June 18, 2011
European finance ministers meet tomorrow to hammer out a new Greek bailout package watertight enough to avoid triggering a default that German Chancellor Angela Merkel said would be uncontrollable.
Officials must figure out how to design a plan that will encourage investors to roll over expiring Greek debt after Merkel yesterday ended a standoff with the European Central Bank over restructuring the country’s debt load. Talks will start at 6 p.m. in Luxembourg and continue the next day. EU leaders meet on June 23-24.
“Now comes the tricky part,” said Tullia Bucco, an economist at Unicredit Global Research in Milan. “This proposal is fraught with difficulties in identifying ways to provide banks with incentives to rollover their bonds. Any deterioration in bond conditions via new coupons below market rates would be seen by rating agencies as the trigger of a credit event.”
Stocks, bonds and the euro jumped yesterday after Merkel ended a feud with the ECB that roiled markets. Highlighting the risks still facing the euro region, Greek Prime Minister George Papandreou must win a parliamentary confidence vote next week that could delay Greece’s next round of austerity and Moody’s Investors Service said late yesterday it may cut its Aa2 rating on Italy’s sovereign debt.
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