European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets, says the FT, citing senior European officials. Under a Franco-German plan is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past. The new fund would then ensure bondholders are paid off, while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands. The report says the plan has backing from the European Commission in Brussels as well as several other eurozone countries. The WSJ says Greek politicians agreed to cut 15,000 public sector jobs by the end of this year, but the unity government has not been able to agree on wage cuts, although it cites two senior government officials as saying agreement to cut the minimum wage by 20 per cent was close.
How do you top a note that goes into the unlikely but vivid possibility of serious social unrest, civil war and authoritarian governments in modern Europe?
Such a conundrum faced UBS Europe economists after their warnings earlier this month of what a eurozone break-up could mean a few weeks ago. In a new note, they say things have entered a more dangerous phase now. A €1,000bn – €2,000bn levered rescue fund appears unrealistic, they say, amid the opposition to the ECB funding the EFSF. Read more
The head of the ECB placed a major obstacle on the path to a new agreement on a Greek financial bail-out, the FT reports, saying the bank could not accept defaulted bonds as collateral, potentially cutting off fundng from the Greek banking system. Jean-Claude Trichet, in an interview with FT Deutschland published on Monday, said other eurozone governments would have to come up with ways to keep Greek banks in business if they continued pushing for a bail-out plan that would lead to bond defaults. Mr Trichet’s statement, ahead of Thursday’s emergency summit on the eurozone financial crisis in Brussels, puts him in direct conflict with Angela Merkel, German chancellor, who has insisted bondholders bear some of the burden of a new €115bn Greek bail-out. She insisted on Sunday that she wished to avoid any Greek debt rescheduling, but underlined that the key to a deal would be substantial voluntary involvement of private creditors in easing the Greek debt burden.
European leaders are for the first time prepared to accept that Athens should default on some of its bonds as part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing, the FT says. The new strategy, to be discussed at a Brussels meeting of eurozone finance ministers on Monday, could also include new concessions by Greece’s European lenders to reduce Athens’ debt, such as further lowering interest rates on bail-out loans and a broad-based bond buyback programme. It also marks the possible abandonment of a French-backed plan for banks to roll-over their Greek debt, as more debt holders support aspects of a German proposal to reduce Greek debt levels. Sources say banks have pushed for a Greek bond buyback plan in return for agreeing to a restructuring programme, arguing that only if Greece’s overall debt were reduced could a sustainable recovery occur. Officials cautioned the new tack was still in the early stages, and final details were not expected until late summer.
The European Central Bank will continue to accept Greek debt as collateral for loans unless all the major credit rating agencies it uses declare it to be in default, a senior finance official told the FT. The ECB would rely on the principle of using the best rating available from the agencies – Standard & Poor’s, Moody’s and Fitch – the official said. The comments came after S&P on Monday said the plan, backed by France and Germany, for banks to roll over their holdings of Greek debt into new bonds would constitute a “selective default”. Fitch, the third-largest rating agency, has also indicated it is likely to call a rollover a default. But Moody’s has yet to comment. If only one of them does not downgrade Greece, the ECB could continue to prop up the Greek banking system. The ECB’s continued support for Athens is crucial given that Greek banks are almost entirely dependent on the European Central Bank for funding. Meanwhile Reuters reports that Asian stocks paused on Tuesday after several days of gains that were widely attributed to the Greek rollover deal.
Barclays Capital economists Pietro Ghezzi and Antonio Garcia Pascual have moved peripheral bond markets once before.
They pointed out in September that Ireland was in danger of falling behind on making its fiscal cuts work, considering a poor outlook for growth in the coming years. That caused Irish spreads to widen even more, amid existing tension over Anglo Irish’s bailout. Read more
Greece has become the second-most risky sovereign borrower in the world with credit markets indicating that it is more likely than not to default on its debts, according to a study. A study of credit default swap markets indicates that, over the past three months, Greece has jumped from ninth to second in a league table of the riskiest sovereign borrowers, compiled by data provider CMA, the FT reports.
What’s Greek for junk? Because that’s where Greece’s sovereign debt is, after S&P slashed its rating by three notches to BB+/BB on Tuesday.
But that’s not the worst of it. This is. From S&P’s release: Read more
A billion here, a billion there, and soon you’re talking real money, as a US Senator once (possibly) said. For Bundesbanker Axel Weber, however, you’re mostly talking a giant headache, as numbers fly over what rescuing Greece will actually cost Europe, says FT Alphaville. According to the WSJ, Weber now has the price of a Greek rescue at €80bn — a good €35bn more than the current Eurozone rescue plan has called for. Read more
The Greek finance minister is supposed to have set his government a Herculean task of fiscal adjustment — to get his country out of its debt crisis, and away from the risk of default.
So what’s the following comment all about, George Papaconstantinou? Read more