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Posts Tagged ‘Greek Bailout’

By John Carney
Thursday, 16 Jun 2011
Senior Editor, CNBC.com

Some of the safest, plain-vanilla investment accounts in the U.S. could be challenged if Greece defaults on its sovereign debt.

Forty-four percent of mutual fund assets in the U.S. are invested in the short-term debt of European banks, according to a report from Fitch.

A separate report from Moody’s noted that 55 percent of those holdings are in the commercial paper of French banks, such as Societe Generale, BNP Paribas [BNP-FR 51.11 --- UNCH ] and Credit Agricole. French banks are some of biggest creditors to Greece, with over $53 billion in outstanding loans to the Greek government and private sector.

While fund managers have had plenty of warning of the potential of a default in Greece, many would likely still be caught off guard. Many fund managers assume that a bailout will prevent a default by Greece.

The bankruptcy of Lehman Brothers similarly caught money-market fund managers off guard, famously causing the Reserve Fund to “break the buck.”

The debt of these French banks is still very highly rated and Moody’s says the risk of default on the short-term debt is very low. But the high ratings assume that the probability of a default by Greece is very low.

If Greece defaults, it is possible that the market value of the commercial paper of French banks could plummet and the ratings could be downgraded. Money-market funds would likely refuse to fund new issuances of the short term debt, creating a liquidity problem for the French banks.

Other European banks would likely face pressure as investors tried to measure their exposure to Greece and those over-exposed to Greece.

One thing that may help money-market funds weather the Greece storm better than the Lehman hurricane is that they now have an implicit US government backing. While no longer directly insured by the FDIC, many believe that in a crisis the government would once again step in to insure the accounts, just as it did in 2008.

Read the entire article HERE.

by Ian Traynor and Helena Smith
May 10, 2011
The Sydney Morning Herald

THE euro zone’s first bailout of a debt-laden member country is failing and needs to be renegotiated just a year after the €110 billion ($147 billion) rescue package was agreed for Greece.

After secret talks in Luxembourg on Friday between Athens and key EU players, it emerged that Greece will not be able to meet the terms of last year’s rescue and is hoping to ask the euro zone for more.

As Britain made clear it did not want to offer any more support for Greece as part of an EU package or a bilateral loan, investors remained unconvinced of the ability of Athens to sustain its €340 billion debt.

Signalling that his government would struggle to finance itself on the bond markets by next year – which was part of the deal struck with the euro zone and the IMF – the Greek Finance Minister, George Papaconstantinou, said: ”We will either go out to markets or use the recent decision by the EU that allows the European fund to buy Greek bonds. The markets continue to disbelieve in our country.”

His trip to Luxembourg had been kept so quiet in Athens that only the Prime Minister, George Papandreou, knew about the discussions, which were led by Jean-Claude Juncker, the Luxembourg Prime Minister and president of the group uniting the 17 countries using the single currency. Mr Juncker confirmed that the Greek bailout would need to be renegotiated amid alarmist reports that the country was contemplating reintroducing the drachma.

After the talks – attended by the finance ministers of Germany, France, Italy and Spain as well as Olli Rehn, European monetary affairs commissioner – Mr Juncker said the Greek package needed a ”readjustment”. Haggling over a new Greek deal is set to dominate the weeks ahead.

EU finance ministers will debate the topic next week and the Germans, in particular, are digging in their heels.

The British Chancellor of the Exchequer, George Osborne, made clear Britain felt it had done enough to support Greece. He told the BBC: ”We certainly don’t want to be part of any bailout of Greece. There are some very difficult questions that Greece has to address now because the whole assumption when the euro zone put together a rescue package last year was that Greece could come back into the market next year and borrow.

”The market is quite sceptical about that happening, and I suspect a lot of my time over the next few weeks is going to be with other European finance ministers and others talking about how we try and help the Greeks.”

Britain provided a bilateral loan to Ireland last year, but Mr Osborne said: ”I can’t see us ever writing a cheque directly from the British taxpayer to the Greeks or the Portuguese or indeed anyone else. Ireland was a special case.”

There was tension in Ireland after the central bank governor was accused of contributing to Ireland’s financial crisis by woefully ”miscalculating” bank losses. The attack on Patrick Honohan came amid reports that the IMF, European Union and European Central Bank troika had agreed to a behind-the-scenes interest rate cut in Ireland’s €85 billion bailout.

Read the entire article HERE.