• Hora de Bailout

BAILOUT TIME

The main story in European newspapers this morning is that the EU has began to organise a bailout for Greece. Le Monde and FT Deutschland have extensive and detailed coverage of the story. There are currently talks among government on how to assemble a credit to Greece, but FTD says Angela Merkel is still reluctant to commit, unless there is much clearer evidence than so far that Greece is genuinely consolidating. The issue will come up at the February 11 economic summit in Brussels. Le Monde says the talks are still in a preparatory stage, and nothing has been decided yet.
Berlin is in particular looking towards a massive increase in government savings in Greece, beyond what prime minister Papandreou has already promised. But the paper also quotes sources as saying that a bailout is now very likely. One big difficulty is to resolve the problem how to circumvent the No Bailout clause in the Maastricht Treaty.
Barroso and Zapatero also came out yesterday saying that the euro area implies joint responsibility among their members and that no one would be left alone. There is still official denials, but talks seem to focus on several options: bilateral credits, which would mean that Germany as the large euro area membes pay the largest share; another option would be an early release of funds to Greece under the cohesion fund or through the involvement of the European Investment Bank; there seems to be agreement among member states that whatever happens, the IMF should not take the lead in a rescue.
During yesterday, the financial situation of Greece deteriorated further. Greek credit default swaps yesterday breached 400 basis points, as the country’s is now headed towards junk bond status. The markets also began to turn on Portugal, a country that is consolidating even less than Greece, a situation that reaffirms’ the fiscal conservatives’ view that once you open the floodgates of a bailout to Greece, Portugal and others will be next in line.
The FT has a report that Portugal finance minister attacked the credit rating agencies.
The euro meanwhile fell below $1.40, its lowest level against the dollar for six months.
 
Daniel Gros on PIGS
Writing in the FT, Daniel Gros argues that Greece and Portugal are in a much worse position than Spain because of their lack of domestic savings, 7.2% for Greece, and 10.2% for Portugal, while the average of the euro area is 20%, with Ireland and Spain close to that average. “This implies that Spain and Ireland will be able to finance government deficits from their national savings now that housing investment has crashed and no longer absorbs such a large chunk of savings. Greece and Portugal are unique in their reliance on foreign capital to such a large extent.”
He also makes the point that the stability pact only focus on government saving, not on the private sector, which has to be taken into account as well.

Fonte: EuroIntelligence, em 29 de Janeiro