The euro crisis

The Economist

Bazooka or peashooter?

Greece’s new bail-out helps, but should have gone further

WHEN Henry Paulson, America’s then treasury secretary, readied a plan to prop up Fannie Mae and Freddie Mac, two teetering housing agencies, in the summer of 2008, he spoke of having a “bazooka” in his pocket. In their response to the sovereign-debt crisis, Europe’s policymakers have tended to favour the peashooter. Their latest salvo in defence of Greece on July 21st produced some favourable initial reports, but the bang has faded. In a strange inversion of the crisis to date, the new bail-out plan seems to have helped the weaker peripherals and hurt the stronger ones.

Moody's warns it may downgrade its Spanish bond rating

BBC 29-7-11

Moody's has warned it may downgrade the credit rating of Spanish government bonds, saying last week's second rescue package for Greece had done little to ease debt concerns in the eurozone.

The rating agency said it was reviewing Spain's current Aa2 grade, adding that if it was downgraded, it would probably be by just one level, to Aa3.

UPDATE 2-China may help fund Greek bond buybacks-finmin source

There are signs that China interested in buybacks - source

* Greek finmin met China's IMF representative in Washington

* Analyst says may be wishful thinking

By George Georgiopoulos and Lefteris Papadimas

ATHENS, July 29 (Reuters) - China could provide loans to Greece to fund government bond buybacks in the secondary market to help cut the country's debt burden, a Greek finance ministry official said on Friday, but analysts were sceptical.

Greece to get September bailout from bilateral loans

(Reuters) - Greece will get its next 8 billion euro tranche of emergency loans from the euro zone and the International Monetary Fund in September as planned, provided it meets agreed criteria, the spokesman for the Eurogroup President said on Friday.

"There is no problem at all. The troika will only be in Athens from mid-August onwards and deliver their report at the beginning of September and that is when the decision (on the next disbursement) will be taken," Guy Schuller said.

Greek Deal Facilitates Worsening Relations

The Wall Street Journal

Frau "nein" becomes Frau "ja," and the euro zone is saved. So we are told by the 17 Heads of State after a meeting that even the tough-minded analysts at Jefferies International concede "exceeded expectations."

Of course, past meetings helped set the expectations bar quite low. Still, let's not quibble: Because German Chancellor Angela Merkel and French President Nicolas Sarkozy decided that some progress had to be made lest Greece bring down Italy, Spain, and perhaps the euro, the Heads put their heads together and staved off—deferred would be a better word—a crisis that was about to burst on the euro zone, primarily because Ms. Merkel won her battle to have private-sector investors share the pain.

Greece Gets New Bailout as U.S. Nears Brink

The Wall Street Journal

Plan to Contain Crisis Likely Means First Euro-Zone Default

By CHARLES FORELLE, PATRICIA KOWSMANN and COSTAS PARIS

BRUSSELS—Euro-zone leaders agreed Thursday on a new €109 billion ($157 billion) bailout for Greece and new steps to prevent its debt crisis from metastasizing across the Continent—in a plan expected to trigger the first debt default by a nation using the common currency.

The meeting also produced a stark and open-ended declaration: The wider euro zone is committed to financing countries that take bailouts—thus far, Greece, Ireland and Portugal—for as along as it takes them to regain access to private lenders.

What Constitutes a Greek Default? And Who Decides?

The wall street journal

By ART PATNAUDE

The euro-zone crisis is bringing ratings agencies once again into sharp focus, with euro-zone governments eager to avoid anything that could be considered a default as they try to restructure Greece's debt. After several failed attempts, euro-zone officials are now saying the plan could be to allow a default.

But how do the credit ratings agencies decide whether a Greek restructuring plan constitutes a default? Who are the decision makers? And what criteria do they use to make such a decision?

A Guide to the New Deal in Athens: How a 'Selective Default' Works

Q:Thursday's deal by euro-zone leaders means Greece is likely to be declared in "selective default" by credit-rating firms. What does this mean?

A: It's a technical assessment that means investors in some Greek bonds will be worse off as a result of the deal. It implies holders of other bonds are still being repaid in full and on time.

Q:How significant is it?

Is the Big Greek Deal Really Big?

•           JULY 22, 2011, 7:24 AM ET

By Stephen Fidler

Winston Churchill said Americans will always do the right thing, but only after exhausting all the alternatives. So, perhaps, the leaders of the euro zone, who gathered for yet another emergency summit in Brussels on Thursday, finally did the right thing—or at least recognized the gravity of their predicament.

Their problem is that the time they have taken in the process of exhausting all the alternatives has extracted a heavy cost.

Fitch Default Warning Pares Back Market Rally

The wall street journal

LONDON—Europe's financial markets modestly welcomed the latest euro-zone agreement Friday on a new financing package for Greece and measures to prevent contagion from spreading.

However, a warning from Fitch Ratings Inc. later Friday that the role of the private sector in the Greek bailout plan would constitute a "restrictive default" dented enthusiasm.

EU Leaders Offer $229 Billion in New Greek Aid

“We doubt that this package alone will bring an end to recent contagion effects…”

Jonathan Loynes, chief European economist at Capital Economics Ltd

By Simon Kennedy and Jonathan Stearns - Jul 22, 2011 7:53 AM GMT+0300

Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden.

Euro Bonds May Be the Best Bet to Resolve the European Debt Crisis: View

Bloomberg

The bond markets are sending Europe’s leaders an unmistakable message: The opportunity to contain the euro area’s debt crisis is slipping away. If they want to save the union and its currency, the leaders will have to consider something far more ambitious than what’s been spelled out so far. Perhaps the unspecified agreement French President Nicolas Sarkozy and German Chancellor Angela Merkelreportedly reached last night on Greek debt marks the beginning of a wider -- and bolder -- effort.

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.