Several Ways to Chip Away at Greece's Debt Mountain

The Wall Street Journal

Euro-zone finance ministers admitted for the first time this week that they must reduce the burden that Greece's enormous government debt is placing upon the country's economy.‪

Easier said than done.

The ministers said Monday they will explore "steps to reduce the cost of debt-servicing and means to improve the sustainability of Greek public debt."

A "sustainable" debt burden is one that a debtor will be able to repay in full and on time, and that will eventually start to fall as a proportion of economic output. It's a term of art, rather than science. The International Monetary Fund continues to claim that Greece's public debt, forecast to rise above an enormous 160% of gross domestic product, is sustainable—even in the face of financial market incredulity.

Europe shifts to examine broad, radical steps on Greece

Reuters

Thu Jul 14, 2011 9:59am EDT

 Threat to Italy, Spain causes change in approach

* Greece, Ireland see shift towards "comprehensive" solution

* Way cleared to have private sector pay

* But this might still not cut debt to manageable level

* New emphasis on defending banks, stimulating growth

By John O'Donnell - BRUSSELS, July 14 (Reuters) - Alarmed by a worsening of the euro zone debt crisis, policymakers and bankers are examining radical proposals to rescue Greece that include a sharp cut in its debt burden, ways to prop up banks and a new emphasis on boosting Greek growth, official and banking sources say.

Greek 2-Year Yields Hit Record Ahead of Tests

Bloomberg

By Garth Theunissen and Emma Charlton - Jul 15, 2011 1:10 PM GMT+0300

Greek and Irish two-year notes led declines by securities from Europe’s most indebted nations, while German bunds rose before the publication of stress tests that may show European banks need more capital.

Yields on two-year Greek and Irish debt reached euro-era records, while German 10-year yields headed for a second straight week of declines as investors favored the safest assets amid concern the region’s debt crisis is worsening. Regulators will release test results for 91 banks to help reassure investors that the region’s lenders have enough capital. Standard & Poor’s yesterday became the second ratings company this week to warn that it may cut the U.S.’s top credit grade.

Italy and the euro

On the edge

The Economist, Jul 14th 2011

By engulfing Italy, the euro crisis has entered a perilous new phase—with the single currency itself now at risk

FOR more than a year the euro zone’s debt drama has lurched from one nail-biting scene to another. First Greece took centre stage; then Ireland; then Portugal; then Greece again. Each time European policymakers reacted similarly: with denial and dithering, followed at the eleventh hour with a half-baked rescue plan to buy time.

Europe Said to Face IMF Doubts on Greek Aid Without Debt Cut

Bloomberg

By James G. Neuger - Jul 14, 2011 5:57 PM GMT+0300

European finance ministers are concerned that the International Monetary Fund will curb its share of a Greek rescue of as much as 115 billion euros ($163 billion) unless the plan includes deep cuts in Greece’s debt burden, two people with knowledge of the talks said.

A program that fails to generate a sustainable reduction in Europe’s biggest debt load may require governments to finance a bigger share of the three-year lifeline, said the people, who declined to be named because the talks are in progress. The IMF has provided one third of the three previous euro bailouts, including Greece’s in 2010.

Solution Is at Hand—With a Little Courage

By SIMON NIXON

The Wall Street Journal, July 13 2011.

The darkest hour is just before dawn—and these are undoubtedly dark days for the euro zone. Italian and Spanish bonds have hit record euro-era spreads over German bunds; shares in many banks from peripheral euro-zone countries are now at post-Lehman lows; the euro has fallen sharply against the dollar and Swiss franc. Few now doubt a Greek default risks triggering a "Lehman moment" for the euro zone and the global economy. Yet a comprehensive solution to the euro crisis could be activated in days. All it requires is political courage.

Europe’s wakeup call

Le Monde Diplomatique

BY SERGE HALIMI

The economic, and democratic, crisis in Europe raises questions. Why were policies that were bound to fail adopted and applied with exceptional ferocity in Ireland, Spain, Portugal and Greece? Are those responsible for pursuing these policies mad, doubling the dose every time their medicine predictably fails to work? How is it that in a democratic system, the people forced to accept cuts and austerity simply replace one failed government with another just as dedicated to the same shock treatment? Is there any alternative?

A substantial problem

Jul 12th 2011, 16:28 by Charlemagne | BRUSSELS

The Economist

AS ministers, officials and journalists stagger out of the Justus Lipsius building tonight, the unofficial word is that European leaders will be summoned here on Friday to finalise the deal that finance ministers could not conclude.

The statement issued last night was a study in vagueness (see my earlier post), but the outlines of a compromise are becoming clearer: in exchange for a willingness by private bond-holders to support some form of debt rollover for Greece, euro-area members will have to support Greece in buying back its bonds from the secondary market.

IMF Sees Longer Greek Downturn

By JENNY PARIS And IAN TALLEY

The Wall Street Journal

LONDON—Greece must press ahead with its fiscal reform and privatization agenda in a timely and determined manner in order to bring its debt back to sustainable levels, the International Monetary Fund said Wednesday.

"There's no room for slippages," said Poul Thomsen, deputy director of the IMF's European Department and mission chief to Greece, in a conference call with journalists.

In its staff report reviewing Greece's performance under the current joint European Union/IMF loan program, the fund warned that any deviation from policy conditions Greece has promised to implement would likely mean failure.

Greek Debt Deadlock Spreads Fears

The Wall Street Journal

By CHARLES FORELLE

BRUSSELS—Top euro-zone politicians, engaged for months in a string of meetings that have failed to bring agreement on how to provide more aid to Greece, are trying furiously to stamp out the flames of contagion licking at Italy and Spain.

