Financial Times
June 17, 2011
Germany has backed down from its confrontation with the European Central Bank over bondholders’ participation in a new Greek rescue programme, throwing its weight behind a voluntary rollover of Greek debt rather than a full-scale debt exchange with extended maturities.
The deal, announced in Berlin by Angela Merkel, German chancellor, and French president Nicolas Sarkozy on Friday, lifted global markets on hopes that European leaders will be able to reach early agreement on a financial rescue package.
US stocks broke a six-week losing streak, the euro appreciated against the dollar and US Treasuries – a safe haven beneficiary from the recent bout of nervousness over Greece – edged down. Greek two-year bonds rallied for the first time in nine days. Portuguese and Irish debt yields also fell.
The grim mood in Athens also lifted as George Papandreou, the Greek prime minister, announced a new cabinet dominated by tough socialist personalities, including Evangelos Venizelos, a populist politician and former political rival, as finance minister.
His move is an attempt to win parliamentary approval by the end of this month for a four-year package of new austerity measures, including a radical privatisation plan agreed with the European Union and the International Monetary Fund as the precondition for a further rescue programme.
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