July 11th, 2011
Econintersect: Many economists and economic commentators have been writing about the Greek debt crisis at GEI Opinion and most of them have come to the conclusion that Greece (debtor) will not ultimately bear all the burden of their over-indebtedness. A concensus has been building that lenders will have to write down some of the debt, as well. Tonight (July 10), there are reports that just such a course of action may open for discussion as early as tomorrow.
Follow up:Both the Wall Street Journal in New York and the Financial Times in London have stories out that a meeting, called by the president of the European Union, Herman Van Rompuy, in Brussels on July 11, will start discussion of a new Greek bailout strategy. From the Financial Times:
European leaders are for the first time prepared to accept that Athens should default on some of its bonds as part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing.
The new strategy, to be discussed at a Brussels meeting of eurozone finance ministers on Monday, could also include new concessions by Greece’s European lenders to reduce Athens’ debt, such as further lowering interest rates on bail-out loans and a broad-based bond buyback programme. It also marks the possible abandonment of a French-backed plan for banks to roll-over their Greek debt.
The French plan came under attack last week when Standard & Poors announced that it might rate execution of that plan as a partial default. See GEI News.
According to The Wall Street Journal there are fears of a contagion spreading to stock markets in Europe and precautions are being take by some exchange operators. From the WSJ:
Meanwhile, Italy's stock-market regulator late on Sunday introduced temporary measures aimed at curbing speculative attacks on the Milan stock market, in a move that tries to respond to a wave of selling that hit Italian bank stocks on Friday.
Stocks closed down 3.5% on Friday and the spread between 10-year Italian and German bond yields reached a record 2.47 percentage points on escalating concerns that debt-laden Italy might be dragged into the European debt crisis. A group of five Italian banks underwent a stress test, the results of which will be released July 15.
Perhaps a barbershop will be opening in Brussels. But that will see banks undergoing some new stresses as they can no longer maintain the same balance sheets when the haircuts are administered and assets have to be written down. A new set of problems will be opened up. The European Central bank is expected to remain opposed to opening the barbershop.