Since that remark, this Modern Greek tragedy has played out much as its anti-hero prophesied: Investors understand that Greece has borrowed more than it is likely to repay, so they have driven up interest rates on Greek bonds, setting off a death spiral. At moments, the tragedy has been tinged with farce. After the government promised to collect more tax revenue and keep paying its debts, Greek civil servants went on strike — including some tax collectors.
Now the question is how many other European countries might follow Greece — and what this means for Europe’s common currency. The beginnings of the same death spiral threaten the indebted economies of Portugal and Spain; Italy and Ireland also look vulnerable. Europe’s leaders have dithered disastrously about whether they would provide Greece (and, by extension, others) with a bailout. Even if they belatedly come forward with a large rescue, the crisis has exposed alarming flaws in Europe’s currency framework. The euro project can work only if its members are improbably virtuous. This is often thought to mean simply that governments must avoid borrowing too much: Countries that use the euro are supposed to keep budget deficits below 3 percent of gross domestic product — not that they have done that. But the crisis has spotlighted a second temptation: Countries in the eurozone must prevent private companies from raising workers’ pay too fast. Otherwise they can’t compete against the cost-containing Germans.
Of these two temptations — too much borrowing and too much pay — the first is getting all the attention, but the second is most threatening to the euro. After all, a government that borrows too much can simply default. It can do that whether it is inside a currency union or outside it. But a eurozone member that allows wages to
Reuters | Wed Apr 28, 2010 | 2:57pm IST
Fears that a planned rescue of Greece could stall and extend the financial crisis to other euro zone countries hit European markets on Wednesday as investors worried that Athens may default on its debt. A day after rating agency Standard and Poor’s slashed Greek debt to junk status, the premium investors demand to hold Greek government bonds jumped to its highest in 14 years. S&P also downgraded Portugal, raising concerns the crisis may spread to other indebted states on the eurozone fringes. European shares hit a five-week low in early trade, after recording their biggest one-day fall in five months on Tuesday. "The chances of a default by the Greek government are increasing not by the day but by the hour. If the IMF and European governments don’t come up with something quickly, then I see the market going down further quite rapidly," said Koen De Leus, economist at KBC Securities.
European Central Bank Executive Board member Juergen Stark said governments must ensure the financial market troubles do not develop into a full blown sovereign debt crisis. "The current trend in fiscal policies is simply not sustainable. … The onus is now on governments to ensure that the crisis that initially affected the financial sector, and subsequently the real economy, does not lead to a full-blown sovereign debt crisis," Stark said. "Averting it will require very ambitious and credible fiscal consolidation efforts. In fact, substantially stronger consolidation efforts than those conceived so far." European Union President Herman Van Rompuy said he would convene a summit of euro zone countries around May 10 and insisted there would be no restructuring of Greek debt. "Negotiations are going on, they are well on track, and no question about restructuring of the debt," he told a news conference in Tokyo.
Reuters | Tue Apr 27, 2010 | 3:16pm IST
The aid package for Greece must tackle the root causes of the country’s economic weaknesses, European Central Bank Vice-President Lucas Papademos said on Tuesday. Papademos, a former head of the Bank of Greece, said financial market pressures on Greece had intensified despite the country’s promises to clean up its public finances and support for the reforms from European Union policymakers. Greece asked for emergency aid on Friday and is currently in talks with the European Union, the International Monetary Fund and the ECB on the terms of the deal.
"It is essential that the economic programme currently being prepared by the European Commission, the ECB and the IMF together with the Greek authorities specifies comprehensive fiscal measures and structural reforms that will address the root causes of Greece’s fiscal imbalances and structural weaknesses so as to ensure the sustainability of its public finances and improve the country’s international competitiveness," Papademos told a European parliament committee. He urged all euro zone countries to stick to EU budget rules, warning that fiscal imbalances were not expected to see a discernible improvement until 2011-2012. He also warned that some fiscal repair plans did not have enough detail or were based on over-optimistic assumptions.
