Eurozone crisis: What would a break-up look like

Nearly everything that eurozone leaders have done in response to the euro crisis has been done in the name of preventing contagion.

But guess what. It's already here. Because (nearly) everything those leaders have done, after large amounts of dithering, has ended up making the situation worse.

In the past 24 hours we have seen: Spanish and Italian bond yields head over 6%; the value of shares in three of Britain's leading banks fall by 6-7% yesterday, as a result of European stress tests which they passed; and the gold price hit an all-time record of $1600 per ounce. (British bank shares have since gone back up again).

Phew. It makes you wonder where we'd be now, if Europe's leaders had NOT been so focussed on limiting contagion.

In liberalized Greek workplace, dancers swirl freely

(Reuters) - If you want to be a dancer in Greece, you can now swirl freely into your new career. But if your heart is set on opening a pharmacy, things are not that easy.

As part of its overhaul of the economy to send investors a message it is making changes to tackle its debt crisis, the Greek government is opening up professions but the jobs market is still far from an even playing field.

Athens has promised international lenders to untangle a web of rules on about 135 "closed" professions, allowing anyone who wants to drive a Greek taxi, open a bakery or guide tourists on the Acropolis to do so without restriction as of July 2.

Debt Worries Roil Markets

Investors Fear Contagion of Greek Crisis, Washington Stalemate Over Deficit

By TOM LAURICELLA, MATTHEW PHILLIPS and E.S. BROWNING

The Wall Street Journal

Worries about government debt rocked capital markets on both sides of the Atlantic Monday, as fears that the Greek crisis will spread combined with concerns at the standoff over the U.S. debt ceiling.

The selloff started in Europe, hitting bonds and stocks in countries regarded as vulnerable to contagion from Greece, and spread to the U.S. where the Dow Jones Industrial Average ended at its lowest level since late June after a wild session.

EU Struggles to Convince on Greek Deal

Bloomberg

By Jeffrey Donovan - Jul 19, 2011 3:00 AM GMT+0300

European leaders are struggling to convince investors that they will agree on a second Greek bailout at a summit this week as record bond yields threaten to boost financing cost at sales of Spanish and Greek debt.

European Union government chiefs plan to meet for the second time in a month on July 21, aiming to break a deadlock over a new Greek rescue that has spooked investors. Spanish and Italian bonds yields surged yesterday, piling pressure on officials to end the turmoil. Spainand Greece sell as much as 5.75 billion euros ($8.1 billion) of bills today.

No consensus as Europe limps toward Greece summit

(Reuters) - European government officials and commercial bankers struggled to reconcile competing proposals for a second bailout of Greece on Monday, just three days before a summit meeting called to prevent the crisis from spreading through the region.

French government spokeswoman Valerie Pecresse said she believed the summit of the euro zone's 17 national leaders scheduled for Thursday in Brussels would agree on a rescue of Greece, supplementing a 110 billion euro ($154 billion) bailout launched in May last year.

But after three weeks of preparatory talks, it was unclear how a consensus could be reached on a way for private owners of Greek government bonds -- banks, insurers and other investors -- to contribute to the bailout by taking cuts in the face value of their holdings.

Pressure rises for Greek debt buy-back, swap

By Annika Breidthardt and George Georgiopoulos

ATHENS/BERLIN | Mon Jul 18, 2011 2:51am EDT

(Reuters) - German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece, as pressure rose for radical action to cut the country's debt burden.

Officials proposed a range of schemes for Europe's bailout fund, the European Financial Stability Facility, to finance a buy-back or a swap in which private owners of Greek government bonds -- banks, insurers and other investors -- would accept cuts in the face value of their holdings.

European Central Bank Executive Board member Lorenzo Bini Smaghi suggested the EFSF be allowed to provide funds for a buy-back of bonds from the market, where prices have in some cases fallen 50 percent from levels at which the debt was issued.

The Clash of Generations

By THOMAS L. FRIEDMAN

Published: July 16, 2011

I REALIZE that I should be in Washington watching the debt drama there, but I’ve opted instead to be in Greece to observe the off-Broadway version. There are a lot of things about this global debt tragedy that you can see better from here, in miniature, starting with the raw plot, which no one has described better than the Carnegie Endowment scholar David Rothkopf: “When the cold war ended, we thought we were going to have a clash of civilizations. It turns out we’re having a clash of generations.”

Euro Declines Before Summit on Debt Concern; Swiss Franc Rises to Record

Bloomberg

By Masaki Kondo - Jul 18, 2011 9:05 AM GMT+0300

The euro fell the most in a week against the dollar and slid to a record versus the Swiss franc on concern European leaders will fail to agree on measures to contain the region’s debt crisis at a summit this week.

The 17-nation currency dropped for the first time in four days versus the yen after European Central Bank President Jean- Claude Trichet reiterated his opposition to any restructuring of Greek debt. The franc strengthened for a seventh day against the euro and the dollar as a decline in Asian stocks boosted demand for safer assets. Australia’s dollar weakened for a third day as traders added to bets the central bank will cut interest rates over the next 12 months.

ECB's Bini Smaghi favours EFSF debt buybacks

(Reuters) - Allowing the EFSF bailout mechanism to buy back bonds from the secondary market would help deal with Europe's debt crisis, European Central Bank Executive Board member Lorenzo Bini Smaghi told a Greek newspaper.

Euro zone policymakers are exploring ways to extend a rescue deal for overborrowed Greece and give it more time to repair its public finances. At the same time, authorities are trying to prevent the debt crisis from escalating in the bloc's periphery.

Europe Sets Summit on Greek Debt

The Wall Street Journal

BERLIN—European leaders will convene on Thursday for an emergency summit on Greece, in a quest to resolve the festering debt crisis threatening ever more euro-zone countries.

The summit will aim to approve a plan for private-sector involvement in financing the Greece government, senior European officials said.

Such an agreement would resolve the last major stumbling block to a fresh bailout package for Athens, needed to prevent the country from defaulting on its roughly $500 billion of debt.

Euro-zone governments and the European Central Bank have been arguing for three months about whether banks and other bondholders should be made to share the burden of funding Greece, with the ECB and some national capitals arguing that imposing costs on private investors could wreck the market's confidence in many other euro countries.

Greek Haircut Is ‘Unavoidable’, Merkel Adviser Franz Tells Focus

Bloomberg

By Oliver Suess - Jul 16, 2011 11:39 AM GMT+0300

Wolfgang Franz, head of German Chancellor Angela Merkel’s council of economic advisers, said it’s “unavoidable” that investors in Greek debt will have to forfeit some repayments and interest, Focus magazine reported, citing an interview.

Investors could swap Greek debt for discounted bonds issued and guaranteed by the European Financial Stability Facility, Focus cited Franz as saying.

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.