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Europe Back From the Precipice?

Posted by: David Tweed on January 30, 2012


As EU leaders gather for a summit this afternoon in Brussels, people are asking if Europe is stepping back from the precipice and moving into a more chronic phase of the debt crisis.

My response is not yet, but we may be getting close.

First we need the private holders of Greek debt to sign an agreement to write down the value of their holdings that doesn’t trigger a messy default that Josef Ackermann of Deutsche Bank (DB) told my colleague Caroline Connan in Davos would have dire consequences:

The signals coming from Athens are positive that private creditors will accept a deal that meets with the guidelines set out last week by Jean-Claude Juncker, who speaks for the euro zone finance ministers.

Analyst Han de Jong of ABN Amro wrote today:

Greece remains the wildcard. A breakdown of the PSI negotiations, and, or the failure to secure a second bail-out has the potential to lead to a re-escalation of tensions. We expect a deal to be reached because the consequences of failure will sharply focus minds.

After that Greece should get its next allotment of European Union and International Monetary Fund cash so that it can make its €14.5 billion bond repayment scheduled for March 20. Whether Greece’s remaining debt load is sustainable is likely to haunt us into the second quarter.

By then, Angela Merkel’s fiscal compact imposing budgetary and fiscal discipline on euro zone countries should be signed, opening the way for an agreement to beef up the firewall against contagion by increasing the size of the rescue fund.

Problem is that may be too late to convince the members of the Group of 20 nations meeting in Mexico at the end of February to increase their contributions to the IMF as part of an international effort to make sure adequate funds are in place to ensure European fiscal stability. U.K. Chancellor George Osborne says he’d only approve of more British cash if he sees a bigger EU commitment to its rescue funds.

I suspect by then Germany may give into pressure from Italy, France and Spain and signal it is willing to beef up the rescue fun—or at least end its opposition to allowing the temporary fund run alongside the permanent fund.

This week will provide another signpost on whether we are entering a new phase in the crisis: €22 billion ($29 billion) in bonds sales are scheduled for euro zone countries. The results may be the best indicator of whether the crisis has turned the corner.

(Photograph by Jock Fistick/Bloomberg)

Reader Comments


January 31, 2012 12:05 PM

And now we hear from yet another pundit who believes you can somehow even out a trade imbalance with "funds".

Greece imports more from Germany than it exports to anyone. This will not change unless Greece can inflate its currency. OOPS! Greece has the same currency as Germany. Well, perhaps Greece can sell bonds. OOPS! Greek bonds are nearly worthless. Perhaps Germany will be willing to tie itself to Greece? Perhaps, but what about all the other countries with the same problem? Germany does not have that much money.

Structural problems CANNOT be solved with "funds". They can only be postponed. Either Greece returns to the Drachma, and Italy to the Lira, and so forth, or the Eurozone experiment MUST fail. There is no third option.

Firozali A.Mulla DBA

February 2, 2012 7:38 PM

I have no idea what our old generation would call us. I am a Scot, you are English, I am Irish, I am a Northern you know Detroit, I am cowboy from Texas, in spite of one wall that was broken EAST AND WEST, I have yet to hear German say I am from West and you are from East. This making of the global village is too complicated and dividing us, but who cares. All want like Romney says, "Who Cares about the Poor? Romney’s newest gaffe isn’t just another blunder. It’s the beginning of a race over who is most out of touch." As the U.S. government spends an unprecedented amount of money to fix the economy, there is an equally great need to raise the cash to pay for it. This is accomplished through borrowing, whereby Uncle Sam sells Treasury securities of varying maturity. For investors, government bills, notes and bonds are considered safe because they have a guaranteed rate of return, based on faith in future U.S. tax revenues. The government has been partially funding operations via Treasury securities for decades. This borrowing adds to the national debt, which has recently surpassed $15 trillion and is rising every second. The amount of debt is quickly approaching the federal debt ceiling, a legal limit to borrowing that currently stands at $16.4 trillion. Much of that debt is held by private sector, but about 40 percent is held by public entities, including parts of the government. Here's who owns the most. Foreign countries listed include private and public investors, according to monthly U.S. Treasury data. With this we have UN, and other NGOs asking for the assistance for the poor countries. But who comes out? Few single like Bill gates, Clinton Foundations, and others. So where is the cash going? Of course all know that we are cashless as the wars looms on and there is no stopping this as one blames the other. Now my question is, where will the poor stay? They will be the hard core futures. Too much income inequality happens when only the rich can afford political representation. Today, it is so expensive to attain national office that all politicians are bought before they reach Washington. Therefore, the U.S. government is left with professional election winners, not leaders. Our democracy, or our representative republic, has broken down because, when push comes to shove, our "leaders" will do what their bosses (the rich entities that got them elected and keep them in office-whether it be corporations, wealthy individuals, unions, PACs backed by other moneyed interests) tell them to do. They will not listen to you, unless you are a politically active member of the 1% or .1% and have the ability to get them thrown out of office. “Our attitude toward life determines life’s attitude towards us.” ~ Earl Nightingale (1921-1981) I thank you Firozali A.Mulla DBA (WITHOUT MALICE)


February 27, 2012 2:54 AM

it would have no fiegorn currency?Greece will not lose access to their markets. That is very simply scaremongering. Traders don't give a stuff what currency is being used. They care about getting hold of Feta cheese and making a profit.


February 29, 2012 12:11 AM

Your theme, thrhugoout all your posts in various other articles and topics, is that conservatives are extreme , or ultra-right wing , or any number of other descriptive adjectives that you've used here. Explain to me, and the other readers here, exactly how it is extreme thinking that we believe one should pay their own way, that the federal government was not made to socially engineer society, that freedoms and liberties cannot be encroached upon by the federal government, according to the Constitution, that a Constitutionally limited government is what our founders gave us, that history shows the statist mentality does not, and never has, worked successfully, that government doesn't create wealth, only sets up an atmosphere to promote the creation of it, etc., etc., etc. If you call any of the above extreme thinking, then you must believe the founding fathers to have been extremists as well. My guess is that you do not, though, think of any of that as extreme , but are merely using those adjectives in order to shift the window of the range of social acceptance, as Overton described. Such action by you is not being objective' in any sense of the word.Definition of OBJECTIVE1 a : relating to or existing as an object of thought without consideration of independent existence ?used chiefly in medieval philosophyb : of, relating to, or being an object, phenomenon, or condition in the realm of sensible experience independent of individual thought and perceptible by all observers : having reality independent of the mind ? compare subjective 3a c of a symptom of disease : perceptible to persons other than the affected individual ? compare subjective 4cd : involving or deriving from sense perception or experience with actual objects, conditions, or phenomena2 : relating to, characteristic of, or constituting the case of words that follow prepositions or transitive verbs3 a : expressing or dealing with facts or conditions as perceived without distortion by personal feelings, prejudices, or interpretations Your views directly contradict that third definition by your insertion of such descriptives as extreme or ultra within your comments regarding the right-wing . Hence, you cannot lay claim to the title of being an objective' commenter, and because of that, no one takes you as a serious contributor. But, by all means continue to use those descriptives in your language. It identifies you as being truly extreme , albeit to the left, in regards to your musings you post here.Reply

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Financial markets are on the edge as investors await a solution to the European debt crisis. This blog examines the banks that hold billions of euros worth of Greek, Italian, and other sovereign debt; the governments that must pay off or refinance that debt; and the implications for the worldwide financial system if they can't.

Analyses or commentary in this blog are the views of the author and or commentators, and do not necessarily reflect the views of Bloomberg News.

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