"In several stability programmes, the fiscal strategies presented are not underpinned by adequately specified measures, in particular for the latter years of the projection horizon. Moreover, in a number of cases, the stability programmes are based on optimistic macroeconomic assumptions that put the
Reuters | Mon Apr 26, 2010 | 4:40pm IST
Uncertainty over an aid package for Greece pushed up its borrowing costs to a 12-year high on Monday, with demands from Germany for further austerity measures before aid is granted heightening the tension. Greece tried to reassure investors on Sunday that aid would arrive in time to avert the euro zone’s first sovereign debt default, despite signs that a 45 billion-euro ($60.49 billion) EU-International Monetary Fund package would have to be bigger. But the premium investors demand to buy Greek government bonds rather than euro zone benchmark Bunds hit a new 12-year high on Monday because of concern over the implementation of the aid package and the conditions attached.
"The market wants to see the cash laying on the table, not in a coffer besides the table," said David Schnautz, strategist at Commerzbank in Frankfurt. The backing of Germany, Europe’s biggest economy, is vital for any aid but Berlin faces public opposition to a financial rescue and is taking a tough line over the terms. "The government has not taken a decision (on aid)," German Foreign Minister Guido Westerwelle told reporters at a meeting of European Union ministers in Luxembourg. "That means that the decision can fall in either direction. Offering money too soon would get in the way of Greece doing its homework with the requisite diligence and discipline." Despite German pressure on Athens, markets kept pressure on Berlin to decide fast by pushing up the cost of insuring Portuguese government debt against default to a record high because of fears that Portugal could be next to debt crisis.
BBC NEWS | 2010/04/11 | 15:33:24 GMT
Leaders of the 16 eurozone nations have agreed to fund up to 30bn euros (£26bn) in emergency loans for debt-hit Greece, if the country wants the cash. The price of the loans will be fixed using IMF formulas, and be about 5%. Luxembourg Prime Minister Jean-Claude Juncker, speaking for eurozone finance ministers, said there were no elements of subsidy in the loan proposal. "The total amount put up by the eurozone member states for the first year will reach 30bn euros," he said.
He also said that the eurozone countries had not decided to activate the loans, as this would depend on a decision by the Greek government. Mr Juncker added that the financing would be "completed and co-financed" by the International Monetary Fund. However, European Commissioner for Economic and Monetary Affairs Olli Rehn said it would be up to the IMF to reveal its precise share of the loan package. This loan offer means Greece would not have to rely on raising funds in financial markets. Greece has to find around 11.5bn euros (£10bn) by next month to meet its financial obligations. Its total debt stands at nearly 300bn euros. An exact interest rate for Greek loans will only be finalised after Greece formally requests help, something it has not previously done. "The Eurogroup is confident that the determined efforts of the Greek authorities and of its European partners will allow [it] to overcome the fiscal and structural challenges of the Greek economy," said a statement for the eurozone nations.
Bloomberg | April 9, 2010 | 08:07 EDT
European Union officials said they are ready to rescue Greece if needed as economists at UBS AG said that a bailout may be imminent as the country’s financing costs surge. “A support plan has been agreed and we are ready to activate at any moment to come to the aid of Greece,” French President Nicolas Sarkozy told reporters in Paris. The EU is “ready to intervene,” Herman Van Rompuy, the president of the 27-member bloc, was cited as saying by Le Monde today. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points yesterday, the highest since the introduction of the euro. Prime Minister George Papandreou has said borrowing at those levels is unsustainable. Greece will need to seek emergency funding now to make debt repayments of more than 20 billion euros ($27 billion) in the next two months, UBS economists said in a note.
“The recent market action means that an external intervention may be unavoidable and could happen very soon as the situation is untenable,” UBS economists including Stephane Deo wrote. “An intervention over the weekend is a distinct possibility.” Greece still needs to raise 11.6 billion euros to cover debt that is maturing before the end of May and plans to sell bonds to U.S. investors in the coming weeks. The country’s debt agency announced today it would offer 1.2 billion euros of six- month and one-year notes on April 12. Greek Finance Minister George Papaconstantinou said today he’s still not planning to seek emergency EU financing.
