Toward a Greek default

The economist

Jul 21st 2011, 14:38 by R.A. | WASHINGTON

AS EUROPEAN leaders gather in Brussels to settle on a new plan to address Greece's debts and—they hope—the broader issue of market confidence in the euro zone, details of a potential deal are emerging. It appears that German Chancellor Angela Merkel and French President Nicolas Sarkozy met last night with European Central Bank head Jean-Claude Trichet in an attempt to iron out their differences. A framework for an agreement was reportedly reached and will be presented at today's summit. No specifics are available, but a few key issues appear to have been settled.

First, it looks as though a haircut for Greek creditors is now likely.

German-French Harmony on Greece

Compromise on Bondholders' Role Clears Path for a New Bailout Deal

By MARCUS WALKER

The Wall Street Journal

BERLIN—German Chancellor Angela Merkel, under mounting pressure in and outside Germany to show stronger leadership in the euro-zone debt crisis, reached a late-night compromise with France over a fresh bailout for Greece ahead of a crucial European summit planned for Thursday.

Treasuries Drop for 2nd Day as Greek Accord Damps Safety Demand

Bloomberg

By Lucy Meakin and Wes Goodman - Jul 21, 2011 11:02 AM GMT+0300

Treasuries fell for a second day as talks between German ChancellorAngela Merkel and French President Nicolas Sarkozy boosted optimism the European Union will help Greece avoid a default.

Longer-maturities led the decline after Merkel and Sarkozy reached a joint position on Greece before euro-region leaders meet today to discuss the region’s debt crisis. The U.S. will today auction $13 billion of 10-year inflation-protected securities and announce the sizes of three note sales scheduled for next week, after the administration indicated it may reach a compromise on the debt ceiling to avert a default.

Bunds Fall, Greek Notes Rise on U.S., European Fiscal Optimism

Bloomberg

By Garth Theunissen and Emma Charlton - Jul 20, 2011 7:01 PM GMT+0300

German bunds fell while securities from the euro region’s most fiscally strained nations rose on optimism that European leaders meeting tomorrow will take steps to contain the region’s debt crisis.

Top E.U. Official Joins Chorus Warning of Greek Fallout

The New York Times

By STEPHEN CASTLE

Published: July 20, 2011

BRUSSELS — On the eve of a crucial summit of euro area leaders, a senior European Union official said Wednesday that failure to act decisively on Europe’s debt crisis could have global repercussionsThe warning from José Manuel Barroso, president of the European Commission, came as the French President Nicholas Sarkozy was heading to Berlin for a pre-summit meeting with the German Chancellor Angela Merkel.

How to Contain Debt Crisis in Europe: Giavazzi and Kashyap

Bloomberg

With Italy now paying the same rates as Spain to finance its debt, the European crisis has reached a critical stage.

To prevent the possible demise of the single currency, the European Union now must come up with a credible plan to address the future of the euro area. Only a proposal that takes into account the following four painful realities would be credible and stand a chance of persuading markets to resume financing on a sustainable basis.

Papandreou Sees Make-or-Break Time in Crisis

Bloomberg

By Maria Petrakis - Jul 20, 2011 12:00 AM GMT+0300

Greek Prime Minister George Papandreou says Europe’s leaders need to show tomorrow that they can resolve the European Union debt crisis to avoid a contagion enveloping Italy and Spain.

“It could be a make-or-break moment for where Europe is going,” Papandreou said during an interview in his Athens office at Parliament yesterday. “Markets are saying pretty much what I’m saying too: that Greece is doing what it can, but that Greece is not going to be able to carry the weight of all of Europe and the other problems that Europe has.”

Euro Weakens Versus Yen as European Leaders Prepare to Meet on Debt Crisis

Bloomberg

By Monami Yui and Candice Zachariahs - Jul 20, 2011 9:04 AM GMT+0300

The euro fell against the yen before French President Nicolas Sarkozyand German Chancellor Angela Merkel meet amid concern European leaders will fail to reach a solution to the region’s debt crisis at a summit tomorrow.

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.