Euro Has Worst Week Since January
The euro had its worst week last week since January as investors remained concerned that no EU solution will be found for the Greece’s debt crisis. A report last Thursday said that the Athens government sees limited prospects for EU assistance causing concerns about the nation’s ability to service its massive debts. Greek Prime Minister George Papandreou has said that Greece may have to turn to the International Monetary Fund is no EU lending mechanism is established at next week’s EU summit. Many believe such a move would threaten the credibility of the euro. European Central Bank President Jean-Claude Trichet and many other EU officials have ruled out IMF aid to Greece but opposition to EU assistance is widespread in Germany and the Netherlands. Andrew Wilkinson of Interactive Brokers Group stated, “From the perspective of the investor, events continue to be frustratingly opaque. Repeated meetings result in no clear statement other than a commitment that now appears far less solid than before.”
Borrowing Costs High For Greece
Currently Greece is paying twice as much as other EU nations in borrowing costs making it difficult for Greece to refinance its massive debts. Prime Minister Papandreou stated, “Let everyone be certain, Greece will not default, we will not let it default. Greece has a strong government and courageous people. We are returning to the road of economic stability.” Papandreou has also called for regulation to curb speculation which he says have driven yield spreads on Greek government bonds over EU benchmarks. Papandreou said, “We are building alliances in and outside the EU. We are convincing our partners for changes to set limits to speculators. We are not asking anyone to pay our debts. We will do this by ourselves. We want to be able to implement all that we have announced and enacted calmly.”
German Opposition
German Finance Minister Wolfgang Schaeuble said that only the most ‘extreme circumstances’ could justify a bailout by EU members. Schaeuble told German newspaper Bild am Sonntag that currently no joint EU mechanism is in place for assistance to EU members. Schaeuble stated, “There is no joint instrument for EU help. So only in the most extreme case could bilaterally coordinated, voluntary help come into question. But Greece has said itself it does not need this.”The Athens government has warned that it may not be able to implement promised deficit cuts if borrowing costs remained high. Schaeuble said Greece has access to aid from the IMF. Investors will be watching the EU summit closely.
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