Fears have also ricocheted elsewhere: Ireland's prime minister said Wednesday in his parliament that it was time for European Union leaders to "grasp the nettle" of the debt crisis, adding that Moody's Investor Service's move late Tuesday downgrading Ireland's debt to junk status was caused by the bloc's failure to respond adequately.

Greece Gets World’s Lowest Rating by Fitch

Bloomberg

 By Lorenzo Totaro and Marcus Bensasson - Jul 14, 2011 2:00 AM GMT+0300

Greece’s credit rating was cut three levels to Fitch Ratings’ lowest grade for any country in the world as the company followed rivals and said that a default is a “real possibility.”

The move to CCC from B+ “reflects the absence of a new, fully funded and credible” program by the International Monetary Fund and the European Union, the ratings company said yesterday in a statement in London. It also reflects “heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece’s weakening macroeconomic outlook.”

Family Differences, Global Issues

By LANDON THOMAS Jr.

Published: July 12, 2011

The New York Times

ATHENS — In a sun-drenched room at the foundation here that is named for his father, Nick Papandreou pondered the task confronting his older brother, George: dismantling the Greek welfare state largely erected by their father, Andreas Papandreou.

\ “This is his moment,” Nick Papandreou, a 54-year-old Princeton-educated economist, said of George,Greece’s current prime minister. “Although it does happen to come at the worst time in Greek history.”

Europe, IMF need to act soon to avoid contagion: IIF

By John O'Donnell

BRUSSELS | Tue Jul 12, 2011 1:07pm EDT

(Reuters) - Euro zone countries and the IMF need to show they can deliver a rescue plan for Greece, including a debt buyback, in coming days to avoid financial markets "spinning out of control," a bank lobby group said.

The Institute of International Finance (IIF), which is leading negotiations on behalf of banks and insurers with billions of euros of exposure to Greekbonds, made the warning in a draft paper delivered to European finance ministers, dated July 10 and seen by Reuters.

Highlights: IMF says Greece must work harder on implementation

ATHENS | Wed Jul 13, 2011 12:30pm EDT

(Reuters) - Poul Thomsen, the International Monetary Fund's mission chief for Greece, gave a news conference on Wednesday to present the multilateral lender's latest review of Greece's efforts to deal with its debt burden.

Following are highlights of comments by Thomsen:

ON REFORMS

"Reforms were slowing down and need reinvigoration. To have further progress in bringing down the deficit, Greece needs to go ahead with structural reforms." "The medium-term program is very impressive. There is hardly a part of society that is not affected. It is a difficult program, one that will be asking for some sacrifices, but the burden of adjustment is fairly distributed."

Germany digs in heels over Friday summit on Greece

By John O'Donnell and Sarah Marsh

BRUSSELS/BERLIN | Wed Jul 13, 2011 12:28pm EDT

(Reuters) - Euro zone plans for a leaders' summit on a second Greek rescue were thrown into doubt by Germany on Wednesday, raising fears markets may exploit a policy vacuum with a new onslaught on the bloc's high debtors.

Berlin stuck to its line that Greece was funded until September so there was no rush to finalize the details of a second package. "There are no concrete plans for a special summit," a German government spokeswoman said.

Commerzbank CEO: Greek Restructure Is Feasible

The Wall Street Journal

By WILLIAM LAUNDER

FRANKFURT—A restructuring of Greek debt would be "rocky but feasible" for Greece and could include private creditors replacing more than €50 billion in Greek debt backed by the euro zone, Martin Blessing, chief executive of Germany's Commerzbank AG, said Tuesday in an interview with newspaper Frankfurter Allgemeine Zeitung.

Mr. Blessing's comments mark what is probably the first public occasion that a senior-level private banker has pushed for a restructuring of Greek debt, and amid persisting concerns about how to provide a new bailout package for Greece involving private bondholders' support.

Moody's cuts Ireland to junk, warns of second bailout

12-7-2011

 (Reuters) - Moody's cut Ireland's credit rating to junk on Tuesday, warning that the debt-laden country would likely need a second bailout -- just the latest move amid heightening concerns about Europe's ability to address its debt crisis and prevent it from spreading.

Moody's move comes a week after it slashed Portugal to junk status with a similar warning about the need for a second round of rescue funds. It reflects the credit rating agency's view that any further financial assistance from Brussels will require private investors to share part of the pain, possibly through a debt rollover or swap.

European finance ministers have acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts, and if that materializes, Ireland's rating, never before in junk territory, could be set for a further round of cuts.

Countdown

The row over the debt ceiling is going down to the wire

jul 7th 2011 | WASHINGTON, DC | from the print edition

THE stand-off over America’s debt ceiling has entered strange territory: pretty much everyone agrees the limit will be raised, but it is becoming ever harder to see just how. The Treasury reckons it will run out of cash on around August 2nd. But with time running short, the parties seem as far apart as ever.

A substantial problem

Jul 12th 2011, 16:28 by Charlemagne | BRUSSELS

AS ministers, officials and journalists stagger out of the Justus Lipsius building tonight, the unofficial word is that European leaders will be summoned here on Friday to finalise the deal that finance ministers could not conclude.

The  statement issued last night was a study in vagueness (see my earlier post), but the outlines of a compromise are becoming clearer: in exchange for a willingness by private bond-holders to support some form of debt rollover for Greece, euro-area members will have to support Greece in buying back its bonds from the secondary market.

The way to end the Greek farce

JUL 12, 2011 10:10 EDT

Reuters 

By Hugo Dixon

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

The Greek crisis is fast descending into farce. The position of Germany, the euro zone’s main lender, is increasingly absurd. It is adamant that there will be no restructuring of Greek debt — at least, until 2013. And yet it is equally insistent that Athens’ private-sector creditors should contribute up to 30 billion euros to a new, 120 billion euro bailout. That would effectively amount to a half-cocked restructuring.