The spread on Greek 10-year debt narrowed to 409 basis points. Still, that means that Greece will likely need to pay 4 percentage points more than what Germany would pay to sell 10- year bonds, and those higher financing costs will offset some of the spending cuts imposed to bring down a deficit of 12.7 percent of gross domestic product, the largest in the EU. “We are likely getting
Bloomberg | April 9, 2010 | 03:56 EDT
Mounting speculation that Greece will default on 304.2 billion euros ($405.2 billion) of debt is depriving European Central Bank President Jean-Claude Trichet of the stable markets needed to bring Europe out of its worst post-war recession. Since early February when politicians began squabbling over how to rescue Greece from Europe’s largest deficit as a percentage of gross domestic product, the euro has lost 4.1 percent against the dollar and the extra yield demanded by investors to hold Greek debt rather than German bunds increased as much as a record 4.43 percentage points as traders saw a greater risk of default. Trichet, who was supposed to spend his final year in office nurturing the region’s nascent recovery, finds himself powerless to resolve the crisis because he has no control over fiscal policy.
“Trichet is essentially an observer in the current crisis,” said Colin Ellis, an economist at Daiwa Capital Markets Europe Ltd. in London and a former Bank of England official. “He does not hold the levers of power.” Greece is highlighting the limits of Trichet’s ability to maintain confidence in the euro, which is facing its biggest challenge since he helped bring it into being in 1999. Trichet, who described himself as ‘Mr. Euro’ in 2006, has no say over how taxpayers’ funds should be used to rescue Greece. EU leaders rebuffed a March 4 warning from Trichet that involving the International Monetary Fund in a rescue would show that Europe was incapable of solving its own crises.
The euro extended yesterday’s gains and traded at $1.3388 at 9:42 a.m. in Frankfurt after Trichet said in an interview with Italy’s Il Sole-24 Ore newspaper that Greece won’t need a bailout “at this moment.” The spread between Greek and German 10-year yields is still 423 basis points. A basis point is 0.01 percentage point. Trichet, whose eight-year term ends in October next year, yesterday attempted to answer reporters’ questions about the interest rates
BBC News | Thursday, 25 March 2010 | 11:01 GMT
The euro has fallen to its lowest level against the dollar for 10 months as European Union leaders disagree on how best to deal with Greece’s debt crisis. Comments by the Bank of China’s deputy governor about high debt levels across Europe also pushed the euro lower. Against the dollar, the euro fell to $1.333, its lowest level since early May last year. Against the pound, it fell by 0.3% to 89.338 pence. EU leaders are meeting in Brussels, but Greece is not officially on the agenda. However, European Commission president Jose Manuel Barroso has repeated calls ahead of the summit for leaders to agree an aid package for Greece. Germany is unconvinced that Greece needs help. Greece itself has not asked for any direct financial assistance.
Deputy governor of the Bank of China Zhu Min was reported as saying the Greek debt crisis was just the "tip of the iceberg", which heightened concerns about high budget deficits in other European countries. Mr Zhu’s comments are "as good an indication as any of how rapidly fundamental concerns are growing about the eurozone", said Simon Derrick at Bank of New York Mellon. "Indeed, this comment might well signal the point that we stop talking about a ‘Greek debt crisis’ and start talking about a ‘eurozone structural crisis’ instead."
Reuters | Thu Mar 18, 2010 | 11:47pm IST
World stocks dropped on Thursday and the euro weakened against the US dollar on renewed worries about Greece, which said it may be unable to solve its fiscal problems if borrowing costs stay high. Adding to the moves in currencies, traders linked the euro’s selling to rumors the US Federal Reserve would hike the discount rate. Asked about the speculation, the Fed said it does not comment on rumors. The euro fell to session lows against the US dollar of $1.3587 before recovering to $1.3619 at midday in New York, according to Reuters data. The MSCI’s all-country world stock index dipped 0.46 percent while its emerging market-only counterpart fell 0.47 percent.
Greece raised the stakes in its quest for EU help to tackle its debt crisis, saying it cannot achieve promised deficit cuts if its borrowing costs remain so high and may have to call in the IMF. "This just highlights the uncertainty surrounding the Greece issue. There seems to be no consensus in the euro zone, which is undermining confidence and that is what is weighing on the euro today," said Antje Praefcke, currency strategist at Commerzbank. The pan-European FTSEurofirst 300 index of shares dropped 0.11 percent to end at 1,068.93 points, while the Nikkei 225 Index fell 0.95 percent.
