Bloomberg
July 20, 2011
Greece’s sovereign-debt crisis risks contaminating the rest of the euro region even if officials avert a default, the International Monetary Fund said.
Both the European Commission and the European Central Bank “considered that a sovereign default or a credit event would likely trigger contagion to the core euro-area economies with severe economic consequences,” according to an IMF staff report on the region’s economy released yesterday. “Staff however also saw serious risks of contagion, even under a strategy which tries to avoid default or credit events.”
Government chiefs are meeting on July 21 for the second time in a month as they aim to break a deadlock over a new Greek rescue that has spooked investors. While German Chancellor Angela Merkel said yesterday the crisis can’t be resolved in “one spectacular step,” Greek counterpart George Papandreou said in an interview that the summit could be a “make-or-break moment” for the euro region.
“Despite adjustment efforts and support from euro-area member states and the ECB, market participants remain unconvinced that a sustainable solution is at hand,” the Washington-based fund said.
Spanish and Italian 10-year bonds, which slumped earlier this week, pared losses yesterday amid speculation European leaders will move closer to resolving the crisis. The yield on 10-year Italian bonds reached 6.03 percent this week, the highest since 1997, while similar-maturity Spanish yields touched a euro-era record of 6.37 percent.
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Read the IMF Report
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