Markets See New Greece Hope

Wall Street Journal
July 19, 2011

Investors remained on edge Tuesday as euro-zone officials attempted to prepare an agreement on private-sector involvement in a new funding package for Greece ahead of a meeting of the currency bloc's leaders Thursday.

The markets took heart from comments by European Central Bank Governing Council member Ewald Nowotny that appeared to open the door for a "selective default" by Greece, potentially removing a stumbling block that has marred discussions on a second aid deal for the country and put the euro region's fate in jeopardy.

Italian and Spanish bonds rose Tuesday after Mr. Nowotny hinted that the ECB may be able to accept some ideas to solve the Greek debt crisis that could include "selective default."

"There are some proposals that deal with a very short-lived default situation that would not really have major negative consequences," Mr. Nowotny told CNBC in a recorded interview broadcast Tuesday. "But these are really highly technical aspects."

However, Mr. Nowotny said a solution should "in no way" lead to an outright default by Greece, "because that really would have very grave consequences."

More