Kashyap Euro Area’s Rescue Options Shrinking

Bloomberg

One of the benefits of being an academic economist is that market participants and government officials will often tell you what they think in relatively frank terms.

Here is what I learned in dozens of meetings last week in Frankfurt, Madrid and London:

-- There is wide agreement that the status quo is unsustainable, and no one is optimistic about the future. The elevated cost of borrowing for banks and some governments must be addressed within weeks or at most a couple of months.

EFSF Leverage Euro Zone's Most Dangerous Delusion

By GEOFFREY T. SMITH

Last weekend's meetings of the International Monetary Fund and G-20 were punctuated by panicked calls for an increase in the size of Europe's rescue funds, most of them aimed, predictably, at Germany.

Europe’s high-risk gamble

SEP 27, 2011 10:33 EDT

 

By Martin Feldstein

The opinions expressed are his own.

The Greek government needs to escape from an otherwise impossible situation. It has an unmanageable level of government debt (150% of GDP, rising this year by ten percentage points), a collapsing economy (with GDP down by more than 7% this year, pushing the unemployment rate up to 16%), a chronic balance-of-payments deficit (now at 8% of GDP), and insolvent banks that are rapidly losing deposits.

Greece on Edge of Insolvency 24 Centuries After City Default

Bloomberg

By Simon Kennedy and Maria Petrakis - Sep 23, 2011 6:20 PM GMT+0300

History’s first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo’s mythical birthplace.

Twenty-four centuries later, Greece is at the edge of the biggest sovereign default and policy makers are worried about global shock waves of an insolvency by a government with 353 billion euros ($483 billion) of debt -- five times the size of Argentina’s $95 billion default in 2001.

Europe hastens to build up debt crisis defenses

(Reuters) - European policymakers are quickening their preparations to cope with an escalation of the region's debt crisis as talk of a possible Greek default gained pace on Friday.

Finance chiefs from around the world have turned up the heat on Europe to do more to prevent Greece's debt woes from infecting other euro zone countries and the world economy.

Europe, under fire, seeks to get ahead of crisis

Reuters

4:40pm EDT

By Marc Jones and David Lawder

WASHINGTON (Reuters) - European policymakers showed signs they were preparing new steps to cope with the region's debt crisis even as talk of a possible Greek default gained pace on Friday.

World stock markets, which had plunged to a 14-month low on fears the euro zone crisis was not under control, steadied after European Central Bank officials said they would use their firepower to help the banking system through the crisis.

Should Busted Greece Stay In Euro Zone?

The Wall Street Journal

Should they stay or should they go? Now that it's (almost) all right to admit that Greece is insolvent, the question can now be asked: When should it default, and should it stay inside the euro zone or not?

The first question is a lot easier than the second. An imminent default, rumored by some on Monday, does nobody any good. The Greek government still has a primary deficit, and can't afford to repudiate its debts while it still can't cover its outlays with tax revenues. It also has no guarantee that the European Central Bank would continue to lend against defaulted Greek debt, and would have to reckon with the risk of its banking system collapsing instantly as a result.

The Worst-Case Euro Scenario

Each day the currency remains on life-support in its current form, the consequences of its eventual death become graver.

The Wall Street Journal

By SAJID JAVID

On the Continent, August is usually reserved for long vacations in the sun. Instead, European leaders spent the month working on increasingly desperate attempts to save the euro in its current form. There's only one prospect more frightening than what would happen if they fail: what would happen if they succeed.

Europe Signals Global Gloom

The Wall Street Journal

World Markets Fall as Continent's Debt Crisis Fuels Worries of Lengthy Slowdown

By BRIAN BLACKSTONE And LAURA STEVENS

FRANKFURT—International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise.

The Stoxx Europe 600 index fell 4.1% Monday, with banks hard hit. The euro slid below $1.42, its lowest in a month. The declines followed a slide in Asia, where stock indexes in China and Japan dropped by about 2% Monday. On Tuesday morning Asian markets again moved lower, with Japan shares falling 1.2% by late morning. During early Asian trading the 10-year U.S. Treasury yields hit as low as 1.911%, the lowest level in at least five decades, according to traders.

