Investors fear Greek, Spanish meltdowns
Worries that Greece may soon be bankrupt and Spain will need a full-scale bailout send the euro sliding and Spanish bond yields soaring to a euro-record high of 7.52 per cent.
It is becoming obvious that Athens cannot cut Greek debt to 120 per cent of annual growth by 2020 and the International Monetary Fund is not prepared to provide up to 50bn euros in additional rescue funds if it misses its targets, Germany’s Der Spiegel magazine reported today, citing unnamed EU officials.
“If Greece doesn’t fulfil those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told broadcaster ARD on Sunday. He was “very sceptical” Greece could be rescued but said that the prospect of Greece’s exit from monetary union “has long ago lost its terror”.
The two German reports fuelled Greek bankruptcy speculation on the eve of a visit to Athens by the “troika” of the IMF, EU Commission and European Central Bank.
They also helped push the euro below its lifetime average against the US dollar on Monday. Spain’s 10-year note yields jumped above 7.5 per cent – considered an unsustainably high rate.
Temporary reprieve
Greece is due to pay back 3.8bn euros to the ECB by 20 August, leading to reports that the ECB may step in temporarily to help Greece. That would allow euro-area leaders to prop up Greece’s finances until the inception of the European Stability Mechanism – reportedly on hold while Germany awaits a 12 September court ruling on the fund’s constitutionality.
The IMF is expected to make a decision on its next disbursement by late August at the earliest.
Greek Prime Minister Antonis Samaras yesterday compared his country’s economy after five years of contraction to the Great Depression of the 1930s.
Spanish woes
The news coincided with new market fears that six Spanish regions would follow Valencia and seek financial help from Madrid. Murcia, the Canary Islands, Catalonia, the Balearic Islands, Castilla-La-Mancha, and Andalusia were expected to ask the central government for aid. The regions are facing about 15 bn euros of debt redemptions in the second half of this year.
Firefighters and police officers in Valencia protested against austerity measures on Monday with one firefighter brandishing a sign reading: “We rescue people, not banks.” (See photo, above left.)
The Bank of Spain said the country’s economy contracted by 0.4 per cent on a quarterly basis in the three months from April to June.
The EU-IMF have already promised 100bn euros to bail out Spain’s banks, but Spain’s Economy Minister Luis de Guindos ruled out on Monday that the country could need a full-scale bailout.
Asked about this possibility on the sidelines of a congress hearing about the European aid to ailing Spanish lenders, De Guindos said: “Absolutely not.”
German Finance Minister Worlfgang Schaeuble said he expected Spain’s economy would bounce back, Germany’s Bild newspaper reported on Monday.