BBC NEWS | 05:50 GMT | Wednesday, 3 March 2010
Greek Prime Minister George Papandreou has likened the country’s budget crisis to a “wartime situation”. He said Greece was at risk of bankruptcy if it did not take radical extra measures to cut its debts. The comments come as Mr Papandreou is set to chair a cabinet meeting, expected to announce big budget cuts. The government in Athens has pledged to reduce its deficit from 12.7% – more than four times the limit under eurozone rules – to 8.7% during 2010. It also also seeking to reduce its 300bn euros ($419bn; £259bn) debt.
‘Blow to wallets’
“We find ourselves in a wartime situation, faced with the negative scenarios affecting our country,” Mr Papandreou told the parliamentary group of his Socialist Party (Pasok). He said that Greece had to avoid “a nightmare of bankruptcy” in which the state would not be able to pay salaries or pensions. Mr Papandreou has used some dramatic phrases to describe Greece’s fiscal problems over the past few months, but this was his most alarmist to date, the BBC’s Malcolm Brabant in Athens says. The prime minister was effectively telling Greeks to prepare themselves for another blow to their wallets, our correspondent adds. Continue reading
News Week | Michael Hirsh | Feb 16, 2010
“Behind each great historical phenomenon,” Niall Ferguson has written, “lies a financial secret.” So it is with Europe’s latest identity crisis. Greece’s euro troubles have a lot to do with its fiscal irresponsibility and the instability at the heart of European Monetary Union—a group of countries that sometimes behave like “the United States of Europe” and at other times revert to nationalistic petulance (witness German resistance to a Greek rescue). But the Greek panic—and fears of a euro collapse and another financial contagion—also have a great deal to do with secret derivatives deals orchestrated by big American banks. As a result, the euro crisis is casting, yet again, a harsh light on efforts by Wall Street lobbyists to gut proposed rules requiring transparency in trading.
As always with European crises, we start out thinking they should be left for the Europeans to fix. Then we get dragged in. Only this time, we discover, Goldman Sachs and other investment banks already dragged us in years ago. Their strategy dates back to the ’90s, when countries such as Greece and Italy, with chronic fiscal deficits, were eager to join the EMU but couldn’t match the standards of budget discipline imposed by the 1992 Maastricht Treaty. So Wall Street helped them hide their true national indebtedness, at a high price. But these deals only made the crisis worse when the market reckoning finally came. This is not a new phenomenon. Many previous currency crises, going back to Asia in 1997–98 and Mexico in 1994–95, were exacerbated by overleveraged derivatives trades that were not revealed until much later. In those earlier cases it was the local banks, not the governments that cut quiet swaps deals to juice their income. When Mexico decided in Continue reading
Reuters | Paris | Thu Feb 18, 2010 | 7:48pm IST
The Greek debt crisis has hurt confidence in euro zone assets and fuelled speculation about the future of the zone, as it struggles to impose fiscal discipline on member countries with very different economic performances. Following are five major scenarios for how the crisis may develop over the coming year, with assessments of their probabilities and implications for financial markets:
GREECE RESCUES ITSELF
SCENARIO: By the end of this year it becomes clear that the Greek government, under heavy pressure from the European Union, is having success in cutting its budget deficit from 12.7 percent of gross domestic product last year toward targets of 8.7 percent in 2010 and below 3 percent, the EU ceiling, in 2012. Public debt, estimated this year at 120 percent of GDP, looks set to begin falling back in coming years. Credit rating agencies indicate they may not downgrade Greece further this year, easing concern that Greek debt could become ineligible as collateral in European Central Bank funding operations when the ECB is due to tighten standards at end-year. A virtuous circle develops in which shrinking Greek bond spreads reduce Greece’s cost of borrowing, further restoring confidence.
PROBABILITY: This may remain the most likely single outcome. Although a 4 percentage point cut in the budget deficit this year is ambitious, the EU has made clear it may demand further steps to meet that target when it evaluates Greece’s progress in mid-March and at intervals later in the year. Greek leaders have repeatedly said they will “do what it takes” to hit the targets. Domestic Greek politics, and the Continue reading