The end of Monnet

The Economist

The debt crisis is exposing problems in the basic design of the European Union

Sep 3rd 2011 | from the print edition

ALL it the curse of the euro. When politicians discuss the single currency’s crisis in Brussels, their actions are invariably seen by markets to be too little, too late. When they return home, they are accused of surrendering too much, too fast. So bond markets swoon and leaders become enfeebled. Such has been the fate of last July’s summit deal to save Greece for the second time and boost the embryonic European monetary fund. Government debt is dangerously wobbly in Italy and Spain, yet political approval of the deal has hit trouble in Germany and Finland.

Officials Warn Lenders On Greek-Debt Values

The Wall Street Journal

By MICHAEL RAPOPORT And DAVID ENRICH

In an unusual move, international accounting rule makers said some European banks haven't taken big-enough write-downs on the value of the distressed Greek government debt they hold.

Some banks are using their own models to value their Greek bonds and other distressed sovereign debt when accounting rules dictate that they should be using market prices to determine the securities' fair value, the International Accounting Standards Board said in a letter this month to the European Union's chief securities regulator.

Moving On From Greece?

The Wall street Journal

By RICHARD BARLEY

Will what happens in Greece, finally stay in Greece?

A host of doubts still surround the second bailout for the country. The economy is in tatters, there is doubt over the bond swap at the heart of the deal, and a spat over collateral for Finnish loans is continuing. But while Greek bond yields have surged to fresh highs, with the yield to maturity on two-year notes at 46%, the rest of the euro-zone government-bond market hasn't taken fright. That marks a step forward in the crisis.

Trichet Draws ECB ‘Bazooka’ to Stem Contagion

Bloomberg

By Matthew Brockett and Jeff Black - Aug 8, 2011

European Central Bank President Jean- Claude Trichet signaled he’s ready to start buying Italian and Spanish bonds in his riskiest attempt yet to tame the sovereign debt crisis.

In a statement issued in the name of the ECB president after an emergency Governing Council conference call last night, the Frankfurt-based central bank welcomed the two nations’ efforts to reduce their budget deficits and said it will “actively implement” its bond-purchase program. It also called on all euro-area governments to follow through on the steps they agreed to July 21, including allowing the European Financial Stability Facility to purchase bonds on the secondary market.

Europe’s Plan Won’t Cut Greek Debt: Allen, Eichengreen and Evans

Bloomberg

By Peter Allen, Barry Eichengreen and Gary Evans - Aug 4, 2011

Postmortems of last month’s European Union summit meeting have now turned to why the Greek debt rescue failed to restore investor confidence in the country’s finances. Many reasons are advanced: the failure to communicate clearly; the complexity of the plan; the inability to coordinate with the International Monetary Fund.

There’s a simpler explanation: The debt-reduction deal failed because it didn’t reduce the debt.

Panic Hits Global Markets

08/05/2011 11:41 AM

German Stocks Fall Sharply

Markets around the world continued to tumble on Friday, responding to concerns of a double-dip recession in the United States and fears that the European debt crisis could worsen. The European Central Bank has begun purchasing government bonds again, and the European Commission is calling for an expansion of the euro rescue fund.

Global financial markets on Friday continued to be rattled over concerns of a double-dip recession in the United States and the continuing European debt crisis. Following heavy losses on Wall Street and Asia on Thursday and Friday, Germany's market opened with stock sales that bordered on panic. Shortly after the opening of trading, the blue chip German DAX index fell by more than 4 percent to 6,152 points, recovering slightly later to a level of 6,220.

Merkel, Sarkozy to Discuss Euro-Zone Situation

The Wall Street Journal

By Bernd Radowitz

German Chancellor Angela Merkel will later Friday talk to French President Nicolas Sarkozy over the telephone, with the “current situation in the euro zone” among the issues to be discussed, a spokesman for Ms. Merkel said Friday.

Worsening euro crisis may force bigger rescue fund

(Reuters) - A worsening euro zone debt crisis may ultimately force the bloc to expand its 440 billion euro ($625 billion) bailout fund, despite political opposition in key contributing countries, some officials and analysts say.