Wednesday, September 14, 2011

Europe Update: German and France back Greece and much more

by Bill McBride on 9/14/2011 06:30:00 PM

The first of two key meetings this week was held earlier today via video conference with German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek prime minister George Papandreou. On Friday, the European finance ministers will meet with Timothy Geithner making an appearance.

From the WSJ: Greece's Future Is With Euro Zone, Say Merkel and Sarkozy

German Chancellor Angela Merkel and French President Nicolas Sarkozy are convinced that Greece's future is within the euro zone, Mrs. Merkel's spokesman said after the two leaders held a three-way conference call with Greek Prime Minister George Papandreou.

But Mrs. Merkel and Mr. Sarkozy also stressed during the call the need for Greece to put into practice in a strict and effective way the already-agreed measures of its austerity program under a current bailout package, the spokesman, Steffen Seibert, said.
From the NY Times: Germany and France Back Greece on Austerity Effort
The Greek prime minister vowed to abide by austere cuts in the struggling country’s budget, and the leaders of France and Germany promised to support Greece as a central part of the euro zone, the three officials said Wednesday in a statement after a joint conference call.
...
Together, they are pushing all euro zone states to ratify as soon as possible decisions made on July 21, which would expand the European Financial Stability Facility and allow it increased flexibility to protect Greece and other heavily indebted members ...
From the Irish Times: Commission prepares plans to introduce euro area bonds
European Commission president José Manuel Barroso said he is close to proposing options on joint euro-area bond sales, putting officials in Brussels on a collision course with Germany.

Speaking this morning, Mr Barroso said the commission is preparing options for the introduction of eurobonds. He called for much closer political integration and said the EU needed a "new federalist moment" to confront the most serious challenge for the union in a generation.
From Reuters: EU warned of credit crunch threat, French banks hit (ht mp)
In a report prepared for ministers meeting in Poland on Friday and Saturday, senior EU officials said the 17-nation currency area faces a "risk of a vicious circle between sovereign debt, bank funding and negative growth."

"While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic," the influential Economic and Financial Committee said.

"A further reinforcement of bank resources is advisable," ministers were told ...
From the Economic Times: Dutch Finance Minister says has not given up on Greece (ht ghostfaceinvestah)
The Dutch government has not given up on the rescue of Greece and is determined to do everything possible to save the euro zone, the Dutch finance minister told members of parliament on Wednesday.

"To be clear ... this Cabinet has the firm will to do everything possible to save the euro or the euro zone," Finance Minister Jan Kees de Jager told members of parliament.

He strongly denied Dutch media reports that the government expected Greece to default ...
From Bloomberg: Credit Agricole Debt Ratings Cut by Moody’s Along With Societe Generale’s

And from Bloomberg: ECB Will Lend Dollars to Two Euro-Region Banks as Market Funding Tightens
The European Central Bank said it will lend dollars to two euro-area banks tomorrow, a sign they are finding it difficult to borrow the U.S. currency in markets.

The ECB allotted $575 million in a regular seven-day liquidity-providing operation at a fixed rate of 1.1 percent. It’s the first time since Aug. 17 that a lender requested dollars from the ECB.
The Greek 2 year yield declined slightly to 74.5%. The Greek 1 year yield is at 142%.

The Portuguese 2 year yield is up to 16.1% and the Irish 2 year yield is at 9.5%.

Here are the links for bond yields for several countries (source: Bloomberg):
Greece2 Year5 Year10 Year
Portugal2 Year5 Year10 Year
Ireland2 Year5 Year10 Year
Spain2 Year5 Year10 Year
Italy2 Year5 Year10 Year
Belgium2 Year5 Year10 Year
France2 Year5 Year10 Year
Germany2 Year5 Year10 Year