Italian, Spanish, Portuguese Bonds Slump

By Garth Theunissen and Emma Charlton - Jul 11, 2011 1:28 PM GMT+0300

Italian and Spanish bonds tumbled and German bund yields sank to a seven-month low as contagion from Greece’s debt crisis threatened to spread to bigger economies, stoking demand for the safest assets.

The spreads investors demand to hold Italian, Portuguese and Spanish debt over bunds widened to euro-era records. The European Central Bank is seeking to double a fund to 1.5 trillion euros ($2.14 trillion) to cover an Italian crisis, Die Welt reported yesterday, citing senior central bankers. EU leaders are prepared to accept a Greek default on some obligations, the Financial Times said yesterday.

Democratization Can't Save Europe

The Need for a Centralization of Power

An Essay by Herfried Münkler

Spiegel Online International

Despite the myriad problems currently facing the European Union, democratization is not the answer. Rather, the EU's elites need to improve -- and power has to be taken away from the periphery.

Europe's political elites are a pathetic sight at the moment, from their contradictory reactions to the rebellions in the Arab world to their timid handling of the euro crisis. Either they persist in doing nothing or they flee from one falsehood to the next, all in the expectation that this will enable them to gain control over the markets. Now that the European elites have had to produce proof of their long-held claim that Europe is a capable player on the global political and economic stage, they have done nothing but flounder. And because they refuse to believe that this is the case, they celebrate every stumbling move as the salvation of Europe and the euro. The poor image Europe is currently projecting is largely the result of the impotence of its elites .

Italian Debt Adds to Fears in Euro Zone

The New York Times

By STEPHEN CASTLE

Published: July 10, 2011

LONDON — Top European officials planned to meet on Monday to wrestle with threats to the currency union as fears mounted that Italy could become a victim of the debt crisis even as discussions stalled over a second bailout for Greece. Finance ministers in the euro zone had previously scheduled two days of talks to begin on Monday afternoon in Brussels, with an emphasis on how to resolve Greece’s troubles. Over the weekend, a meeting of more senior officials was set for Monday morning.

A spokesman for Herman Van Rompuy, president of the European Council, denied that senior officials would discuss the state of Italy’s finances, which many investors consider increasingly precarious. But another official, who requested anonymity because he was not authorized to speak publicly, said Italy would probably be on the agenda.

ECB Is Heading for Some Hefty Icebergs

The By IRWIN STELZER

The Wall Street Journal

The Argentine government and the euro-zone policy makers have much in common: both have pistols at the ready, and aimed at unwanted messengers.

Argentina's government says the country's inflation rate is 9.7%. Most independent economists put the figure at 20%. So the government has filed criminal charges against one consulting firm, MyS for "publishing false information about inflation data," part of a coordinated campaign against independent economists.

EU Calls Top Officials to Meet on Greece Aid

The Wall Street Journal

By RIVA FROYMOVICH

European Union President Herman Van Rompuy has called a meeting of top EU policy makers Monday to discuss plans for a second bailout package for Greece, EU officials said on Sunday.

The gathering comes as Europe continues to struggle with a contentious issue: whether and how Greece's private-sector creditors should share the burden when the anticipated second aid package is doled out to the debt-burdened country.

Greece Needs ‘Endgame’ From EU to Enact Deficit Cuts, Canada’s Martin Says

Bloomberg
Former Canadian Prime Minister Paul Martin, who slashed his nation’s debt in the decade through 2005, said Europe needs to show Greece how austerity will pay off in the medium term to successfully push through budget cuts.

Letter to the Greeks

JUN 29, 2011 09:38 EDT

By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dear Greeks,The anger you feel about your plight is understandable. You are staring at several unpalatable alternatives, all of which will involve big cuts in living standards for years to come. But the options you face are not all equally bad. You must avoid an emotional reaction that leaves you in an even worse state — and you must ostracise those who resort to violence.

What Obama Wants

By PAUL KRUGMAN

Published: July 7, 2011

On Thursday, President Obama met with Republicans to discuss a debt deal. We don’t know exactly what was proposed, but news reports before the meeting suggested that Mr. Obama is offering huge spending cuts, possibly including cuts to Social Security and an end to Medicare’s status as a program available in full to all Americans, regardless of income. Obviously, the details matter a lot, but progressives, and Democrats in general, are understandably very worried. Should they be? In a word, yes.

Some of the Wall Street Journal reader's opinions about the Greek Crisis...

The Greeks Have Little Wiggle Room

While Andy Kessler's proposal for restructuring Greek debt by backing it with Greek assets is attractive ("The 'Brady Bond' Solution for Greek Debt," op-ed, June 29), it raises a significant question that he does not address.

Beware of Greeks Bearing New AAA-Rated Gifts

 Jonathan Weil

Structured finance helped turn Greece into a disaster zone. It seems only natural that Greece would look to structured finance once again to buy time.

The spark that accelerated Greece’s debt crisis early last year was the revelation that Greek authorities had used some fancy derivative trades a decade ago to mask the true size of the country’s debt. Today it’s Greece’s creditors who are dreaming up the wacky financial engineering, in hopes that the European Union can keep pretending the nation isn’t bankrupt.

Was it worth it?

Jul 4th 2011, 14:10 by R.A. | WASHINGTON

STEVE WALDMAN asks the burning question:

Suppose that Greece had never adopted the Euro and the terms of its external borrowing had remained subject to “market discipline”, as it had been in the 1990s. Would Greece today be better off or worse off, in real terms, looking forward?

