AP - Eurozone finance ministers opened the door to using the currency union's bailout fund to buy up distressed Greek bonds, thereby cutting the country's overall debt load as they scrambled to stop the region's debt crisis from spreading to larger economies like Italy and Spain.
Eurozone finance ministers opened the door to using the currency union's bailout fund to buy up distressed Greek bonds, thereby cutting the country's overall debt load as they scrambled to stop the debt crisis from spreading to Italy and Spain.
The technocratic governments in Italy and Greece are not off to a smooth start judging from the action in the bond market. A quick glance at the 10-Year note in Italy shows the yield is up 25 basis points to 6.70% and the Spanish 10-year note is up 24 basis points, soaring through the 6% mark to 6.09%.Meanwhile, Greek 1-year bonds are trading at a mere 250%. Any bets on when they exceed 300%?
The bailout of Greece was bungled because it was an attempt to save the single currency rather than the debt-stricken country, according to a highly critical report by the International Monetary Fund.
The internal report on the handling of the Greek crisis has detailed a catalogue of errors, which led to the IMF breaking three out of four of its own rules relating to lending money to bankrupt countries.
I must admit to having tuned out the Greek debt crisis a bit. It’s not that the effective bankruptcy of Greece no longer has implications for the world economy – the country could still be forced from Europe’s monetary union, with potentially destabilizing consequences. Nor has the suffering of the Greek people diminished. Unemployment has soared over 25%, and with more budget cutting to come, the economic prospects for the Greeks are unlikely to brighten anytime soon.
The devil lies in the detail of Cyprus’s salvation.
The island nation’s rescue sets precedents for the eurozone that may stick in the memory of depositors and bondholders alike as investors debate who will next fall victim to the debt crisis. Under the terms of the agreement struck early this morning in Brussels, senior Cypriot bank bond holders will take losses and uninsured depositors will be largely wiped out.
The bickering over a half percentage point reduction on the discount rate continued over the weekend as Greek Bondholders Draw Line in the Sand
Private owners of Greek debt have made their “maximum” offer for the losses they are willing to accept, the bondholders’ lead negotiator has said, implying that any further demands could kill off a “voluntary” deal and trigger a default.
Damages related to Greek debt exposure continue to mount. ING and BNP have both taken writeoffs related to Greek debt and both are cutting jobs.Expect more damage related to sovereign debt in Spain, Portugal, and Italy as well as general writeoffs related to the European recession. Please see Europe Undeniably in Recession; Germany Manufacturing PMI Contracts for First Time in Two Years, New Orders Collapse for a discussion of the recession.