Greece Puts Euro's Prospects Even more At Risk. By Nicholas Hastings
-A Greek tragedy looks more likely now than ever before.
With the cost of Greek funding still rising, now hitting the highest level in over 10 years, Athens will probably have little choice but to activate the EUR45 billion bailout from the European Union and the International Monetary Fund.
However, this is likely to introduce even greater uncertainties over how the bailout will work and whether it increases the risk of contagion.
There are already signs that the cost of funds for Portugal is starting to rise and that the euro zone could now be faced with another even larger deficit funding problem.
For the moment, Greece is hoping that activation of the bailout can be avoided. Later Tuesday, it will return to the market with a EUR1.5 billion three-month bill auction, which, like its predecessor last week, might attract enough investors but only at a high cost that will complicate the country's funding problems.
See how the euro is holding up for now:
Click Image to Enlarge
Greek officials are already busy scaling back plans for what was to have been a major fund-raising exercise aimed at U.S. investors. Preliminary testing of the waters suggests that appetite for Greek paper just isn't there and Finance Minister George Papaconstantinou has been forced to deny that any decisions have been taken on the auction.
There is little left for Athens to do now other than to activate the bailout.
The problem is the bailout really wasn't designed to be used. It was meant to have boosted Greece's standing in global capital markets and ensure that it could continue funding itself at a lower cost.
And Greece is probably just as reluctant to draw on the funds as its euro zone partners are to provide them.
At home, the Greek government's political standing is holding out for now. But with the country facing a nearly inevitable dose of fresh IMF austerity and with public- sector workers already due to strike this Thursday over cutbacks already in place, Prime Minister George Papandreou's administration will hardly remain popular. A poll over the weekend already shows that 67% of the voters are dissatisfied with the government.
The bailout is hardly likely to be any more popular elsewhere.
The German government not only runs the risk of a constitutional court ruling that its participation isn't legal but it faces regional elections May 9 that could provide a nasty barometer of just how fond the German electorate is of a Greek bailout.
Other euro-zone governments will also need to seek parliamentary approval of participation in the bailout. In other words, they will be asking parliament to cough up money to help Greece at the same time that their own economies are facing harsh fiscal constraints.
In the case of some, such as Portugal, Ireland and Spain, this will only make it more difficult for them to keep their own ballooning deficits in check.
The trouble is that if the debt problem of one of these countries starts to unravel as those of Greece have, the whole rescue process will have to start all over again as the European Commission has stressed that it isn't a blue-print for any other members.
Early Tuesday, the euro was getting a little respite after news that the Securities and Exchange Commission voted by just three to two to take action against Goldman Sachs, and as Citigroup's earnings were stronger than expected and the Reserve Bank of Australia expects the economy to return to full strength this year.
The general rise in global sentiment helped to counter the continued concerns weighing on the single currency ahead of the Greek auction later in the day. Bundesbank President Axel Weber increased worries by suggesting that Greece will need a bailout figure of around EUR80 billion, well above the EUR45 billion that has been negotiated.
By 0700 GMT, the euro was virtually flat at $1.3472 from $1.3469 late Monday in New York, according to EBS. It was also up at Y124.95 from Y124.42.
The dollar was up at Y92.73 from Y92.38, reflecting the move back out of safe havens.
With the cost of Greek funding still rising, now hitting the highest level in over 10 years, Athens will probably have little choice but to activate the EUR45 billion bailout from the European Union and the International Monetary Fund.
However, this is likely to introduce even greater uncertainties over how the bailout will work and whether it increases the risk of contagion.
There are already signs that the cost of funds for Portugal is starting to rise and that the euro zone could now be faced with another even larger deficit funding problem.
For the moment, Greece is hoping that activation of the bailout can be avoided. Later Tuesday, it will return to the market with a EUR1.5 billion three-month bill auction, which, like its predecessor last week, might attract enough investors but only at a high cost that will complicate the country's funding problems.
See how the euro is holding up for now:
Click Image to Enlarge
Greek officials are already busy scaling back plans for what was to have been a major fund-raising exercise aimed at U.S. investors. Preliminary testing of the waters suggests that appetite for Greek paper just isn't there and Finance Minister George Papaconstantinou has been forced to deny that any decisions have been taken on the auction.
There is little left for Athens to do now other than to activate the bailout.
The problem is the bailout really wasn't designed to be used. It was meant to have boosted Greece's standing in global capital markets and ensure that it could continue funding itself at a lower cost.
And Greece is probably just as reluctant to draw on the funds as its euro zone partners are to provide them.
At home, the Greek government's political standing is holding out for now. But with the country facing a nearly inevitable dose of fresh IMF austerity and with public- sector workers already due to strike this Thursday over cutbacks already in place, Prime Minister George Papandreou's administration will hardly remain popular. A poll over the weekend already shows that 67% of the voters are dissatisfied with the government.
The bailout is hardly likely to be any more popular elsewhere.
The German government not only runs the risk of a constitutional court ruling that its participation isn't legal but it faces regional elections May 9 that could provide a nasty barometer of just how fond the German electorate is of a Greek bailout.
Other euro-zone governments will also need to seek parliamentary approval of participation in the bailout. In other words, they will be asking parliament to cough up money to help Greece at the same time that their own economies are facing harsh fiscal constraints.
In the case of some, such as Portugal, Ireland and Spain, this will only make it more difficult for them to keep their own ballooning deficits in check.
The trouble is that if the debt problem of one of these countries starts to unravel as those of Greece have, the whole rescue process will have to start all over again as the European Commission has stressed that it isn't a blue-print for any other members.
Early Tuesday, the euro was getting a little respite after news that the Securities and Exchange Commission voted by just three to two to take action against Goldman Sachs, and as Citigroup's earnings were stronger than expected and the Reserve Bank of Australia expects the economy to return to full strength this year.
The general rise in global sentiment helped to counter the continued concerns weighing on the single currency ahead of the Greek auction later in the day. Bundesbank President Axel Weber increased worries by suggesting that Greece will need a bailout figure of around EUR80 billion, well above the EUR45 billion that has been negotiated.
By 0700 GMT, the euro was virtually flat at $1.3472 from $1.3469 late Monday in New York, according to EBS. It was also up at Y124.95 from Y124.42.
The dollar was up at Y92.73 from Y92.38, reflecting the move back out of safe havens.
- 20 April |
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