Euro Rises After Merkel Rejects Greek Bankruptcy

Angela Merkel

The euro is rising modestly against major currencies after German Chancellor Angela Merkel rejected the idea of a hasty bankruptcy by Greece.

Merkel said Monday that Europe should help Greece regain its financial footing. She rejected suggestions that Greece should seek court protection from its creditors. That would allow Greece to not repay some debts, but it would also threaten European banks that own billions in Greek debt. Merkel's comments made a default by Greece appear less likely.

At 11:26 a.m. Eastern time, the euro rose to $1.3662 from $1.3585 late Monday. It also rose against the yen.

The euro hit a seven-month low against the dollar on Monday.

AP
 

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Posted on September 13, 2011 11:55 by Tom Herod
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Should Germany Bail Greece Out?

Ernst Weizsacker

The rest of the euro zone is losing patience with Greece. German Finance Minister Wolfgang Schäuble is no longer convinced that Athens can be saved from bankruptcy.

Ernst Weizsäcker, Co-chair, U.N. International Panel for Sustainable Resource Management, thinks, "In some way by deciding 10 years ago on the introduction of the common currency, the Euro, Germany has made a commitment of bailing out, be it indirectly through the International Monetary Fund, or more directly through the European Bank. But, I once calculated the amount of the Greek deficit compared with the Gross National Product of Europe, and this is less than 1/2 percent. So, I would call it alarmist to say this 1/2 percent of the European, of the Euro’s own GDP lets the Euro collapse. This is absurd. If you compare that with financial risks incurred by the American state in certain war adventures or in the financial crisis, or wherever, those are much higher percentages leading indeed to a weak dollar, that’s correct, but the European industry is only happy if the overvaluing of the Euro finally finds an end. So, I am not in a state of alarm."

More at Big Think.
 

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Posted on September 12, 2011 14:36 by Tom Herod
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Should Greece Go Back To The Drachma?

Greece

Back in June we reported that Reuters had put the Greek drachma on its exchange rates list for the first time since 2002, when Greece joined the European Union. A couple of weeks later, we posted that Reuters admitted that the listing was due to a programming error and the drachma was removed from the list.

Martin Hutchinson thinks Reuters should put the drachma back on the list. He explains, "The standard of living reached in Greece since it joined the European Union means austerity will be inadequate to rebalance the economy. Returning Greece’s currency to the drachma, on the other hand, would allow market forces to set the country’s wage levels, induce other indebted European Union members to reform without Continental prodding and thus solidify the euro."

Read the full article by Martin.
 

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Posted on September 12, 2011 09:00 by Tom Herod
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Italy May Opt Out Of Loan For Greece

Eurozone

The rise in Italy's borrowing costs may put in doubt its participation in the next tranche of the Greek bailout in September, eurozone officials said.

In a conference call of eurozone finance officials on Thursday, during which the next tranche of emergency loans for Greece was discussed, Italy said it might have to use the "step-out» option in September if its own financing costs rise higher the those on the Greek loans.

"They have not decided one way or another," said one euro zone source familiar with the conference call details.

Italy's borrowing costs soared at a closely-watched bond auction on Thursday as investors worried by the euro zone debt crisis and an impasse over the U.S. debt ceiling exacted a high risk premium.

Under the Greek bailout agreement, a country whose borrowing costs are higher than the rate at which the money is lent to Greece can either "step out,» and other countries add more to compensate for its share, or it can ask for compensation from the others so as not to make a loss.

"It is not a question that needs to be decided right now, we need to look at what the funding costs are at the time of the disbursement -- right now it is a borderline case,» the official, who asked not to be named said.

"This is a potential issue, not a real issue."

A second euro zone official familiar with the call confirmed the Italians were considering not taking part in the next tranche of the Greek bailout depending on the funding costs.

Greece is to receive 5.8 billion euros ($8.3 billion) from the euro zone and 2.2 billion euros from the International Monetary Fund in September, probably on September 15.

Euro zone leaders decided last Thursday that the next disbursement to Greece would be handled by the European Financial Stability Facility, which was to take over from the bilateral loans that the first Greek bailout is based on.

But a tight schedule of putting together a new financing program for Greece in time for the disbursement made it more likely the next tranche would still be paid out through bilateral loans before moving the financing over to the EFSF.

"The timeline is a little tight to get the next disbursement through the EFSF. The problem is to set all the program documentation in such a way so the EFSF could do this by mid-September," the official said. "It is more a calendar issue than anything else."

"It now seems more likely that it will be done through the bilateral facility, but since money is fungible it does not make a difference. It would be just this one disbursement and then it would move on to the EFSF," the official said.

To set up the EFSF's financing plan for Greece, officials need to know the size and structure of private sector involvement in debt exchange and buyback schemes that Greece will offer to banks by early September.

[Reuters]
 

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Posted on July 29, 2011 07:47 by Tom Herod
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Banks Cut Lending To Eurozone In Q1

BIS
The Bank of International Settlements in Basel

(Reuters) - Overseas lending to euro zone countries fell in the first quarter of this year amid worries about the health of Greece and other peripheral countries, in contrast to a rebound in bank lending across the rest of the world.

Lending to euro zone countries dipped by $77 billion, or 0.4 percent, in the January-March quarter, according to Bank for International Settlements (BIS) data released on Tuesday.

That was less severe that the $423 billion slump in lending to euro zone countries in the final quarter of 2010 and was in contrast to renewed appetite to lend to the rest of the world at the start of this year.

Global lending rose by $466 billion or 1.5 percent in the first quarter, to retrace a contraction seen in lending in the previous quarter.

Global financial markets have been hit by renewed worries about the health of the euro zone since March, however, and euro zone leaders were last week forced to rescue Greece in an attempt to prevent market instability from spreading through the region.

Banks typically cut loans to countries at times of concern to limit their exposure in the event of a sovereign debt restructuring or a rise in bad loans as economies deteriorate.

BIS statistics, the only ones to chart cross-border lending around the world, showed foreign banks had $138 billion of loans to Greece at the end of March on an ultimate risk basis, including $45 billion of sovereign debt.

Overseas banks had $726 billion of exposure to Spain, including $109 billion of sovereign debt, and $912 billion of exposure to Italy, including $282 of sovereign bonds.

Lending to Greece last year fell by one-third and lending to Ireland and Spain contracted by a quarter.

BIS statistics underscore how interconnected European countries are. The risk that problems could spread across peripheral countries has been at the heart of the euro zone jitters for over a year.
 

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