Jen-Claude Trichet insists Greek debt will not be
restructured. However, doubts persists in Germany as
Finance Minister Wolfgang Schaeuble Warns on
warned that deficit-scarred Greece might need more financial relief, reviving
European debt concerns just as Portugal seeks an 80 billion-euro ($116
billion) aid package.
German Finance Minister Wolfgang Schaeuble said it
is unclear whether Greece, the root of the year-old debt crisis, will need
another cut in its bailout rate or a further extension of repayment terms to
return to fiscal health.
Germany’s doubts conflicted with official assertions that Greece is on
the right track, defying efforts to put an end to the crisis that threatened
the survival of the euro, postwar Europe’s signature economic
achievement. Last week’s increase in European Central Bank interest
rates for the first time in almost three years throws a further cloud over
Bond investors are charging Greece 938 basis points more than Germany to
borrow for 10 years. The spread for Ireland, the second country to obtain
aid, is 577 basis points. Portugal, aiming for a relief plan by mid-May, pays
an extra 518 basis points.
Officials including ECB President Jean-Claude Trichet
dismissed suggestions that Greece might not be able to repay its debt, saying
budget cuts, tax increases and 50 billion euros in asset
sales will bandage its economy.
“We do exclude restructuring,” European Union Economic and
Monetary Commissioner Olli Rehn said. “We
have a solid plan. It is based on a very careful analysis of debt
The Greek government predicts that the clampdown on spending will shrink the
economy by 3 percent in 2011, the third straight contraction. EU forecasts
show debt peaking at 159.4 percent of gross domestic product in 2012, the
year Greece is supposed to return to the markets for financing.
Greece might need more time to pay back debts to bondholders, in a
“rescheduling” that would not be classified as a default,
Organization for Economic Cooperation and Development Secretary-General Angel
“The adjustment program of a country like Greece is a very painful
program, and if a rescheduling of the payments is something which is required
in order to make those difficult policies work, then that is what should be
done,” Gurria told Bloomberg Television.
Plan" in Question
Trichet may have a "solid plan" but the
market sure does not think much of it.
Greek 10-Year Yield 12.859%
Portuguese 10-Year Yield 8.663%
Irish 10-Year Yield 9.24%
German 10-Year Yield 3.481%
Iceland's Common Sense Stance
The market does not seem to believe Jean-Claude Trichet
and neither do I.
Moreover, if governments in Greece, Ireland, and Portugal were to put default
to a vote, I am quite certain their voters would react as they did in
For details please see Icelandic Voters Reject "Icesave"
Again, Effectively Telling UK and Netherlands Banks "Go to Hell";
Iceland's Common Sense Stance
voters want no part of "Icesave". Even
the name "IceSave" is preposterous.
Iceland was save by the fact voters rejected "Icesave".
Icelanders would have been debt-slaves for decades had they accepted the
How many times do citizens have to say no? Hopefully voters give Prime
Minister Johanna Sigurdardottir a well deserved
boot in the next election.
Moreover, Iceland needs to rethink why it would want to be part of the Eurozone in the first place. I suggest Iceland put the
Euro to another vote.
Finally, I am really disappointed in the wimps in Ireland. They should put
Ireland's "reverse bailout" to a vote as well. I can guarantee the
results in advance.
Banks that make stupid loans should suffer for them, not taxpayers. So far,
Iceland is the only country that has taken this common-sense stance.
Trichet has his plan.
However, the market seems to have a decidedly different plan.
The pertinent Eurozone issue however, is when the
citizens of Greece, Ireland, Portugal, and Spain get fed up with austerity
measures and bailouts of German, French, and UK banks, then demand sovereign
debt haircuts or restructuring.
When that happens, and it will (timing is unknown), the arrogant "we do
exclude restructuring" statement of Trichet
will be meaningless.
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Mish's Global Economic Trend Analysis
Thoughts on the great inflation/deflation/stagflation
debate as well as discussions on gold, silver, currencies, interest rates,
and policy decisions that affect the global markets.