Debt crises

Europe and America, increasingly alike

Jul 6th 2011, 13:52 by M.S.

The Economist

GIDEON RACHMAN had a good thumb-sucker in yesterday's Financial Times arguing that the current political-economic crises in America and Europe are basically two sides of the same crisis. "In Washington they are arguing about a debt ceiling; in Brussels they are staring into a debt abyss. But the basic problem is the same. Both the US and the European Union have public finances that are out of control and political systems that are too dysfunctional to fix the problem," Mr Rachman writes. I have some quibbles about the way he frames the economic issues as a generalized problem of "an unsustainable and dangerous boom in credit", viz homeowner credit in America and the overdrawn borrowing of Greece and Italy in Europe.

Is democracy an economic liability?

Jul 6th 2011, 17:01 by R.A. | WASHINGTON

The Economist

OVER at Democracy in America, a colleague embarks on an interesting discussion highlighting the similarities between the institutional roots of economic troubles in Europe and America. Then, alas, he goes astray:

I actually think the issue goes beyond the increasing unwillingness of Chinese authorities to even pretend to listen to Western complaints about human rights. Unless you buy the Nouriel Roubini argument, and I don't, China is going to be the world's largest economy within ten or 15 years, bigger than America or the euro-zone. And, in case anyone has failed to notice, it's a Communist country.

Hedge Funds Move Past Greece With Bets That Sovereign Debt Crisis Expands

By Katherine Burton and Saijel Kishan - Jul 7, 2011 7:00 AM GMT+0300

Hedge funds that trade bonds and loans are increasing bets that Europe’s sovereign debt crisis will spread to Portugal, Spain and Italy, even after Greece won a temporary reprieve with 12 billion euros in aid.

“Nothing you’ve seen so far has dealt with solvency, just liquidity,” said Simon Finch, head of credit trading at CQS UK LLP, a London-based hedge fund that oversees $11 billion.

Finch, who has bought and sold corporate bonds and loans for 18 years, has stepped up trading in mobile-phone, utility and toll-road companies in the three countries. He expects their governments will be forced to slash spending to pay off lenders, slowing growth and reducing discretionary consumer outlays.

CQS is among the hedge funds that say investors are underestimating the odds of distress or even default not only by Portugal, whose credit rating was downgraded this week to junk status by Moody’s, but also by the bigger Italy and Spain. The funds are moving beyond a direct wager that sovereign debt values will tumble, targeting potential fallout in the corporate-debt market and the banking industry.

German Move Roils Talks on Greece

Revived Proposal for Bond Swaps Raises Question on Plans for Encouraging Private-Sector Creditors to Help in Bailout

By STEPHEN FIDLER in Brussels, SEBASTIAN MOFFETT in Paris and BRIAN BLACKSTONE in Frankfurt

European governments' plan for private-sector creditors to help Greece's next bailout without triggering a default were thrown into doubt Wednesday, as senior German officials resurrected a once-rejected proposal that would cost investors more.

Spot the pattern

Jul 5th 2011, 18:55 by R.A. | WASHINGTON

HERE'S a chart showing the yields on 10-year Greek debt over the past three months. See the pattern?

The abuses of austerity

A new plan to cut Greece’s debt looks doomed to fail

SOME years back a Greek finance minister, fed up with his country’s waste and extravagance, claimed that he could save money by shutting down the national railway and driving its passengers around in taxis. He was accused of hyperbole but seems, rather, to have been guilty of understatement. In 2009 the Greek railway collected just €174m ($250m) in fares and other revenues. Meanwhile, it spent €246m on wages and lost a total of €937m.

Portugal Rating Cut on Possible Greek Follow

Moody’s Investors Service cut Portugal’s credit rating to below investment grade on concern the southern European country will need to follow Greece in seeking a second international bailout.

The long-term government bond ratings were lowered to Ba2, or junk, from Baa1, and the outlook is negative. Discussions to involve private investors in a new rescue plan for Greece make it more likely that the European Union will require the same pre-conditions in the case of Portugal, Moody’s said in a statement.

“That’s very significant because not only does it affect current investors, but it is likely to discourage new private- sector lending going forward, and therefore reduce the likelihood that a country like Portugal will be able to regain access to the capital markets at a sustainable cost,” Anthony Thomas, a senior analyst at Moody’s in London, said in a telephone interview yesterday.

Greek Rescue Snarled by Sales

By STEPHEN FIDLER And MATTHEW KARNITSCHNIG

Europe's hopes for a significant contribution by private bondholders to a new bailout for Greece are fading, as it becomes clear that banks have sold off a substantial proportion of their Greek government-bond holdings despite pledges by some of the institutions not to do so.

Greece has about €64 billion ($93 billion) of benchmark bonds coming due in the next three years, among other liabilities, and euro-zone leaders had hoped that private lenders would voluntarily take on longer maturities in order to improve the country's battered finances

Greek Finance Minister Moves From Crisis to Crisis

By LANDON THOMAS Jr. and RACHEL DONADIO

Published: July 5, 2011

ATHENS — As he approached the end of another 16-hour workday, Evangelos Venizelos had one question on his mind: Will Europe come up with the money that Greece so desperately needs? As the new Greek finance minister, Mr. Venizelos is the man in charge of steering a nearly bankrupt economy back on track — and, perhaps, preventing another global financial crisis.

No sooner had he presided over the close passage of a new austerity bill last week, than he was contending with the growing controversy over how much money private banks would contribute by taking on more Greek debt.